In today's Finshots we talk about the new decentralization strategy and compare it to the centralized vaccination program that has let us down so badly


The Story

In his popular book, Naked Economics, Charles Wheelan writes about an amusing encounter.

There is an old Cold War story about a Soviet official who visits an American pharmacy. The brightly lit aisles are lined with thousands of remedies for every problem from bad breath to toe fungus. “Very impressive,” he says. “But how can you make sure that every store stocks all of these items?”

The presumption being that stocking is a by-product of human intervention at a centralized level. That the program must have a planning authority allocating essential medicine to pharmacies all across the country. But as Charles Wheelan points out —

The anecdote is interesting because it betrays a total lack of understanding of how a market economy works. In America, there is no central authority that tells stores what items to stock, as there was in the Soviet Union. Stores sell the products that people want to buy, and, in turn, companies produce items that stores want to stock. The Soviet economy failed in large part because government bureaucrats directed everything, from the number of bars of soap produced by a factory in Irktusk to the number of university students studying electrical engineering in Moscow. In the end, the task proved overwhelming.

This succinctly summarizes the current predicament of the Indian Government. The original plan was to allocate vaccines using a centralized authority. The idea was to buy vaccines from two Indian manufacturers and allocate them on a priority basis. However, as this article from Wire Science points out 

The government has behaved like a bully with its indigenous manufacturers. It beat them down to a price below the $3 tag that COVAX had determined as the minimum viable price for COVID-19 vaccines. It sanctioned a price of only Rs 150 per dose to SII and Rs 200 to Bharat Biotech, and released orders for small quantities to them just five days before the launch of the vaccination campaign, on January 16.

For comparison, the center has ordered 31 crore jabs and administered 13 crore jabs since Jan 16. We still need 120 crore jabs to vaccinate 60 crore more people. But perhaps the more egregious miscalculation was this. The government did not support manufacturers with funds or additional grants at a time when they had the wherewithal to do so. And as the earlier article points out — "The manufacturers had to stockpile at their own risk."

Meaning the central authority responsible for the vaccination program failed to do the two things it was supposed to do.

  1. Incentivize production
  2. Procure in large quantities

The problem once again seems to stem from the fact that the central authority couldn’t adequately gauge demand and allocate resources efficiently. By April, it had already become evident that states were running out of vaccines. And when the government decided to open up vaccination for those between the ages of 18 and 45, they knew their tightly controlled approach would have condemned them to oblivion. A change of strategy was essential. You had to let the laws of demand and supply intervene in a bid to optimize outcomes.

So after multiple delays, inept execution, and a myopic approach to vaccination, the government finally allocated about Rs 4500 crores to SII and Bharat Biotech while simultaneously opening up the vaccination program.

According to the government’s official statement, vaccine manufacturers will now be able to supply 50% of their stock to the central government while being able to sell the rest to state governments and the open market at a predetermined price.

And sure the decentralized approach will likely improve vaccination coverage. But it isn’t a silver bullet by any stretch of the imagination.

For instance, how will this race to procure vaccines play out when states are pitted against fellow states? More importantly, how will states fight it out against the private market? Will richer states with greater resources edge out others or will the distribution be more equitable? In the long-run, demand and supply will converge, no doubt. The decentralized approach will likely be more effective if you could only wait a few months. But at a time when the health infrastructure is falling apart at the seams, we have absolutely no idea if this new procurement strategy will be any better than the centralized plan we had earlier. It’s a travesty because the government could have avoided all of this if it had simply exercised caution. Instead, we are here today praying that the new distribution strategy somehow affords better vaccination coverage to the good people of India.

Truly a tragedy.

Until next time…

You can share this article on WhatsApp, LinkedIn and Twitter