DEMONETIZATION -- Slowdown effect on HEALTHCARE / PHARMA INDUSTRY

Demonetization is defined as the act of stripping a currency unit of its status as legal tender. Since the announcement of Demonetization, Indian economy has been fluctuating in terms of increase in Inflation, increased GDP rate and increase in the rate of imports and exports. It has impacted individuals, businesses and industries drastically. Major impact will be on common man with the sudden decision of currency withdrawal. Indian economy is depending on cash, as more than half population use banking system for monetary transactions. Economists say that the impact of demonetization will be more on consumer spending and economy growth.

Whether Prime Minister Narendra Modi’s bold move to counter the black money and parallel economy with DEMONETIZATION of Rs 1000 and Rs 500 notes has the desired effect, only time will tell, but its slowdown effect on Indian Healthcare/ Pharmaceutical and related industries cannot be denied.

Pharma sector also experienced negative impact with the impact of demonetization, but the impact is temporary and expected to be same

Hopefully this is a passing phase and we can look forward to “achche din” soon with the inflow of new currency in the market”. The decision of this surgical strike on black money was not taken in a day or two. Rome was not built in a day and similarly, this plan is the result of Prime Minister's meticulous planning and never ending fight against corruption. As a result, he has successfully made the right stroke at the right time. Further, the penal provisions are hefty enough to ensure that corrupt practices will find it hard to take roots again. Despite certain short term troubles, demonetization is certainly going to give a boost to the Indian economy in the long run.

However, with the latest round of demonetisation, the common public and bankers are undoubtedly facing hardship since more than 85 percent of currency in circulation has been rendered illegal in one single stroke. Demonetisation is surely hampering the current economy and will continue to do so in the near term and will also impact India’s growth for the coming two quarters but will have positive long lasting effects. The question that arises is why demonetisation was required at this point of time. There are certain pros and cons of demonetisation. 

• Healthcare businesses and organizations are contending with extraordinarily new financial, demographic, and regulatory pressures.
• A challenging global economy continues to strain the bottom lines of providers, payers, and pharmaceutical companies - not to mention the businesses and taxpayers who ultimately foot the bill.
• Tighter finances and thinning margins have made cost cutting and operational efficiency a top priority across the healthcare supply chain. It has also fuelled innovation, without compromising the end goal: patient care
• The National Sample Survey reveals that over 80% of Indian population is not covered by health insurance.
• Private Doctors are a one-man army, taking up the majority cases in both rural and urban areas.
• A Forbes report stated that the per capita healthcare expenditure in India is about $60, which is significantly less amongst the BRIC nations and trivial compared to the developed countries, considering that USA spends over $8600.
• The alarming fact here is that over 90% of healthcare expenditure in India is out of pocket. 

Since the medical facilities are cheaper compared to the other developed nations, India is a growing country in terms of medical tourism. India's medical tourism sector estimated to be worth US$3 billion is projected to grow to $7–8 billion by 2020. These patients in super specialty hospitals have been caught in the crossfire of demonetization. The foreign nationals claim that the move has brought a catastrophic change since the Hospitals have refused to accept old currency. Being foreign nationals, they don’t have an Indian account to exchange the old currency. However, this is a short-term chaos before setting the long-term order. The situation should ease out in the next quarter while the system is better equipped to handle digital transactions.

In India, there are close to 50 million people under some form of medical treatment, however, there is minimal digitization, negligible coding and no integration of data. With the need of digitizing payments, healthcare providers are looking at taking up technology empowering them with holistic solutions for better control, connectivity and understanding of their patients’ health.

The government is doing its bit by integrating healthcare delivery with Aadhaar card. With the ease in data availability, it would be a breeze to derive trends in healthcare industry, draw suitable analytics and strategies to optimize healthcare delivery at a macro level and ensure improved treatment outcomes at a micro level. With data at their disposal, the healthcare industry will not have to break a sweat to formulate policies and diversify their services. 

 The country is witnessing a revolution where the healthcare system would go cashless. The industry is witnessing innovations in value chain thereby making it more fragmented. Growth spurt in the adoption of digital payments, entry of non-traditional players, technological innovations and proliferation of immediate payments are largely driving the healthcare technology industry while attempting to create a 360-degree healthcare ecosystem.

More e-commerce players like wallet providers; web aggregators and online retail portals are coming into the field of distributing health products and services. 

1. In India, 47% of rural citizens and 37% of urban ones borrow money or sell assets to pay medical bills.
2. Medical cost is one of the most common reasons for rural bankruptcy.
3. One of the reasons for saving surplus currency in certain households was to cater to unforeseen medical emergencies.
4. The under-penetrated health insurance sector already growing at a CAGR of 23% would receive a major push due to demonetization. The better the penetration, the more economical the cost of insurance for the end consumer, thus driving further growth of the sector.
5. In India, the percentage of GDP expenditure on healthcare is 4%, it is lesser than certain underdeveloped countries.
6. With more financial reserves at government’s disposal due to digitization of payments and less hoarding of paper money, while the percentage expenditure on healthcare may not be altered, the overall quantum of the money spent would certainly increase. This would eventually lead to better quality Government healthcare services.

