The right balance between private interests, public need

From the populist surge in the Global North to the debt-laden realities of the post-pandemic Global South, governments are facing a stark reckoning.

- Chirantan Chatterjee

The key question is: How should one optimally think on the public and private provisioning of goods and services?

In the US, the echoes of a federal structure challenged by the department of government efficiency (DOGE) and beyond, coupled with the looming shadow of public debt, are forcing a fundamental rethink of the State's role and public economics. Meanwhile, read against the recent electoral outcomes in Delhi, public provisioning of health and education seems to be taking a backseat in India.

Two studies (of which I am a co-author) of Indian pharmaceutical markets may offer crucial insights herein, especially as the seductive call of privatisation grows louder amidst fiscal pressures and populist demands.

The first study dissects the impact of the entry of public pharmacy in West Bengal, India, on private drug pricing. It reveals a fascinating interplay driven by consumer price elasticity. For daily consumption of non-critical medications—where consumers are likely to shop around for the best deal (high elasticity)—we found that the entry of subsidised public options forced private players to lower their prices. However, we saw a different picture for life-saving oncology drugs, where quality concerns outweigh price for consumers (low elasticity). Here, private wholesalers actually increased prices after public entry, betting on the continued willingness of quality-conscious consumers to pay a premium. These results underscore a vital lesson: A one-size-fits-all approach to public sector involvement is dangerously naive. The underlying responsiveness of demand dictates the private sector's reaction, with potentially adverse outcomes for essential goods when consumers aren't price-sensitive.