CHAPTER-II

REVIEW OF LITERATURE

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 MARKET RESEARCH

Market research is the systematic gathering, recording, and analysis of data about
issues relating to marketing products and services. The term is commonly
interchanged with market research; however, expert practitioners may wish to draw a
distinction, in that market research is concerned specifically with markets, while
marketing research is concerned specifically about marketing processes.
Marketing research is often partitioned into two sets of categorical pairs, either by
target market:
Consumer marketing research, and
Business-to-business (B2B) marketing research
-The first is consumer market research. The goal is to study the purchasing habits of
consumers. This can be done by tallying up how much of a product is sold, through
surveys or through other means. The information gathered from consumers can be
used to analyze current marketing campaigns and to create new ones. Consumer
marketing research is a form of applied sociology that concentrates on understanding
the preferences, attitudes, and behaviors of consumers in a market-based economy,
and it aims to understand the effects and comparative success of marketing
campaigns. The field of consumer marketing research as a statistical science was
pioneered by Arthur Nielsen with the founding of the ACNielsen Company in 1923.

-The second type of marketing research is business to business (B2B) research, which
studies how businesses sell products and services to other businesses. For example,
Company Asells computer equipment to companies B and C. Someone may be
interested in seeing how companies B and C found out about the equipment, how
company A marketed its product and how good the market for that product is.

Marketing research is not the same as market research. Marketing research studies
how and why consumers and businesses buy, and how those sales can be increased or
why they have decreased. It involves in-depth studies

2
into the affect of advertisements and market conditions on consumers. Market
research is the research that may be done into a single market, focusing on the size
and trends in that market.
Market research can also prove helpful if you want to explore business opportunities
in new markets. Market research can be conducted by two methods, primary research
or secondary research.

1. Primary Market Research

Primary research refers to information that is directly collected from the source.
Another simple method of primary research would be to directly talk to your
customers and get their feedback. Primary research can be both qualitative and
quantitative.

A. Qualitative Primary Research

Qualitative primary research involves gathering information from interviews or focus

groups.
 Open-ended interviews include questions that cannot be answered with a yes
or no. You can get a lot of information from such interviews and also find out
about the dislikes, likes, requirements, trends and emotional motivators of
your primary market
 A focus group should ideally be led by experienced professionals who can
lead a group of 6 or more people and ask them both general and specific
questions. Since trained professionals are required to handle focus groups,
they are very expensive.

B. Quantitative Primary Research

Quantitative primary research involves the collection of numerical information from

surveys. This information is then analyzed.

3
  Surveys can provide you with the information you require if the survey has
meaningful questions. More people would be willing to take a survey as it
takes less time. The cheapest and easiest way of conducting a survey is
through the telephone and on the place where your product is being sold.

2. Secondary Market Research

Secondary research is more economical and easier to do when compared to primary

research. Here you will have to analyze the information that has been collected for
some other reason. You can find the data that you require through a set of articles,
demographic/ statistical data, studies etc.
By investing in secondary market research you can analyze your target markets,
evaluate your competitors and assess political, social and economic factors. The
internet has a large number of secondary data sources and most resources, magazines
and press releases are now available online.

PROCEDURE OF DEMONETIZATION:
The Reserve Bank of India set forth a period of 50 days until December 30 2016 to
deposit the demonetized notes as a credit in their respective bank accounts.

EXCHANGE OF DEMONETIZED NOTES

Citizens were given provision to exchange the demonetized ₹500 and ₹1,000
banknotes with the new ₹500 and ₹2,000 banknotes over the cash counter of banks
and their branches upto a limit which assorted over the period of time of 50 days.
 Initially, from 8th to 13th November, the exchange limit was fixed at 4000
Rupees per day per person.
 From 14th to 17th November, the exchange limit increased upto 4500 Rupees
per day per person.
 After 17th November, the exchange limit was reduced to 2000 Rupees per day
per person.
 From 25th November, all exchange of demonetized notes was suddenly
stopped.

CASH WITHDRAWAL FROM BANKS AND ATMs

4
  From 10th to 13th November, withdrawals of cash from bank accounts was
limited and restricted to 10,000 Rupees per day per account & 20,000 Rupees
per week per account.
 Later on per week cash withdrawal limits were increased to 24,000 Rupees
from 14th November, 2016.
 Cash withdrawal limit from Automated Teller Machine (ATM) was also
inflicted to 2,000 Rupees per day per Debit / Credit card till 14th November
and it was increased to 2,500 Rupees per day per Debit / Credit card till 31st
December, 2016.
 From 1st January, 2017 the cash withdrawal limit was increased to 4,500
Rupees per day and from 16th January it was again raised to 10,000 Rupees per
day per card.

