Vaccine Spending Won’t Put Strain On States’ Finances; They May Have To Spend Only Rs 20k Cr In All (Less Than Goa’s Budget)

Vaccine Spending Won’t Put Strain On States’ Finances; They May Have To Spend Only Rs 20k Cr In All (Less Than Goa’s Budget)From left to right, Chief Ministers of Chhattisgarh, Maharashtra, West Bengal, Kerala and Odisha. (Illustration: Swarajya Magazine)
  • The total expenditure all the states are looking would be somewhere between Rs 10-20,000 crore. Even Goa’s annual budget is higher than that.

On 19 April, the Union government liberalised its vaccination policy which would come into force from 1 May. In the third phase, vaccine manufacturers are given more flexibility in deciding price of their doses, half of the supplies will go to the Centre while other half to states and open market and everyone above 18 years of age will now be eligible to get a jab.

The Modi government has faced a three-pronged attack on the new vaccine policy so far:

First, the centre is being accused of being unfair to poor by not giving vaccine to everyone for free and allowing vaccines to be sold at Rs 600 in the open market.

Of course, those who are making these allegations are forgetting the fact that 50 per cent supply is going to the Centre and the rest will be divided up between States and the private hospitals.

It means very little quantity will go to open market and at least 50 per cent of the available vaccines from the Centre will continue to be available for free.

If the States also decide to subsidise, then 70-80 per cent of the total vaccine supply will be given for free in India. The rest of the people are middle class and rich folks who can easily afford to pay for it. One wonders if the Opposition wants to also champion subsidising the rich just to follow the ‘opposition dharma’ of criticising anything the government does.

Second, the freedom given to vaccine manufacturers to decide prices for vaccines is being criticised.

It’s not difficult to understand the rationale behind the move. The current price of Rs 150 per dose that the Centre was paying to Serum wasn’t sustainable for it had to give half of the money as royalty to AstraZeneca.

Still, Adar Poonawalla must be lauded for taking a huge risk in stocking up tens of millions of doses before they were approved and then selling more than 12 crore doses at such cheap rates.

But now, the need is to rapidly ramp up production to meet the huge upcoming demand for vaccines in the 18-45 age group.

It’s unwise to expect manufacturers to scale up production while making losses. The only way was to provide financial support and have a liberalised pricing in place.

Thanks to the efforts of the Centre in the past week, SII should be able to increase its production from 6.5-7 crore doses per month to 10 crore doses in May and then to 12 crore doses from June. Similarly, Bharat Biotech will increase its production from 1 crore doses per month currently to 6-7 crore doses by July and to 10 crore doses per month by September.

This wouldn’t have been possible without the change in pricing policy by the government.

Third, the government’s opposition in every sphere (politics, media, academia, cinema, etc) spread misinformation that Serum will charge state governments Rs 400 per dose and Rs 150 from the Centre. The propaganda around this continued until Poonawalla himself clarified that Rs 150 price tag was only for initial supplies and both the Centre and States would be charged Rs 400 from 1 May.

Even if we take the scenario where Serum charged the Centre a lower price of Rs 150, who would’ve benefited? The vaccines being procured by Centre are going to the States anyway. This is a classic case of mindless opposition which does more harm than good.

The fourth charge against the Centre is that it has left States to their own devices in procuring vaccines and paying for them. With other criticisms falling flat, the opposition-ruled States are doubling down on this aspect.

Ironically, when the Centre was controlling all the vaccine supplies, they were complaining about lack of freedom. Now, they are cribbing about the freedom granted by the Centre.

“Central government has abdicated its responsibility of ensuring universal vaccination. The new policy will create serious strain on state finances, chaos in vaccine procurement, escalation of prices, and exclusion of the poor. Net result would be prolongation of the calamity,” Kerala’s Finance Minister Thomas Issac tweeted.

The crux of the matter is that while they want the freedom to procure vaccines, they want the Centre to pick up the tab. Basically, all the rights but none of the responsibility. Many are complaining about their inability to pay. Let’s see if this criticism is justified.

Total India population above 18 years of age is 80 crore as per 2011 census. To achieve herd immunity, let’s say we need to vaccinate 65 crore people which translates to over 80 per cent of the eligible population.

That means, we will need 130 crore doses. The supply won’t be a problem as we estimated here and India should be able to administer 130 crore doses by end of this year.

Before 1 May, India is positioned to reach 16 crore vaccinations. That was all taken care by the Centre. It means that now, 114 crore more jabs are needed to be given.

Coming to cost, for the sake of simplicity, let’s say every dose is priced at Rs 400. The total budget would come around to Rs 45,600 crore. Given that half the supply is being procured and paid for by the Centre, it means States would need to pay Rs 22,800 crore.

Of course, this assumes an ideal scenario where the States would procure the whole 50 percent supply meant for them and the private sector. That won’t be the case.

If private sector takes 10 per cent share, cost for states would fall to Rs 20,520 crore. At 30 per cent share, it would come down to 15,960 crore and at 50-50 per cent division, their budget will fall to just Rs 11,400 crore.

Let’s take examples of some individual states now for more clarity.

Maharashtra is the worst hit. One can assume that it will keep getting more vaccines from the Centre. Around nine crore of the state’s population is above 18.

To achieve herd immunity (at 80 per cent coverage), it will need around 14.2 crore doses. 1.3 crore doses have been provided so far and at current pace of vaccination of 2.5-3 lakh doses, this is set to reach 1.7 crore by end of this month.

That leaves us with a target of getting 12.5 crore more jabs. If Maharashtra procures half i.e. 6.25 crore (worst case) doses, it will have to pay Rs 2,500 crore only at Rs 400 per dose.

To put this in perspective, total budgeted expenditure for the current fiscal in the state is Rs 4,84,091 crore. The budget for vaccine is thus merely 0.51 per cent of the total budget. With private sector pitching in, it would be much lower.

Let’s take an example of a small state like Haryana. To give jabs to 80 per cent of its 18+ population, it will need additional 2.2 crore doses from 1 May onwards. At Rs 400 per dose, total expenditure is Rs 900. With half coming from the Centre, it won’t have to spend even Rs 500 crore which is similar to its budget of age old pension.

The same is true for all states in the country. In fact, rich states like Maharashtra and Gujarat which are most hit by Covid-19 can even partner with foreign manufacturers and afford to get millions of vaccines in short time without putting a strain on the local supplies.

This would still be a fraction of their total annual expenditure. The economic fruits of opening up fully post vaccination are too big to be ignored for lack of funds.

The total expenditure all the states are looking would be somewhere between Rs 10-20,000 crore. Even Goa’s annual budget is higher than that.

Arihant Pawariya is Senior Editor, Swarajya.

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