File image: A health official draws a dose of a COVID-19 vaccine
On April 24, India’s former Chief Economic Advisor Arvind Subramanian tweeted that the central government, and not states, should bear the full cost of vaccine procurement and distribution.
“The Centre-NOT states-should bear full fiscal "costs" of vaccines. Virus does not respect state borders. Centre has better access to resources than states. Fiscal "costs" are trivial compared to lives saved and economic activity preserved,” Subramanian tweeted.
There are other economists who partly agree with him, in that they feel centre should fiscally help out states directly procuring vaccines from manufacturers like Bharat Biotech and Serum Institute of India. But they don’t say that the entire cost should be borne by the central government.
As per some economists who track centre-state relations and who spoke to Moneycontrol, said that this assistance could be in form of sharing the Rs 35,000 crore vaccination budget or giving additional health sector grants to states. They say that since the economy is yet to recover, states’ finances are affected.
“When the Finance Minister announced the vaccination expenditure in the last budget, there was an understanding that the centre would be buying the vaccines and carrying out the vaccinations. Now that they have changed that strategy, which is a good decision, part of the amount should also be transferred to states. It does not make sense not to,” said Sabyasachi Kar, the RBI Chair Professor at National Institute of Public Finance and Policy.
In her 2021-22 budget speech, Finance Minister Nirmala Sitharaman had said that she was allocating Rs 35,000 crore as a vaccination budget, which would be increased in required. As per a top government official, only around Rs 5,000 crore of that amount has been utilized.
On April 19, the central government announced a major shift in its Covid-19 vaccination strategy. So far it was procuring vaccines from the two major manufacturers, Bharat Biotech (which makes Covaxin) and Serum Institute (Covishield), and then passing it onto states. Now, state governments, private hospitals and companies can directly buy from these vaccine-makers at a pre-declared price and begin distribution from May 1. Both companies have declared their prices for the states.
“There are ways centre can give grants to states, including under Finance Commission grants. The centre has also allowed states to increase their borrowing limits. They could consider raising that even more,” said NR Bhanumurthy, Vice Chancellor or Dr BR Ambedkar School of Economics in Bengaluru.
In its report for 2021-22 to 2025-26, the Fifteenth Finance Commission had recommended health grants of around Rs 31,755 crore to states and Rs 70,051 crore directly to local bodies like municipal corporations and gram panchayats. A per the budget documents, the health sector grants provided by the centre for 2021-22 is budgeted at Rs 13,192 crore.
It is clear that some states do agree with former CEA Subramanian’s assessment that centre should bear the cost of procurement.
Last week, the Chief Ministers of Kerala and West Bengal wrote to Prime Minister Narendra Modi. Kerala CM Pinarayi Vijayan wrote to PM that the centre should provide vaccines free to the state even for the 18-45 age group.
The chief minister said the state governments are already facing additional financial commitments from the consequences of the pandemic. As the economic downturn is still persisting, the additional burden of purchasing Covid vaccines will place considerable strain on government finances.
West Bengal CM Mamata Banerjee’s letter, on the same lines, was more strongly worded and accused the centre of evading its responsibilities at a time of crisis.
NIPFP’s Kar points out that leaving the vaccination of the 18-45 age group could create some issues.
“If it is all based on state initiative, there will be different levels of success. If one state does badly, and a neighbouring state does well, there will be a migration of those seeking vaccines. The externalities are so strong that unless all states perform at some minimum level, the whole thing breaks down,” he said.
“Some substitution of expenditure may happen in the states. Some kinds of expenditure which are usually carried out in normal years, that amount may be shifted towards vaccination purchases,” Kar said.