 The RBI’s notification circular about Cash withdrawal limit was varied on the
basis of type of bank account i.e. Current accounts / Cash Credit accounts /
Overdraft accounts.

 Inspite of the different notifications & guidelines from the Reserve Bank,
Different banks and their branches were having their own operating limits and
cash withdrawal limits. Banks were providing cash to the customers as per the
availability of new currency of ₹500 and ₹2,000 banknotes.

However, under the revised guidelines of the Reserve Bank of India issued on 17th
November 2016, Families were allowed to withdrawal upto 2,50,000 Rupees for
wedding expenses from one account the money can be withdrawn only from the credit
balance shown in the account on the day when demonetization of high denomination
notes was declared. The guidelines states that the cash to be withdrawn for wedding
purpose should be used only to make payments to those persons who do not have
bank accounts and the names and other details of such recipients should be mentioned
while applying for withdrawal of the cash. It was mandatory that the application for
withdrawal should also provide names of bride and groom along with their identify
proofs, addresses and venue & date of marriage. Withdrawals can only be made by
either the person who is getting married or their parents. The amount can be
withdrawn only if the date of marriage is on or before 30th December 2016.

5
RBI issued other guidelines which states that rules were also changed for farmers who
are permitted to withdraw 25,000 Rupees per week from their accounts against crop
loans.
However, Banks were dispensing notes as per their convenience and availability of
cash with them.

CONTROVERSIES OVER DEMONETIZATION

LEAKAGE OF INFORMATION IN ADVANCE:

 Before 15 days of the official announcement of demonetization, A Hindi

newspaper named ‘Dainik Jagran’ reported a news that the Reserve Bank of
India is going to release new currency notes of ₹2,000 and going to withdraw
existing ₹500 & ₹1,000 banknotes.
 On 21st October, 2016 ‘The Hindu’ Business Line newspaper also mentions
coming of ₹2,000 note and mention about the possibility of withdrawal of old
high denominations ₹500 & ₹1,000 notes.
 In April, 2016 Arundhati Bhattacharya the chairman of the State Bank of India
had also openly spoken about the possibility of demonetization of ₹500 &
₹1,000 banknotes.
 On 1st April 2016 i.e. before 7 months of the announcement of demonetization
a Gujarati newspaper, ‘Gujarat Samachar’ published an article that
“announced” demonetization of ₹500 & ₹1,000 banknotes. The editor of the
newspaper then affirmed that it was only April fool’s day prank. Coincidently,
the same article contained many of the facts that were matching with the
actual facts of announcement of demonetization in November including the
issuance of new currency notes of ₹2,000.

6
 ACCUSATIONS AND ALLEGATIONS:

 The Communist Party of India (Marxist) (CPI-M) alleged that Bhartiya Janta
Party’s (BJP) West Bengal constituency had the advance knowledge about the
demonetization and deposited and settled their high denominations before the
announcement of demonetization.
 Arvind Kejriwal, leader of Aam Aadmi Party also claimed that there had been
any pre leakage of information regarding the announcement of
demonetization. He suspected that how a BJP leader Sanjeev Kamboj posted
about new currency notes of ₹2,000 on social media just a day before the
official declaration of the move and he also alleged that the sudden rise in the
bank deposits between July and September 2016 was the result of leakage of
information about demonetization.
 Nitish Kumar (Chief Minister of Bihar), Rahul Gandhi (Leader of Congress
party) and Arvind Kejriwal alleged that the BJP made large purchases of land
in Bihar before the demonetization as they were having prior information
about it.

RESPONSES AFTER THE ANNOUNCEMENT

The initial reactions over the demonetization were both, in favor of the move and also
against of the move.

SUPPORT OF DEMONETIZATION:

 The President of the Union of India, Shri Pranab Mukherjee supported the
demonetization and welcomed the bold step of the Government of India which
will help unearth unaccounted money & counterfeit currency said in a
statement from Rashtrapati Bhavan.
 Bankers like Arundhati Bhattacharya (Chairperson of State Bank of India) &
Chanda Kochhar (MD & CEO of ICICI Bank) appreciated the demonetization
move in the sense that it will help in curbing black money.
 Businessmen Anand Mahindra (Mahindra Group), Sajjan Jindal (JSW Group),
Kunal Bahl (Snapdeal and FreeCharge) also supported the move adding that it
would also accelerate e-commerce.
 Infosys founder N. R. Narayana Murthy praised the move.

