INTRODUCTION
In the current times, the topic of demonetization has been gaining a lot of momentum.
For those who do not know, demonetization is the process in which the currency is no longer
considered as a legal tender by the law of that country. So, it is like a country banning its own
currency; it could be done for a number of reasons, such as- to introduce a new currency with
the same value, or to fight against black money and corruption. A lot is being said about the
benefits and demerits of the present demonetization act in India.
'Demonetization'
Demonetization is the act of stripping a currency unit of its status as legal tender. It
occurs whenever there is a change of national currency: The current form or forms of money
is pulled from circulation and retired, often to be replaced with new notes or coins.
Sometimes, a country completely replaces the old currency with new currency.
The opposite of demonetization is remonetization, in which a form of payment is
restored as legal tender.
There are multiple reasons why nations demonetize their local units of currency:
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to combat inflation
to combat corruption and crime (counterfeiting, tax evasion)
to discourage a cash-dependent economy
to facilitate trade
Examples of Demonetization
The Coinage Act of 1873 demonetized silver as the legal tender of the United States, in
favor of fully adopting the gold standard. Several coins, including two-cent piece, three-cent
piece, and half dime were discontinued. The withdrawal of silver from the economy resulted
in a contraction of the money supply, which subsequently led to a five-year economic
depression throughout the country. In response to the dire situation and pressure from farmers
and silver miners and refiners, the Bland-Allison Act remonetized silver as legal tender in
1878.
An example of demonetization for trade purposes occurred when the nations of the
European Union officially began to use the euro as their everyday currencies in 2002. When
the physical euro bills and coins were introduced, the old national currencies, such as the
German mark, the French franc and the Italian lira were demonetized. However, these varied
currencies remained convertible into Euros at fixed exchange rates for a while to assure a
smooth transition.
In 2015, the Zimbabwean government demonetized its dollar as a way to combat the
country’s hyperinflation, which was recorded at 231,000,000%. The three-month process
involved expunging the Zimbabwean dollar from the country’s financial system a solidifying
the U.S. dollar, the Botswana pula and the South African rand as the country’s legal tender in
a bid to stabilize the economy.
India's Demonetization
In 2016, the Indian government decided to demonetize the 500- and 1000- rupee notes,
the two biggest denominations in its currency system; these notes accounted for 86% of the
country’s circulating cash. With little warning, India's Prime Minister Narendra Modi
announced to the citizenry on Nov. 8 that those notes were worthless, effective immediately –
and they had until the end of the year to deposit or exchange them for newly introduced 2000
rupee and 500 rupee bills.
Chaos ensued in the cash-dependent economy (some 78% of all Indian customer
transactions are in cash), as long, snaking lines formed outside ATMs and banks, which had
to shut down for a day. The new rupee notes have different specifications, including size and
thickness, requiring re-calibration of ATMs: only 60% of the country’s 200,000 ATMs were
operational. Even those dispensing bills of lower denominations faced shortages. The
government’s restriction on daily withdrawal amounts added to the misery, though a waiver
on transaction fees did help a bit.
Small businesses and households struggled to find cash and reports of daily wage
workers not receiving their dues surfaced. The rupee fell sharply against the dollar (see
chart).
The government’s goal (and rationale for the abrupt announcement) was to combat
India's thriving underground economy on several fronts: eradicate counterfeit currency, fight
tax evasion (only 1% of the population pays taxes), eliminate black money gotten from
money laundering and terrorist-financing activities, and to promote a cashless economy.
Individuals and entities with huge sums of black money gotten from parallel cash systems
were forced to take their large-denomination notes to a bank, which was by law required to
acquire tax information on them. If the owner could not provide proof of making any tax
payments on the cash, a penalty of 200% of the owed amount was imposed.
Alternative Funds
Soon after the announcement, people rushed to buy gold, a demand that drove prices
up, in some cases even to a 60% premium, prompting the tax authorities to conduct surveys,
according to the Business Standard newspaper. The government emphasized the need to
furnish PAN (Indian Permanent Account Number) card details on purchases for
accountability purposes, and many jewellery shops that were flouting the norms came under
crackdowns. Simultaneously, rumours of a gold ban started to float, which led to agencies
ramping up the volume of gold imports – to around 100 metric tons during November, the
highest since 2015, as reported by Reuters.