Overall, demonetization should not be considered in isolation. Now that the economy is cashless and people are learning and adapting the digital modes of payment, with Internet reaching every nook and corner of the country, India would witness a phenomenal movement in overall healthcare ecosystem, touching every citizen positively over time.

Initial Hiccups

Health care was one of the industries that faced trouble in the initial stages of demonetization as patients were not able to get the right treatment and even relatives of patients, who were hospitalized during the time of announcing demonetization faced a lot of difficulties as they were not able to get the foods they required.

Delay in Treatment for many Patients:

Due to demonetization nearly 70-80% of door-step services in health care industry like home care and diagnostics were affected. As the patients were not able to pay the exact change for these services, they just cancelled their appointments with respect to diagnostics.

Impact in the next 2-6 months:

• The old high denomination ban is expected to bring a heavy impact in the private healthcare industry in the next 3-6 months.
• This will be even higher in the home health care service sector. In general, these types of home care services are obtained by old patients, and they ensure that they have sufficient cash in hand to pay for these services.
• As they cannot visit both banks and ATMs due to long queues, they look for postponing their medical examinations if possible.
• Otherwise, they are left with no other option other than directly visiting the banks to withdraw money.
• Hospitals are also forced to provide card payment facility to patients such that they need not have to worry about cash availability in their hands to pay for health care services.
• Once the new 500 Rupee notes are made available to the public in sufficient number and once the rush in banks and ATMs, reduce, it is expected that health care sector will get out of these troubles.

Over the last few years, technological advancement in the healthcare sector has also gained impetus due to policy reforms and significant economic measures, such as demonetization. Although demonetization has impacted everyone at large, it has had a negligible effect on the e-pharmacy domain.

The online market rather experienced a huge jump in sales, as the market moved towards cashless transactions. Demonetization has in fact opened an electronic gateway to conduct cashless transactions, thereby, maintaining transparency and accountability in the trade dealings.

Post demonetization, the online pharma space has had a positive impact considering that they offer not only one stop services at-home but also because the consumer has access to cashless payments. Given the fact that consumers can also avail heavy discounts on our portal and mobile apps, it has increased traffic to e-pharmacy businesses."

Although the mood in the e-pharmacy sector is positive, India still lacks a robust public healthcare system that could provide high quality yet affordable healthcare facilities. However, with technological advancements such as adoption of ICT and DIGITAL  tools, the healthcare sector will sail easily during the demonetization revolution."

All in all this sector is all set to grow and the healthcare companies specially online healthcare providers, have a huge opportunity to broaden their horizon and scale-up their growth. This will in turn allow for an increased contribution to the national GDP and financial inclusion in the long run.

Time is ripe for the healthcare industry to now invest in processing and adopting technological solutions for further growth.The government's focus on digitalizing and pushing economic reforms to upscale the e-commerce sector, the online healthcare industry in India is all set to emerge as a trend setter in the e-commerce space.

Factors like affordable and accessible medical facilities, increased proliferation in terms of discounts and offers and off course the recent digitization of transactions, have driven phenomenal demand growth in the country. The online healthcare platforms not only allow for a hassle-free experience for patients and doctors, but also save patients' time as their consultation slots are pre-booked at the time of making the payment.

Demonetization - Impact on Indian Pharma

As expected Demonetization had a downward effect on the over all chemist/ pharmacy sales .The imapct was more with smaller retailers. This must be due to larger share of cash transactions in their business. In a survey conducted 50% of large retailes showed limited impact -- the extent of sales declined as high as 30 % in some cases .

However 46% of corporate chain outlets had increase in sales . It also saw lesser pressure on patient footfalls.A surge in chronic therapy drugs was seen as patients could utilize the old notes before Jan to buy medicenes required for such long term treatment .

Morever corporate chains were accepting digital payments which put them in clear advantage over others.

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 were down around 20% in Nov compared to Oct 2016

 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 gained 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 has helped.

? Acute with subdued sales, shows highest inventory days – around 45 days

? Chronic having lowest inventory days – but a comfortable 34 days.

? No shortage of medicines likely in any part of the country

Demonetization has affected the credit cycles on Pharma value chain --stockists have extended credit period to the retailers to settle payment and to protect the revenue . This is a temprorary step and would get normalised . On supply chain and Inventory levels there was not much impact.

 Overall the demonetization lever ,while triggering short term revenue dip has kick started some welcome practices in cashless ecosystem.