Amid a shortage of Covid vaccines, the Union government came under attack from chief ministers of opposition parties and richer states for limiting the eligibility to those aged 45 years and above, and not allowing states to buy vaccines directly. In response, the Centre allowed states and private hospitals to buy vaccines and expand the coverage to other groups (18-44 years). As per the revised policy, only those aged 45 years and above and frontline workers are guaranteed free vaccination from the central pool. The Union government maintains that states can “offer free vaccination or subsidise it” for other groups. This new policy is moot on grounds of constitutional morality as well as economic efficiency. The latter requires suo motu intervention of the Competition Commission of India or CCI. We believe it has jurisdiction in this case.
In CCI vs Bharti Airtel & Ors 2018, the Supreme Court maintained that the CCI is the only authority competent to deal with issues related to competition across the economy, including in sectors with their own regulators.
The Union government justified the new vaccine policy in the Supreme Court on grounds that it would help “make pricing, procurement and administration of vaccines more flexible and competitive and would further ensure augmented vaccine production as well as wider availability of vaccines” and ensure “market driven affordable prices.” The Supreme Court (order dated 30 April 2021) invoked Articles 14 and 21 of the Constitution and asked the government to revisit the new policy that has made room for differential pricing. The Court did not refer to the Competition Act, 2002 even though the Centre justified the new policy primarily on grounds that it will promote competition.
Inequality between states
While ‘health’ is a state subject, state governments have hardly any research capacity to deal with the rapidly evolving situation during the Covid pandemic. The Centre, with its vast array of research organisations and access to inputs from across India and international groups and bodies, is better equipped to deal with problems such as the pandemic that transcend state borders. The Centre’s abdication of responsibility in face of partisan attacks has created inequalities with respect to access life-saving vaccines at two levels.
The demand for decentralisation of procurement was made by some of the more resourceful states that wanted to enhance both the speed and coverage of vaccination. The acceptance of their demand has created unequal competition among states. While Maharashtra has floated global tenders, states such as Nagaland are appealing to the Confederation of Indian Industry for support. In fact, the Centre has itself admitted that “there is a possibility of some states having better bargaining power due to geographical advantage etc.” (There may also be disparities even between private hospitals in terms of bargaining power.)
Even if the interstate disparity is ignored, the new policy does not even help increase the supply. The supply is inelastic in the short run due to capacity constraints. Given the long gestation time to develop and test vaccines and secure approvals, competition among buyers will not automatically lead to the entry of new suppliers and higher output unless the government relaxes intellectual property rights. Competition among states for a good whose demand is inelastic and the predictable reluctance of leading vaccine manufacturers including Moderna and Pfizer to directly deal with states has allowed the existing manufacturers to raise prices and charge similar entities differently.
The new policy adversely affects socio-economically weaker sections and economically weaker states, both of which account for a larger fraction of the population in younger age groups that are no longer eligible for free vaccination at most places. Moreover, these states do not have adequate healthcare facilities to deal with the pandemic, while their already weak financial condition has been further undermined by the pandemic and they are unable to buy vaccines. The new policy, therefore, not only violates Articles 14, 15(1) and 21 of the Constitution, but also abandons the longstanding commitment of the Centre to support weaker states within the Union.
CCI cannot afford to remain silent
While the issues related to fundamental rights and federalism require the Supreme Court’s intervention, the narrower but crucial issue of competition warrants suo motu intervention by the CCI under Section 19(1) of the Competition Act, 2002. The CCI must investigate the abuse of dominance under Section 4 of the Act. Prima facie manufacturers in the hitherto duopoly market seem to have used their position of dominance to demand different prices for the same product from different consumers. While the Centre, state governments and private hospitals may appear to be different buyers, the ultimate consumer remains the same and is now facing both scarcity of vaccines and price discrimination. There is hardly any competition as the demand is inelastic and very large compared to the supply. In absence of state intervention, this allows the sellers to charge different prices to different buyers.
To begin with, the CCI needs to address two questions. First, is price discrimination necessarily bad? The Robinson-Patman Act in the United States and, also, the Article 102 Treaty of the Functioning of the European Union along with an order of the Court of Justice of the European Union suggest that price discrimination can be justified only when the difference in price reflects “the different costs of dealing with different buyers or are the result of a seller’s attempts to meet a competitor’s offering.” Neither condition holds good in the case of Covid vaccines.
Second, is the Competition Act equipped to deal with cases involving price discrimination and stakeholders like the government? Section 4 Subsection 2(a)(ii) of the Competition Act defines “discriminatory price in sale or trade of goods or service” by an enterprise or group as a form of abuse of dominance. In the recent past, the CCI has in several cases – No. 62 of 2016, 13 of 2017 and 30 of 2017 – investigated the abuse of dominance resulting in price discrimination. So, prima facie, the CCI can investigate the potential abuse of dominance by manufacturers in the current case. So far as extending the CCI’s ambit to non-business enterprises including the State is concerned, it is imperative that all anti-competitive choices in markets be brought under the purview of the Competition Act.
Moreover, the CCI cannot afford to remain silent, particularly, when the rights of citizens are under threat due to arbitrary executive action that has created anti-competitive market conditions that obstruct equitable access to vaccines.
If, however, the matter is not referred to the CCI, we have limited remedies. The Supreme Court’s order (30 April 2021) repeatedly exhorts the executive to ensure that Article 21 is respected, while adding that the judiciary has no intention to interfere in policy-making. Using Article 21 as the point of departure renders the investigation of the problem and possible remedies open-ended. A reference under the Competition Act will require companies to explain the economic rationale behind their pricing and also nudge the Union government to demonstrate in concrete economic terms how the new policy enhances competition and clarify if economic efficiency enjoys priority over other considerations such as equity in public policy.
Vikas Kumar and Poonam Singh teach economics at Azim Premji University, Bengaluru and National Institute of Industrial Engineering, Mumbai, respectively.
(Edited by Neera Majumdar)