Demonetisation and the Health Costs of Cash Shortages, Pg6

Key Highlights:

• On November 8, 2016, India demonetised 86% of its currency by value with only four hours' notice.
• The stated objectives included curbing black money, counterfeit currency, and promoting digital payments.
• A study found that sales volume of acute drugs fell by nearly 3.6% and value by 3.1% relative to chronic drugs post-demonetisation.
• This decline was linked to sudden cash shortages making unplanned purchases like acute medicines difficult for households.
• The research utilized the All India Organisation of Chemists and Druggists (AIOCD) database for its analysis.
• The study concludes that liquidity is an economic determinant of health, particularly in economies with high out-of-pocket expenditure.

Demonetisation Impact.jpg

Detailed Insights:

• The Reserve Bank of India reported that approximately 99.3% of the demonetised notes eventually returned to the banking system.
• The research employed a difference-in-differences design to account for dynamic variations across regions, companies, and illness categories.
• Acute drugs, typically bought for unanticipated conditions, were more affected than chronic drugs, which are purchased regularly and allow for price comparison.
• Alternative explanations, such as changes in prescription trends or disease outbreaks, were ruled out using data from the Integrated Disease Surveillance Programme (IDSP).
• The negative impact was more pronounced in areas with weaker public health infrastructure, suggesting that local health centre density mitigated the shock.
• Post-2016, India has expanded initiatives like Jan Aushadhi Kendras, Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), and UPI payments to enhance resilience.
• Future large-scale currency operations should incorporate specific health-sector protocols, such as ensuring credit lines or digital payment facilitation at pharmacies.
• The study emphasizes the critical need for better linked consumption-health datasets to accurately measure welfare impacts and enable precise causal estimation.

Key Concepts Involved:

• Demonetisation: The act of stripping a currency unit of its status as legal tender.
• Out-of-pocket expenditure: Direct payments made by individuals for healthcare services at the point of use.
• Search costs: The time, effort, and money consumers spend to find suitable goods or services.
• UPI (Unified Payments Interface): An instant real-time payment system developed by the National Payments Corporation of India.