COVID-19 vaccine supply crisis: Centre should amend Income Tax Act, invoke Companies Act, 2013 for manufacturers

The COVID-19 pandemic has been raging around us. If one takes a look to the social media and even the mainstream media, one can’t look away. Barrages of posts and messages asking for vital drugs and materials to fight the pandemic are flooding our timelines. This is perhaps going to be an experience that defines all of us going forward the same way WW2 set the tone for a generation that came afterwards. To say that this pandemic needs to be tackled on a war footing would be an understatement. We are currently as a nation having to fight this pandemic on many fronts. Total War is the military term for a situation like this – when every resource in the nation is mobilised to fight a common enemy. However, to see that our government failed to rise to the challenge, would be putting this charitably. What India is witnessing now is not just the onslaught of the COVID-19 pandemic, but also suffering from gross failures in governance. With governments in Uttar Pradesh going after their citizens asking for oxygen online to the central government asking social media to remove “misleading posts”, it appears that the Government of India is more consumed managing their image, rather than the pandemic. We literally have been brought to our knees because of a catastrophic failure in planning and management. It is shameful that the High Courts across the country had to step in and push the government to take much needed action. Why have a government at all one wonders, when it is young people on social media who are effectively managing the health system right now. The Indian Medical Association has called the Prime Minister a “super spreader” for his ill-mismanagement of the crisis. It is shameful that doctors are not being given the support they need. One catastrophic failure that is staring us in the face is the vaccine roll out in India. Prime Minister Narendra Modi promised that all persons over 18 will be eligible for the vaccine by 1 May but Maharashtra announced that it will not be able to start the roll out on May 1 due to stock shortages. However, it has said the vaccine will be administered free of charge. Central to the vaccination crisis are the Serum Institute of India and Bharat Biotech. These two companies are the sole manufacturers of the vaccines in the country and they presently hold the prime negotiating position as far as price is concerned. The Indian Express has reported that the SII’s price for private hospitals is the highest in the world. Both, SII and Bharat Biotech, after mounting criticism against the price of the vaccination, cut the prices of COVAXIN and COVISHIED for the state governments. While one can appreciate that private businesses have to make profits as a reward for their investments, these profits cannot come at the cost of the national interest. In India, so far we have administered 145 million doses of the vaccine. But, if one factors in the fact that people need two doses to be fully vaccinated, one will find that an estimated 26 million people have only been fully vaccinated so far. This is less than 2 percent of India’s billion-plus strong population. The only way to do this is going to be mass vaccination rollout and an increase in manufacturing of vaccines on a war footing. As a nation we cannot afford to rely on the benevolence of a few businessmen in order to secure the national health. To do this, the government needs to stop letting the vaccine companies have an upper hand when it comes to price negotiation. In a free market, one cannot have a situation where there is no price competition nor price negotiation. We need to ensure there is one central body that negotiates with manufacturers as far as price is concerned.

This will prevent an asymmetry of negotiation. If you demand that states compete alongside private hospitals for limited stocks, then you are not going to be able to effectively vaccinate the population. The first step to stopping this price gouging will have to be restricting procurement to one central agency who will then handle the distribution. If SII and Bharat Biotech can only sell to one person, you will see the prices coming down.

The second crucial thing the government needs to do is to call the bluff on “profits” and so called “super profits” which are allegedly required to re-investment and R&D to produce more vaccines. Ordinarily, a business should be able to use super profits to recover R&D cost and re-invest it, but when one is talking about the scale of the vaccination demand in India, it’s a different story. Even without super profits, these businesses will be able to recover their R&D costs. It is time the government fixes what can be considered “fair profits” keeping in mind the fact that the entire nation will need vaccines. Anything over and above the fair profits, should be taxed at 100 percent. An urgent amendment to the Income Tax Act, 1961 is needed. It is not like this country hasn’t taxed super-profits before. In 1963 India enacted the Super Profits Tax Act 1963 which did exactly this. Tax super profits. However, we repealed the act in 1966. It is time for tax legislation to be used to call the bluff of these manufacturers. If you need these so called “super profits” for R&D, then re-invest the amount in the same tax year as they are earned or face a 100 percent tax on the super profit. It is fundamental immoral and antithetical to the public policy of India to have super-profits in a time when the country is effectively having a national emergency. Lastly, the government can also consider what I am terming as the “nuclear option” and the government needs to stress that this option is on the table. Under the Industries (Development & Regulation) Act, 1951 the central government has the power to take over the management of vaccine production if it deems that it is necessary to do so in the public interest. Apart from this, under Sections 241&242 of the Companies Act, 2013 the central government can apply to the National Company Law Tribunal for directions in the event the affairs of a company are being managed in a manner that is prejudicial to the public interest. The provision allows the NCLT to replace the management of the company if required. This option is nationalisation via the backdoor. While the shareholders of these companies will not lose out on their shareholding, the government can effectively run the companies in the public interest. This option needs to be the stick that the government takes to the manufactures. The government can also consider compulsory licensing to allow more manufacturers to make the vaccine. India’s patent laws and the WTO Agreement on Trade Related Aspects of Intellectual Property rights provide for this. These provisions were enacted exactly for a situation like this. The nation must use them to secure itself. The author is an advocate who practices at the Bombay High Court. Views expressed are personal