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  Finance Minister Arun Jaitley said that demonetization would be cleaning up
the whole economic system with the increase in the size of economy and the
base of revenue. He mentioned the demonetization along with the upcoming
Goods and Services Tax (GST) as "an attempt to change the spending habit
and lifestyle of the citizens”.
 The Indian National Congress spokesperson Randeep Surjewala welcomed the
move but remained doubtful on the after effect & consequences that would
follow.
 The demonetisation also got support from Chief Minister of Andhra Pradesh
Nara Chandrababu Naidu & Chief Minister of Bihar Nitish Kumar.
 Former Chief Election Commissioner of India S. Y. Quraishi said with the
hopes that demonetization could lead to long term electoral reforms as most of
the unaccounted money is used in elections.

 Social activist Anna Hazare hailed demonetization as a revolutionary step by

the Modi Government.

On the whole of this, International agencies and media houses response towards the
move was positive by considering it as the bold crackdown on corruption in the
country.
 International Monetary Fund (IMF) issued a statement supporting the Indian
PM Modi's great efforts to fight against corruption by the announcing
demonetization policy.
 Former Prime Minister of Finland & Vice-President of European Commission
Jyrki Katainen appreciated the demonetization move stressing that efforts
bringing transparency will strengthen the Indian economy.
 Chinese state media Global Times praised Indian government’s move and
termed it as “fierce fight against black money and corruption.”
 Forbes has published an article titled “India’s Great Bank Note Switch
Appears To Be Working – $30 Billion in Rupees deposited in Banks.” The
article notes that a move of this magnitude would result in “obvious chaos”,
but points that “so far at least it looks as if it is working.” The article goes on
to call the move as “rather well done, a clever plan.”

 The Independent, a Singapore-based paper published a glowing article on the

move titled “Modi does a Lee Kuan Yew to stamp out corruption in India.”
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 Lee Kuan Yew was the Singaporean Prime Minister for several decades and is
considered the architect of modern Singapore. “Government leaders feel that
the sudden move by the Indian Prime Minister has brought new respect for
him. A senior Indian government official even equated Mr Modi to
Singapore’s first Prime Minister Lee Kuan Yew. From making up his mind to
rolling it out yesterday (8 Nov), a new Lee Kuan Yew is born in India. It will
be reflected in the legacy of this Prime Minister,” the article said.

CRITISM OF DEMONETIZATION:

 Amartya Sen, Nobel laureate Indian economist, severely criticized the

demonetization move calling it a “despotic action” among other things.
 Kaushik Basu, Former Senior Vice-President and Chief Economist of the
World Bank, called it a “major mistake” and said that the 'damage' is likely to
be much greater than any possible benefits.
 Pronab Sen, former Chief Statistician and Planning Commission of India
member, called it a “hollow move” since it did not really address any of the
purported goals of tackling black money or fake currency.
 Prabhat Patnaik, a former professor of economics at the Jawaharlal Nehru
University, Delhi called the move 'witless' and 'anti-people'. He criticized the
simple way in which black money was assumed as “a hoard of cash”, saying
that it would have little effect in eliminating “black activities” while “causing
much hardship to common people.”
 Noted economist and journalist, T. N. Ninan wrote in the Business Standard
that demonetization “looks like a bad idea, badly executed on the basis of
some half-baked notions”.
 Industrialist Rajiv Bajaj (Managing Director of Bajaj Auto) criticized the
demonetization, saying that not just the execution, but the concept of
demonetization was wrong in itself.
 M Seeni Ahamed, General Secretary of the Indian National League, to scrap
the decision, filed a Public Interest Litigation (PIL) in Madras High Court.
The High Court dismissed the PIL stating that it could not interfere in
monetary policies of the government.
 Similar PILs were also filed in the Supreme Court of India. Supreme Court of
India is yet to decide on the matter.

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POLITICAL OPPOSITION PARTIES RESPONSE:

 On 16th November 2016, Banerjee led a rainbow delegation comprising

political parties of Trinamool Congress, Aam Aadmi Party, BJP ally Shiv Sena
and National Conference to Rashtrapati Bhawan to protest against the decision
to withdraw the ₹500 & ₹1,000 banknotes. A memorandum was submitted to
the President of India Pranab Mukherjee demanding rollback of the decision.
 A Congress-led opposition, which includes 13 political parties, opposed the
central government on the demonetization issue in the Winter Session of the
Indian Parliament on 16th November 2016. The debate on demonetization was
initiated by Indian National Congress and Anand Sharma in the Rajya Sabha
on 16th November 2016.
In the demonetization debate on the first day of the winter session of
Parliament at the Rajya Sabha, Pramod Tiwari from the Indian National
Congress compared Narendra Modi to Benito Mussolini, Adolf Hitler and
Muammar Gaddafi.
Prem Chand Gupta, a member of the Rashtriya Janta Dal, questioned a
statement of Modi from the unscheduled TV broadcast on 8 November, "If it
was planned 10 months ago, how did RBI Governor Urjit Patel sign on new
note?"
Praful Patel, a member of the Nationalist Congress Party, stated “the
government was not even prepared to recalibrate the ATMs while announcing
the move. People's suffering are unimaginable. Nobody is questioning the
government's intention, but you are unprepared to execute the move”.
The former Chief Minister of Uttar Pradesh Mayawati Prabhu Das considered
the situation as “a financial emergency”, by saying “It looks as if Bharat
(India) has shut down”.
Sitaram Yechury leader of Communist Party of India questioned the
government on the demonetization move by stating “only 6% of black money
in India is in cash to drive his point that demonetization won't curb illicit
wealth”.

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 On 17th November 2016, the Chief Minister of Delhi, Arvind Kejriwal with the
Chief Minister of West Bengal, Mamata Banerjee led a rally at Azadpur
Mandi, Delhi against demonetization of ₹500 & ₹1,000 banknotes, where
Arvind Kejriwal demanded the withdrawal of demonetization in 3 days &
Mamata Banerjee also stated “I give the government 3 day ultimatum, fix
things or withdraw the demonetization scheme”.
 On the second and third day of the Winter Session of Parliament, on 17th and
18th November 2016, in the debate over demonetization issue the opposition
and the government clashed, bringing both the houses to continuous halts.
 On 24th November 2016, the former prime minister of India Manmohan Singh
said, in the demonetization debate, "this scheme will hurt small industries, t
and farming sector. The GDP can decline by about 3% due to this move",
while he also questioned the Prime Minister Modi for examples of countries
where people have deposited their money in the banks and are not allowed to
withdraw their own money. and later also said that it is not good that on each
day RBI brings out new notifications. It doesn't reflect properly on Prime
Minister's Office, Finance Minister and the Reserve Bank of India.
Cooperative banking system has been prevented from handling cash. And at
last he termed the demonetization move as an “organized loot, legalized
plunder of the common people"

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STRIKES OPPOSING DEMONETIZATION:

 The demonetization was antipathetic and opposed by opposition parties in the

both houses of the parliament; it provoked organized nationwide strikes across
India.
 Opposition parties like Indian National Congress, Bahujan Samaj Party (BSP),
Trinamool Congress, DMK, Janta Dal United (JDU), AIADMK, Nationalist
Congress Party (NCP), Communist Party of India (Marxist) (CPI-M),
Rashtriya Janata Dal (RJD) and the Samajwadi Party decided to perceive
‘Akrosh Diwas’ as, a protest campaign day on November 28th 2016, and
launched protests in front of banks, demanding that money deposited in the
bank be returned to people with the withdrawal of the demonetization of ₹500
& ₹1,000 banknotes.
In Bihar, 15 trains were blocked and stranded, while the states of West
Bengal, Maharashtra and Uttar Pradesh saw protest marches and rallies led by
opposition parties.
In Kerala, shops and business establishments were shut, with school and
colleges closed throughout the state, while movements of private vehicles
were also disrupted in Northern Kerala.

 The Indian National Congress spokesperson Randeep Surjewala on 31st

December 2016 i.e. on the 50th day since demonetization announced said, “The
Congress party has decided to launch a nationwide movement to expose the
"biggest scam" of independent India.”

12
CHAPTER III
DEMONETIZATION

13
Health insurance is an insurance that covers the whole or a part of the risk of a person
incurring medical expenses, spreading the risk over a large number of persons. By estimating
the overall risk of health care and health systemexpenses over the risk pool, an insurer can
develop a routine finance structure, such as a monthly premium or payroll tax, to provide the
money to pay for the health care benefits specified in the insurance agreement.[1] The benefit is
administered by a central organization such as a government agency, private business, or not-
for-profit entity.

According to the Health Insurance Association of America, health insurance is defined as

"coverage that provides for the payments of benefits as a result of sickness or injury. It includes
insurance for losses from accident, medical expense, disability, or accidental death and
dismemberment" (p. 225).