Many Indians switched to alternative payment avenues – a big deal in a country of 1.2
billion with only 25.9 million credit cards and 697 million ATM cards as of July 2016. The
biggest gainers were mobile wallet companies that offer ease of transactions through a large
network of partners. Alibaba (NYSE:BABA)-backed Paytm saw a sevenfold increase in
overall traffic and a 10-fold jump in money added to Paytm accounts. It also saw the number
of transactions double to five million a day.
App downloads for Paytm increased by 300%. Paytm rival MobiKwik also saw its app
downloads quadruple and a 20-fold increase in money added to the wallets, MobiKwik
Founder & CEO Bipin Preet Singh, told CNBC-TV18 on November 13.
Prepaid cash cards were another option that customers found useful, and that meant
good news for companies like ItzCash. Other alternatives include mobile payments systems
linked to e-commerce businesses like Ola Money, FreeCharge, Flipkart Wallet. Ola Money,
the payment portal for popular transportation app Ola Cabs, reported a 1500% jump in money
added to the accounts in less than four hours.
Interest in Bitcoin also spiked: Sandeep Geonka, co-founder of Zebpay, told
Investopedia that his bitcoin exchange was now adding about 50,000 new users per month.
"We are seeing an increased demand for bitcoin and India clearly has shortage of supply,
making the demand and lack of liquidity push up prices of bitcoin as compared to global
exchanges,” said Coinsecure CEO Mohit Kalra. The virtual currency was trading at INR
55,735 in India in November (about $836), compared INR 47,725 (about $712) (Coindesk)
elsewhere.
Long-Term Effects
Over 3 trillion rupees, or over $44 billion in old currency, was deposited with Indian
banks in just the first week after the demonetization. There was concern that the uncertainty
and short-term liquidity squeeze would take some momentum off the Indian economy, the
fastest-growing in the world; in particular, sectors like real estate, notorious as a harbor for
cash dealings and black money, were expected to take a hit, with "luxury property prices
dipping by as much as 25-30%,” said Ashwinder Raj Singh, Ceo of Residential Services, JLL
India.
But experts believed any slowdown would only be short-lived once the systems
adjusted to the new normal, especially if the government heeded calls to lower interest rates
by groups like the Federation of Indian Chambers of Commerce and Industry (FICCI). Credit
rating agency India Ratings & Research maintained its GDP growth forecast for India at
7.8% for FY17, albeit with a downward bias.
INFLUENCE OF DEMONETIZATION IN THE PHARMA SECTOR OF INDIA
It is very well known that cash is used quite a lot in the Pharma business, particularly as
bribe. Big Pharma companies make use of cash transactions in order to get a hold of the
market. Initially, it was difficult for the small Pharma companies and the entrepreneurs to
stand a chance against the big players. But, after the demonetization act has come into effect,
the big companies are struggling to maintain the flow of cash for bribing their clients. As a
result of it, the entrepreneurs or new players have found a new ground for competition.
Demonetization has certainly provided a lot of advantage to the new Pharma companies.
Another way in which demonetization is going to affect Pharma sector is related to the
rates of medicines. Since most of the transactions now are going to take place via online and
banks, therefore the amount of profit made cannot be kept hidden by the Pharma companies
and stores. So, it will certainly discourage the Pharma stores to charge more from the
customers. In addition, demonetization will also bring in the habit of maintaining legal
invoices as well as bills.
We all know that how Pharma companies and distributors try to keep the doctors happy
by offering benefits on regular basis, usually in the form of gifts, tours, etc. With the
inception of demonetization, this habit of influencing the doctors for generating prescription
will no longer is going to flourish. So, it will certainly provide the smaller companies to
compete in the market in a better way.
Better regulation of the Pharma market has also become possible with the effect of
demonetization. As more fluidity will take place in banking transactions, the government will
be able to have a better regulation over the pharmaceutical market. This will give rise to a
less corrupted Pharma market. At the same time, with the implementation of new rules and
regulations, the prices of expensive medicines will also slash down, which in turn will benefit
the common man.
So, there are tons of benefits associated with the demonetization of the Indian Pharma
sector. With the passage of time, more smoothness will be brought into it. Overall, it will be
advantageous for the customers as well as for the new Pharma companies.
The pharmaceuticals Industry is a blooming industry which is estimated 2, 40, 000
crore. So, one can imagine the money building power of this domain which invites high rate
of corruption. With the happiness of New Year, you will be eager to know what will be the
effect of Demonetization at Pharmaceutical Sector in 2017 and coming years.
