What will the effect of Demonetization at Pharmaceutical Sector?

What is Demonetization?

Demonetization is an act of stripping a currency unit of its status as legal tender. Demonetization means when a country bans or replace its own currency to new currency of any value to fight against corruption and black money.

What will the effect of Demonetization at Pharmaceutical Sector?

First we talk about effect of Demonetization at new and upcoming Entrepreneurs in pharmaceutical Sector. Every Pharma sales and marketing professional know how to sell into pharmaceutical sector? A new entrepreneur faces much type of difficulties during his start-up journey. One of main problem that are faced by them is cash bribe donated by big pharma companies in pharma ocean. You may be best idea for selling your product but you aren’t able to stand against cash transactions and money power. After demonetization, big pharma companies may have better resources than new comers but all entrepreneurs will have same cash strength irrespective to resources. It will be huge advantage for all new entrepreneurs. Not only in Pharma sector, but also in all sectors it will be applicable.

Cash is going to be out for a small period of time but it will  leave long term affect at our habits. Business is going to be easy with legal money but is going to be difficult with illegal money.

Other Effects at Pharmaceutical Sector:

  • Rates of Medicines: As cash flow is going to diminish, all transaction will be done through banks and online. There will be accurate profit earning report at all steps. No one can take much profit as he has to show it in his ITR. It will indirectly cause cheaper medicines followed by legal invoicing & billing habits.
  • Prescribe for Cash: Prior ethic codes in pharmaceutical market have banned benefits taken by doctor from pharmaceutical companies in form of tours, conferences, gifts etc. Now demonetization will directly affect prescribe for cash habit. No cash, No Prescription is going to change forever. It will not only cause loss to big pharma companies but also for small entrepreneurs who were used to of this habit of generating prescriptions for them. 
  • More regulated market: Only bank transaction will regulate pharmaceutical market at higher extent. Only twenty thousand rupees transactions are allowed to pay as cash against invoice. If no one will have cash then who will transact in cash. Every retailer and distributor transactions could be regulated by Government. There will be more control of drug department at every purchase and sale you conduct. Most of Retail and distribution transaction will be done through banks only.
  • Implementation of New Rules and Regulations: It will become easy for government to implementation of new rules and regulation as market is going to be more regulated. Without bill medicine availability were major concern for government to implement banning of illegal drugs and medicines.
  • Knowledge and Innovation based market: With removal of cash from industry, new innovations in pharmaceutical sector will be initiated. There will be requirement of new study and scientific proofs to convince doctors to prescribe medicines. 

After ban of 500 & 1000 rupees currency notes, who will be the major suffer in pharmaceutical industry and who will be major gainer in sector?

For knowing the answers of above questions, we have to find who can have more black money in pharmaceutical sector. Pharmaceutical sector is operated through a chain of distribution channel such as

  • Company
  • C&F (carrying & forwarding agent)
  • Stockiest
  • Distributor
  • Retailer/Chemist/Pharmacies
  • Doctor
  • Consumer

Pharmaceutical sector is one of the most profitable business and we have a good amount of black money possessing in lockers or bed or bags. Everyone in this chain will have some amount of black money. How to guess who will have more money in this circle? Company’s owners will have definitely great amount of money but they have highly paid CA and accounts, they can manage its some part though some transactions. C&F/Distributors/Stockiest will also have money with them. They can also adjust with some minor transactions. Now we come to retailers/chemists/pharmacies. Small chemist earn only as much as he can survive but big retailers earn huge money and without providing any bill to consumers. Most of chemists don’t even have sale tax number. They don’t have proof of any income. How they will manage? That’s the matter of thinking. They sell generic medicines at mrp getting hundred to thousand times profit. If talk about doctors, then we have many logics to explain many things. More than 80% doctors write prescription against cash. Now what happen to that deposited cash because you can’t exceed income from your last year income tax return.

What is the problem in depositing excessive cash in your account?

At every currency change and depositing, Income Tax Department and Government will have strict attention. Be sure before depositing money in your firm current account that you have enough cash in your account books. You can deposit cash in hand in your account as per your last sale tax return. Income you have shown in your return will be the basis of cash you can deposit in your account.

What to learn from this Demonetization by new Entrepreneurs?

Most important thing is Honesty is Best Policy. Businesses and persons who pay tax at time and declare their incomes accurately will not face any effect. Only persons who accumulate money by not paying tax and wrong means are only facing problems. Also remember, Change is only true in this World. Life and Business are also changeable. Sudden setbacks and surprises will be common things in entrepreneur journey. Prepare yourself for all unexpected things.

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