Vaccinations: Quantity and Pricing

I and Murali Neelakantan have a piece out today in Scroll about the economics of the vaccination programme that is due to start in May ’21. Feedback most welcome – in particular, points we may have missed. Please, I’d love to hear your thoughts.

But it isn’t enough to talk about how current policy isn’t the best way of going about it. You also need to be thinking about what is the best (or at the very least, the least bad) way of going about it.

So, well, ok, let’s assume for the moment that the states will cough up the amount, one way or the other. But which way (or the other)?

Here are some ideas:

His back of the envelope calculations peg the tab for West Bengal at Rs. 8000 crores (do read the thread for his assumptions). As he says, that’s 2.6% of the state’s budgeted expenditure, and given the large positive externalities spillovers, subsidization wouldn’t be a bad idea.1

You could do similar exercises for each state – but for the moment, let’s just assume that it’s around 2.5% of each state’s budgeted expenditure.2.

What might that do to state finances?

The covid-19 pandemic disrupted the finances of India’s states in the ongoing fiscal year. Expense needs grew and public debt swelled, while revenues shrank. While most states could return to pre-pandemic output levels next year, their fiscal indicators are likely to remain strained for much longer, projections by the 15th Finance Commission (15-FC) show.
States’ combined fiscal deficit is likely to have risen to 4.5% of their total gross state domestic product (GSDP) in 2020-21, from 2.5% in 2018-19, the panel said. The commission’s fiscal roadmap puts the figure at 3% by 2025-26. Debts by that year could still be 32.5% of the total GSDP, against 27.3% in FY20, the estimates show.

https://www.livemint.com/news/world/states-may-not-return-to-pre-covid-debt-levels-by-fy26-finance-comm-roadmap-11612765562078.html

The kicker? That article is from the 8th of February, 2021. Things have, um, changed since then. The “while most states could return to pre-pandemic output levels next year” bit, in particular, now looks a bit iffy.


Next, Arvind Chari ran the numbers, and he comes up with a number of INR 50,000 crores for free universal vaccination:

He also advocates direct monetizing of state government vaccination programs via the RBI:

Niranjan Rajadhakshya refers us to an article in which Maitreesh Ghatak and Tarun Jain recommend the issuance of public health bonds (not that this is from 2020):

Issuing bonds for 30 years’ duration matches the decades-long returns from investments in healthcare, and is about the time taken for a young child who benefits from health investments to become an active taxpaying adult. Very short-duration bonds mean that the repayment schedule will not match the boosts in tax revenue.

https://m.economictimes.com/news/economy/policy/view-state-governments-can-be-better-armed-financially-to-fight-covid-19-by-issuing-public-health-bonds/amp_articleshow/76202188.cms?__twitter_impression=true

And they thankfully answer the obvious question in the very next paragraph:

Arguably, GoI could raise the same money at lower cost and then transfer to states. But, recently, GoI held up disbursing states’ share of GST collections at precisely the point that states needed those funds the most. Market borrowing limits by states have been raised subject to administrative conditions, and GoI could possibly impose conditions for health funds as well. Finally, borrowing directly allows each state government to prioritise its unique healthcare expenditure needs.

https://m.economictimes.com/news/economy/policy/view-state-governments-can-be-better-armed-financially-to-fight-covid-19-by-issuing-public-health-bonds/amp_articleshow/76202188.cms?__twitter_impression=true

Note that the last sentence in the second excerpt doesn’t apply in today’s context.


What else could be done? I’ll try and update this post with articles as I read them – feel free to keep sharing them we go along.

  1. Truer, if anything, at the central level, but let’s not go there right now[]
  2. By the way, any GIPE student reading this: I have a fun project just waiting to be launched[]

Corporate panchayats, feni, finance and fiscal deficits

Five articles that I enjoyed reading this week, and figured you might as well.

  1. “Nearly 80% of the village’s estimated 36,000 residents enrolled as members in the movement, which, at that point, was a non-governmental entity. They were all given an electronic card based on economic status. Several benefits, from free medical treatment to discounted groceries, were delivered based on this categorization, undertaken solely based on the company’s internal surveys.In 2015, probably for the first time, a corporate house directly entered the electoral arena in India. It was Kitex. Despite a unified opposition, Twenty20’s candidates won 17 of the 19 gram panchayat seats, cornering over 70% of the polled votes.”
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    A corporate panchayat in Kerla. This was fascinating on so many levels!
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  2. “Vaz begins the tour with an introduction to feni and its history. Considered Goa’s greatest spirit, this colourless clear liquid is said to date back centuries; some believe coconut feni predates the Portuguese capture of Goa. A potent drink with a strong aroma, it is made with coconut or cashew. The cashew feni possesses a Geographical Indication registration since 2009 as a speciality alcoholic beverage from Goa.”
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    On feni tourism.
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  3. “Fiscal Deficit represents Net Borrowings by the Government in a year. Difference between the Debt and Liabilities at the beginning and at the end of a Financial Year also represents Net Borrowings during the year. Fiscal Deficit should therefore equal change in the Debt and Liabilities during the Financial Year. All government expenditure, revenues and debts are required to be carried out through the Consolidated Fund of India (CFI). If it is done so, the fiscal deficit of the Government should equal to the additional debt incurred during the year, all recorded in the CFI.”
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    A 29 point essay on the state of India’s fiscal deficit and debt, by Subhash Chandra Garg. The excerpt is of the first point in its entirety, and the rest of the essay is about why 1. doesn’t quite work. Great read!
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  4. “But what have the Nifty stocks done? 10 years ago, the Nifty had a bunch of stocks. Let’s run a thought experiment. If you had invested an equal amount (Rs. 10,000) in every single Nifty stock in January 2010 and completely forgot about it, what would have happened?”
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    The excellent Deepak Shenoy being, as usual, excellent.
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  5. “After all, according to National Accounts Statistics (NAS) that produce the estimates for national income, consumer expenditure is around 60 per cent of the GDP. Investment (or gross fixed capital formation, to be precise) is about 30 per cent of the GDP, and its growth rate has plummeted to less than 1 per cent according to latest estimates. And while government expenditure has grown at a high rate (around 10 per cent), it is only about 10 per cent of the GDP. Accordingly, growth in investment and government spending contribute 1.3 percentage points to the overall GDP growth rate, and so to get an overall 5 per cent growth rate, consumer expenditure should be growing at higher than 5 per cent.”
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    The rest of this thought-provoking piece by Maitreesh Ghatak explains why a fiscal push will almost certainly be a bigger bang for the buck than the official data might show. Macroeconomics is hard!