A health insurance policy is:

1. A contract between an insurance provider (e.g. an insurance company or a government)

and an individual or his/her sponsor (e.g. an employer or a community organization).
The contract can be renewable (e.g. annually, monthly) or lifelong in the case of private
insurance, or be mandatory for all citizens in the case of national plans. The type and
amount of health care costs that will be covered by the health insurance provider are
specified in writing, in a member contract or "Evidence of Coverage" booklet for
private insurance, or in a national health policy for public insurance.
2. (US specific) Provided by an employer-sponsored self-funded ERISA plan. The
company generally advertises that they have one of the big insurance companies.
However, in an ERISA case, that insurance company "doesn't engage in the act of
insurance", they just administer it. Therefore, ERISA plans are not subject to state laws.
ERISA plans are governed by federal law under the jurisdiction of the US Department
of Labor (USDOL). The specific benefits or coverage details are found in the Summary
Plan Description (SPD). An appeal must go through the insurance company, then to the
Employer's Plan Fiduciary. If still required, the Fiduciary's decision can be brought to
the USDOL to review for ERISA compliance, and then file a lawsuit in federal court.

The individual insured person's obligations may take several forms:[citation needed]

 Premium: The amount the policy-holder or their sponsor (e.g. an employer) pays to the
health plan to purchase health coverage.

14
 Deductible: The amount that the insured must pay out-of-pocket before the health insurer
pays its share. For example, policy-holders might have to pay a $500 deductible per year,
before any of their health care is covered by the health insurer. It may take several doctor's
visits or prescription refills before the insured person reaches the deductible and the
insurance company starts to pay for care. Furthermore, most policies do not apply co-pays
for doctor's visits or prescriptions against your deductible.
 Co-payment: The amount that the insured person must pay out of pocket before the health
insurer pays for a particular visit or service. For example, an insured person might pay a
$45 co-payment for a doctor's visit, or to obtain a prescription. A co-payment must be paid
each time a particular service is obtained.
 Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a co-payment),
the co-insurance is a percentage of the total cost that insured person may also pay. For
example, the member might have to pay 20% of the cost of a surgery over and above a co-
payment, while the insurance company pays the other 80%. If there is an upper limit on
coinsurance, the policy-holder could end up owing very little, or a great deal, depending on
the actual costs of the services they obtain.
 Exclusions: Not all services are covered. Billed items like use-and-throw, taxes, etc. are
excluded from admissible claim. The insured are generally expected to pay the full cost of
non-covered services out of their own pockets.
 Coverage limits: Some health insurance policies only pay for health care up to a certain
dollar amount. The insured person may be expected to pay any charges in excess of the
health plan's maximum payment for a specific service. In addition, some insurance
company schemes have annual or lifetime coverage maxima. In these cases, the health plan
will stop payment when they reach the benefit maximum, and the policy-holder must pay
all remaining costs.
 Out-of-pocket maximum: Similar to coverage limits, except that in this case, the insured
person's payment obligation ends when they reach the out-of-pocket maximum, and health
insurance pays all further covered costs. Out-of-pocket maximum can be limited to a
specific benefit category (such as prescription drugs) or can apply to all coverage provided
during a specific benefit year.
 Capitation: An amount paid by an insurer to a health care provider, for which the provider
agrees to treat all members of the insurer.
 In-Network Provider: (U.S. term) A health care provider on a list of providers preselected
by the insurer. The insurer will offer discounted coinsurance or co-payments, or additional
15
 benefits, to a plan member to see an in-network provider. Generally, providers in network
are providers who have a contract with the insurer to accept rates further discounted from
the "usual and customary" charges the insurer pays to out-of-network providers.
 Prior Authorization: A certification or authorization that an insurer provides prior to
medical service occurring. Obtaining an authorization means that the insurer is obligated to
pay for the service, assuming it matches what was authorized. Many smaller, routine
services do not require authorization.[3]
 Explanation of Benefits: A document that may be sent by an insurer to a patient explaining
what was covered for a medical service, and how payment amount and patient
responsibility amount were determined.[3]

Prescription drug plans are a form of insurance offered through some health insurance plans. In
the U.S., the patient usually pays a copayment and the prescription drug insurance part or all of
the balance for drugs covered in the formulary of the plan. Such plans are routinely part of
national health insurance programs. For example, in the province of Quebec, Canada,
prescription drug insurance is universally required as part of the public health insurance plan,
but may be purchased and administered either through private or group plans, or through the
public plan.[4]

Some, if not most, health care providers in the United States will agree to bill the insurance
company if patients are willing to sign an agreement that they will be responsible for the
amount that the insurance company doesn't pay. The insurance company pays out of network
providers according to "reasonable and customary" charges, which may be less than the
provider's usual fee. The provider may also have a separate contract with the insurer to accept
what amounts to a discounted rate or capitation to the provider's standard charges. It generally
costs the patient less to use an in-network provider.