Our Prime Minister Narendra Modi Ji on November 8, 2016, declared demonetization
of Rs 500 & Rs 1000. This left the business industry to loads of hazels. The step was taken to
eliminate corruption lead to a trail of effect on this medicine supplying domain. Though this
industry is like bulletproof when it comes to economic condition, a huge effect was
witnessed. In this article by Sunwin Healthcare, we will tell you what will the effect of
Demonetization at Pharmaceutical Sector in coming years.
The Indian Pharmaceuticals sector is a composition of many. It includes companies,
doctors, chemists, distributors and much more.
 The industry saw a drop in sales by 4% to 5% week by week since
demonetization in November’ 2016. This made the lowest sale in the year.
 The demonetization and ban of Rs 500 & Rs 1000 made Pharma products
costly. This affected the sales of chemists and pharmacists all over the nation.
 The effect resulted in 30% fall in house prices.
 The frequent fall from 6% to 8% in stock exchange market also saw the effect
in the pharmaceuticals market.
 The third contract manufacturing Pharma business met with low production
due to failure to meet the cash transactions.
Effect Of Demonetization On Pharma Industry & Future Job Perspective
The ban of highest domination currency Rs 500 & Rs 1000 left the whole country
mourn as the country went cashless when it came to transactions. The biggest witnesses were
the lines for depositing old currency to the bank to the difficulty in receiving new ones. The
pharma industry consists of various elements which are as follows:
 Pharma Company
 Distributor
 Stockiest
 C&F (Carrying & Forwarding Agent)
 Retailer/Chemist/Pharmacies
 Consumer
 Doctor
The cash transaction is a widely accepted mode of transfer everywhere. The individuals
who have initiated the business or were going to start one went to face a lot of issues. From
prescription to every commission made as a bribe & black money, demonetization affected
the pharma journey a lot. If you have illegal money then business will be difficult whereas
legal money will win the race.
The Pharma Jobs like medical representatives, pharmacists etc. were also affected. As
per 2017 is expected to be a bright year of those seeking for jobs in the pharma industry. The
Pharma Vision 2020 is expected to rise to about 12% by next three years. The first half may
seem a surge but is expected to smooth out sooner.
Total Sales Value Trend -Total sales remain sluggish compared to same period of Oct.
The trough & peak of 1st Nov & 8th Nov could average to 51 Cr, so 48.5 and 47.9 are
marginal drop from average of week ending 1st Nov & 8th Nov . The monthly impact could
be 4-5% drop in sales, is this trend continues in last week of Nov. From 25th Nov old Rs.
1000 notes are not accepted at Chemist counters – which may have a further negative impact.
Acute Therapy Trend : Acute therapy has been hugely impacted. Even in week 1 –
the impact was severe and sales were lower than the Diwali week, which is generally
annually the lowest sales. The trend continued in Week 2 – where acute sales remain
subdued. Companies having high Acute weightage will experience a sharper dip and sales
could be down around 20% in Nov compared to Oct.
Chronic Therapy Trend : Chronic therapy has been the biggest beneficiary – which
clearly shows some chronic patients have used old notes to prepone their medicine supply for
2-3 months. Week 1 & 2 of demonetization has shown significantly higher sales than
corresponding period in Oct as well as much higher than the Diwali week trough of 14.1 Cr.
Overall chronic therapy may gain 10-15% additional sales in Nov.
Sub-Chronic Therapy Trend: Sub-Chronic includes many Gastro Products, Vitamins,
Osteoporosis drugs, Osteoarthritis medications etc. Sub-Chronic is the most stable and steady
trend.The dip is marginal and higher than Diwali week. Week 2 is a marginal rise than week
1 of demonetization.There is no major change in Nov over Oct, likely for Sub-Chronic
Inventory Days : Inventory Days remain high – overall and therapy wise. The
extended credit period offered by several companies is helping .Acute with subdued sales,
shows highest inventory days – around 45 .Chronic is having lowest inventory days – but a
comfortable 34 days. No shortage of medicines likely in any part of the country.
The decision of demonetization was a success or failure is still a debate. The Indian
Pharmaceuticals is still determined to grow and reach the vision of 2020. What was the effect
of the decision of the industry are as follows:
 A good downfall of medicine was witnessed. This will result in legal invoicing
& billing habits.
 Prescribe for cash was replaced with ethical codes. This accounted more than
80% of doctors who write prescription against cash.
 Better control of drug administration on sale and purchase above Rs 20, 000
cash against the invoice.
 Blanking has better control over high transactions.
 Rules & regulation against illegal drug & medicines were closely watched by
the Government.