Don’t blame private sector

Vaccine distribution lags are because of state controls

At a conference of the health secretaries of 15 major states, the Union health secretary laid part of the blame for India’s slow vaccination drive on the private sector, saying that the rate of vaccinations in private centres was “slow” and a “cause for serious worry”. The official complained that in some cases, full payment in advance for the amount for offtake was not made, or conversely in some states that the amount paid for was not taken out of the system in full. These are serious complaints. But the government is hardly taking the right lessons from them. If the private sector is not performing up to par, then the fault lies with the burdensome command and control mechanism set up by the Union government. It is pointless to lecture states or private clinics on what they must do, instead of considering how systems must be reformed in order to ensure the private sector works at full efficiency. Without the private sector assisting in the delivery of vaccines, there is little chance that a significant proportion of Indians will be vaccinated by the end of this year, particularly in high-risk metropolitan clusters. Thus, the government must take a more co-operative approach, rather than trying to occupy the commanding heights of a statist distribution system.

The central problem is that the vaccine manufacturers, especially the Serum Institute of India, are unwilling to make direct contracts with anyone except large hospital chains. Thus, the rest of the private sector is forced to buy from the government. Here they run into the bureaucracy associated with government procurement, and various demands for advance payments. The smaller hospitals and clinics may place an order for a particular month, and face delayed delivery — but if they want to place another order for the next month, then they still have to shell out another advance payment. This means that for smaller hospitals a significant amount of working capital gets tied up in pre-paying the government for doses that have not yet arrived. It is unclear why the government feels it is in the national interest to refuse to extend credit, especially when it is its own management of vaccine supply that is causing problematic delays.

The obvious answer is to allow the market to function properly. There needs to be a hub and spoke network in place for vaccine supply, if necessary, including creditworthy wholesale purchasers that can absorb risk and that the manufacturers will be willing to deal with. This would obviously require the service charges to end users to be freed up somewhat from the current, far too restrictive sum of ~150. The purpose of including the private sector in the vaccine pipeline is to allow it to dedicate additional resources to distribution. If the return they receive for dedicating these resources is so low, then they will obviously not make any effort. The government must reverse course and allow the private sector to operate with proper price incentives. If anything, this mismanagement is emblematic of how the government has gone wrong with the broader economy. It expects the private sector to flourish under a benevolent, patriarchal, controlling state. But that is not how the private sector works. Hopefully, the government will learn the right lessons from its failure to induce proper investment in the vaccine supply chain.