16
Comparisons
See also: Health system

Health Expenditure per capita (in PPP-adjustedUS$) among several OECD member nations.
Data source: OECD's iLibrary[5]

The Commonwealth Fund, in its annual survey, "Mirror, Mirror on the Wall", compares the
performance of the health care systems in Australia, New Zealand, the United Kingdom,
Germany, Canada and the U.S. Its 2007 study found that, although the U.S. system is the most
expensive, it consistently under-performs compared to the other countries.[6] One difference
between the U.S. and the other countries in the study is that the U.S. is the only country without
universal health insurance coverage.

Life Expectancy of the total population at birth from 2000 until 2011 among several OECD
member nations. Data source: OECD's iLibrary

The Commonwealth Fund completed its thirteenth annual health policy survey in 2010. [8] A
study of the survey "found significant differences in access, cost burdens, and problems with
health insurance that are associated with insurance design".[8] Of the countries surveyed, the
results indicated that people in the United States had more out-of-pocket expenses, more
disputes with insurance companies than other countries, and more insurance payments denied;
paperwork was also higher although Germany had similarly high levels of paperwork.

17
Australia
Main article: Health care in Australia

The Australian public health system is called Medicare, which provides free universal access to
hospital treatment and subsidised out-of-hospital medical treatment. It is funded by a 2% tax
levy on all taxpayers, an extra 1% levy on high income earners, as well as general revenue.

The private health system is funded by a number of private health insurance organizations. The
largest of these is Medibank Private Limited, which was, until 2014, a government-owned
entity, when it was privatized and listed on the Australian Stock Exchange.

Australian health funds can be either 'for profit'

including Bupa and nib; 'mutual' including Australian Unity; or 'non-
profit' including GMHBA, HCF and the HBF Health Fund (HBF). Some, such as Police Health,
have membership restricted to particular groups, but the majority have open membership.
Membership to most health funds is now also available through comparison websites like
moneytime, Compare the Market, iSelect Ltd., Choosi, ComparingExpert and YouCompare.
These comparison sites operate on a commission-basis by agreement with their participating
health funds. The Private Health Insurance Ombudsman also operates a free website which
allows consumers to search for and compare private health insurers' products, which includes
information on price and level of cover.[9]

Most aspects of private health insurance in Australia are regulated by the Private Health
Insurance Act 2007. Complaints and reporting of the private health industry is carried out by an
independent government agency, the Private Health Insurance Ombudsman. The ombudsman
publishes an annual report that outlines the number and nature of complaints per health fund
compared to their market share [10]

The private health system in Australia operates on a "community rating" basis, whereby
premiums do not vary solely because of a person's previous medical history, current state of
health, or (generally speaking) their age (but see Lifetime Health Cover below). Balancing this
are waiting periods, in particular for pre-existing conditions (usually referred to within the
industry as PEA, which stands for "pre-existing ailment"). Funds are entitled to impose a
waiting period of up to 12 months on benefits for any medical condition the signs and
symptoms of which existed during the six months ending on the day the person first took out
insurance. They are also entitled to impose a 12-month waiting period for benefits for treatment
relating to an obstetric condition, and a 2-month waiting period for all other benefits when a
person first takes out private insurance. Funds have the discretion to reduce or remove such
18
waiting periods in individual cases. They are also free not to impose them to begin with, but
this would place such a fund at risk of "adverse selection", attracting a disproportionate number
of members from other funds, or from the pool of intending members who might otherwise
have joined other funds. It would also attract people with existing medical conditions, who
might not otherwise have taken out insurance at all because of the denial of benefits for 12
months due to the PEA Rule. The benefits paid out for these conditions would create pressure
on premiums for all the fund's members, causing some to drop their membership, which would
lead to further rises in premiums, and a vicious cycle of higher premiums-leaving members
would ensue.

The Australian government has introduced a number of incentives to encourage adults to take
out private hospital insurance. These include:

 Lifetime Health Cover: If a person has not taken out private hospital cover by 1 July after
their 31st birthday, then when (and if) they do so after this time, their premiums must
include a loading of 2% per annum for each year they were without hospital cover. Thus, a
person taking out private cover for the first time at age 40 will pay a 20 percent loading.
The loading is removed after 10 years of continuous hospital cover. The loading applies
only to premiums for hospital cover, not to ancillary (extras) cover.
 Medicare Levy Surcharge: People whose taxable income is greater than a specified
amount (in the 2011/12 financial year $80,000 for singles and $168,000 for couples[11]) and
who do not have an adequate level of private hospital cover must pay a 1% surcharge on
top of the standard 1.5% Medicare Levy. The rationale is that if the people in this income
group are forced to pay more money one way or another, most would choose to purchase
hospital insurance with it, with the possibility of a benefit in the event that they need private
hospital treatment – rather than pay it in the form of extra tax as well as having to meet
their own private hospital costs.
 The Australian government announced in May 2008 that it proposes to increase the
thresholds, to $100,000 for singles and $150,000 for families. These changes require
legislative approval. A bill to change the law has been introduced but was not passed by
the Senate.[12] An amended version was passed on 16 October 2008. There have been
criticisms that the changes will cause many people to drop their private health
insurance, causing a further burden on the public hospital system, and a rise in
premiums for those who stay with the private system. Other commentators believe the
effect will be minimal.[13]

