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COVID-19 vaccines: States facing inelastic supply curve, Centre should place orders, says SBI

It advised that India should follow EU template for vaccine procurement, and the Centre, in coordination with states, should enter into deals with pharma companies to vaccinate a sizeable population.

twitter-logoBusinessToday.In | May 23, 2021 | Updated 23:04 IST
COVID-19 vaccines: States facing inelastic supply curve, Centre should place orders, says SBI
The government should focus on vaccinating people of the worst affected districts first so that the spread of infections can be controlled.

The Indian states trying to place orders directly with drug makers for COVID-19 vaccines are facing an inelastic supply curve at least for the next two months, and this approach is also leading to increased competition among the states, according to SBI.

While poorer states with high population would not be able to vaccinate themselves quickly through this approach, richer states may have to pay a much steeper price given the global oligopolistic market, the research wing of State Bank of India (SBI) said in its 'Ecowrap' report released on Friday.

It advised that India should follow the European Union (EU) template for vaccine procurement, and the Centre, in coordination with states, should enter into deals with pharma companies to vaccinate a sizeable population.

"Globally, the EU Commission jointly with a Joint Negotiation Team carries out the negotiations with vaccine suppliers. The members of the Joint Negotiation Team - representing seven Member States - are appointed by a Steering Committee. The Steering Committee discusses and reviews all aspects of the Advanced Purchase Agreement (APA) contracts before signature. All EU Member States are represented in this Committee. All Member States have endorsed this approach, which is at the heart of the EU Vaccines Strategy," the report said.

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The government should focus on vaccinating people of the worst affected districts first so that the spread of infections can be controlled, the report added.

Taking the vaccine's price in the range of $2 to $40 as per the UNICEF's website, the report analysed different scenarios with different price ranges at $5, $10, $20, $30 and $40, with the rupee dollar exchange rate of 73, and assuming that Centre gives 50 per cent of the vaccines for the states' population.

As per the scenario analysis and the budgeted FY22 total expenditure of 20 major states, "at the highest price point, the vaccine procurement is 16 per cent of the total expenditure for Bihar, 12 per cent for states like Uttar Pradesh and Jharkhand", the report said, adding that this expenditure is an absolute must as even at highest vaccine price, the total vaccination cost at Rs 3.7 lakh crore is much lower than revenue loss at Rs 5.5 lakh crore assuming lockdown for states end mostly by June.

"...the budgeted capital expenditure of Rs 8.8 lakh crore could see a significant rollback to balance revenue loss, further exacerbating GDP loss. Additionally, the payment though will be made in domestic rupee resources, it would possibly imply equivalent dollars from our reserves to make the payment! However, such payments could potentially trigger a renewed interest of capital flows into India as investors will look through the huge benefits of such mass vaccination," Ecowrap said.

Second wave

The second wave of COVID-19 pandemic has beens stabilising for few days, and the daily recovered cases have been above daily new cases for 12 days, which indicates that the peak of the wave might be over, SBI said. However, it warned that the infection is spreading fast in rural areas with share of rural districts in new cases rising rapidly during May.

Also read: COVID-19 lockdown in Delhi extended till May 31

"It has increased from 45.5 per cent in end-Apr'21 to 48.5 per cent as on 3rd May to 52.9 per cent as per the latest data. This is slightly lower than the peak of 53.7 per cent observed during end-Aug'20. The fast spread of infection in rural areas is disturbing as rural India does not have adequate health infrastructure," the report said.

It said many of the states with high rural penetration of COVID-19 produce paddy, wheat, pulses, sugarcane, among others, and if the production of these staples gets affected, it is likely to put upwards pressure on food inflation going forward.

Lockdown impact

The extended lockdowns and restrictions are having huge negative impact on economic activity, particularly in May, it said.

SBI said its business activity index dipped to 62.6 for the week ended May 17, with all the indicators declining compared to the previous week. "The current level is 51-weeks low with 58.7 last registered in the week ended 25 May'20. The latest reading shows maximum decline in weekly food arrival followed by RTO revenue collections and electricity consumption."

However, with sequential reopening and removal of restrictions expected from June, the report said the destruction to overall activity in April-June FY22 will be lower than what was witnessed in FY21. Besides, vaccination is also expected to pick up pace from July, which will further aid in the recovery.

Also read: Coronavirus vaccines highly protective against hospitalisation, death, shows study

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