19
 Private Health Insurance Rebate: The government subsidises the premiums for all private
health insurance cover, including hospital and ancillary (extras), by 10%, 20% or 30%,
depending on age. The Rudd Government announced in May 2009 that as of July 2010, the
Rebate would become means-tested, and offered on a sliding scale. While this move (which
would have required legislation) was defeated in the Senate at the time, in early 2011 the
Gillard Government announced plans to reintroduce the legislation after the Opposition
loses the balance of power in the Senate. The ALP and Greens have long been against the
rebate, referring to it as "middle-class welfare".

Canada
Main article: Health care in Canada

As per the Constitution of Canada, health care is mainly a provincial government responsibility
in Canada (the main exceptions being federal government responsibility for services provided
to aboriginal peoples covered by treaties, the Royal Canadian Mounted Police, the armed
forces, and Members of Parliament). Consequently, each province administers its own health
insurance program. The federal government influences health insurance by virtue of its fiscal
powers – it transfers cash and tax points to the provinces to help cover the costs of the universal
health insurance programs. Under the Canada Health Act, the federal government mandates and
enforces the requirement that all people have free access to what are termed "medically
necessary services," defined primarily as care delivered by physicians or in hospitals, and the
nursing component of long-term residential care. If provinces allow doctors or institutions to
charge patients for medically necessary services, the federal government reduces its payments
to the provinces by the amount of the prohibited charges. Collectively, the public provincial
health insurance systems in Canada are frequently referred to as Medicare.[15] This public
insurance is tax-funded out of general government revenues, although British Columbia and
Ontario levy a mandatory premium with flat rates for individuals and families to generate
additional revenues - in essence, a surtax. Private health insurance is allowed, but in six
provincial governments only for services that the public health plans do not cover (for example,
semi-private or private rooms in hospitals and prescription drug plans). Four provinces allow
insurance for services also mandated by the Canada Health Act, but in practice there is no
market for it. All Canadians are free to use private insurance for elective medical services such
as laser vision correction surgery, cosmetic surgery, and other non-basic medical procedures.
Some 65% of Canadians have some form of supplementary private health insurance; many of
them receive it through their employers.[16] Private-sector services not paid for by the
government account for nearly 30 percent of total health care spending.[17]
20
In 2005, the Supreme Court of Canada ruled, in Chaoulli v. Quebec, that the province's
prohibition on private insurance for health care already insured by the provincial plan violated
the Quebec Charter of Rights and Freedoms, and in particular the sections dealing with the right
to life and security, if there were unacceptably long wait times for treatment, as was alleged in
this case. The ruling has not changed the overall pattern of health insurance across Canada, but
has spurred on attempts to tackle the core issues of supply and demand and the impact of wait
times.

China
Main articles: Healthcare reform in the People's Republic of China and Pharmaceutical
industry in the People's Republic of China

France
Main article: Health care in France

The national system of health insurance was instituted in 1945, just after the end of the Second
World War. It was a compromise between Gaullist and Communist representatives in the
French parliament. The Conservative Gaullists were opposed to a state-run healthcare system,
while the Communists were supportive of a complete nationalisation of health care along a
British Beveridge model.

The resulting programme is profession-based: all people working are required to pay a portion
of their income to a not-for-profit health insurance fund, which mutualises the risk of illness,
and which reimburses medical expenses at varying rates. Children and spouses of insured
people are eligible for benefits, as well. Each fund is free to manage its own budget, and used to
reimburse medical expenses at the rate it saw fit, however following a number of reforms in
recent years, the majority of funds provide the same level of reimbursement and benefits.

The government has two responsibilities in this system.

 The first government responsibility is the fixing of the rate at which medical expenses
should be negotiated, and it does so in two ways: The Ministry of Health directly negotiates
prices of medicine with the manufacturers, based on the average price of sale observed in
neighboring countries. A board of doctors and experts decides if the medicine provides a
valuable enough medical benefit to be reimbursed (note that most medicine is reimbursed,
including homeopathy). In parallel, the government fixes the reimbursement rate for
medical services: this means that a doctor is free to charge the fee that he wishes for a
consultation or an examination, but the social security system will only reimburse it at a

21
 pre-set rate. These tariffs are set annually through negotiation with doctors' representative
organisations.
 The second government responsibility is oversight of the health-insurance funds, to ensure
that they are correctly managing the sums they receive, and to ensure oversight of the
public hospital network.

Today, this system is more or less intact. All citizens and legal foreign residents of France are
covered by one of these mandatory programs, which continue to be funded by worker
participation. However, since 1945, a number of major changes have been introduced. Firstly,
the different health care funds (there are five: General, Independent, Agricultural, Student,
Public Servants) now all reimburse at the same rate. Secondly, since 2000, the government now
provides health care to those who are not covered by a mandatory regime (those who have
never worked and who are not students, meaning the very rich or the very poor). This regime,
unlike the worker-financed ones, is financed via general taxation and reimburses at a higher rate
than the profession-based system for those who cannot afford to make up the difference.
Finally, to counter the rise in health care costs, the government has installed two plans, (in 2004
and 2006), which require insured people to declare a referring doctor in order to be fully
reimbursed for specialist visits, and which installed a mandatory co-pay of €1 for a doctor visit,
€0.50 for each box of medicine prescribed, and a fee of €16–18 per day for hospital stays and
for expensive procedures.

An important element of the French insurance system is solidarity: the more ill a person
becomes, the less the person pays. This means that for people with serious or chronic illnesses,
the insurance system reimburses them 100% of expenses, and waives their co-pay charges.

Finally, for fees that the mandatory system does not cover, there is a large range of private
complementary insurance plans available. The market for these programs is very competitive,
and often subsidised by the employer, which means that premiums are usually modest. 85% of
French people benefit from complementary private health insurance.[19]

Germany
Main article: Healthcare in Germany

Germany has the world's oldest national social health insurance system,[20] with origins dating
back to Otto von Bismarck's Sickness Insurance Law of 1883.[21][22]

Beginning with 10% of blue-collar workers in 1885, mandatory insurance has expanded; in
2009, insurance was made mandatory on all citizens, with private health insurance for the self-
employed or above an income threshold.[23][24]As of 2016, 85% of the population is covered by
22
the compulsory Statutory Health Insurance (SHI)[25] (Gesetzliche
Krankenversicherung or GKV), with the remainder covered by private insurance (Private
Krankenversicherung or PKV) Germany's health care system was 77% government-funded and
23% privately funded as of 2004.[26] While public health insurance contributions are based on
the individual's income, private health insurance contributions are based on the individual's age
and health condition.[23][27]

Reimbursement is on a fee-for-service basis, but the number of physicians allowed to accept

Statutory Health Insurance in a given locale is regulated by the government and professional
societies.

Co-payments were introduced in the 1980s in an attempt to prevent over utilization. The
average length of hospital stay in Germany has decreased in recent years from 14 days to 9
days, still considerably longer than average stays in the United States (5 to 6 days). [28][29] Part of
the difference is that the chief consideration for hospital reimbursement is the number of
hospital days as opposed to procedures or diagnosis. Drug costs have increased substantially,
rising nearly 60% from 1991 through 2005. Despite attempts to contain costs, overall health
care expenditures rose to 10.7% of GDP in 2005, comparable to other western European
nations, but substantially less than that spent in the U.S. (nearly 16% of GDP).[30]

Germans are offered three kinds of social security insurance dealing with the physical status of
a person and which are co-financed by employer and employee: health insurance, accident
insurance, and long-term care insurance. Long-term care insurance (Gesetzliche
Pflegeversicherung) emerged in 1994, but it is not mandatory.[24] Accident
insurance (gesetzliche Unfallversicherung) is covered by the employer and basically covers all
risks for commuting to work and at the workplace.[citation needed]

India
Main article: Healthcare in India

Japan
Main article: Health care in Japan

There are two major types of insurance programs available in Japan – Employees Health
Insurance (健康保険 Kenkō-Hoken), and National Health Insurance (国民健康保険 Kokumin-
Kenkō-Hoken). National Health insurance is designed for people who are not eligible to be
members of any employment-based health insurance program. Although private health
insurance is also available, all Japanese citizens, permanent residents, and non-Japanese with a

23
visa lasting one year or longer are required to be enrolled in either National Health Insurance or
Employees Health Insurance.

Netherlands
Main article: Health care in the Netherlands

In 2006, a new system of health insurance came into force in the Netherlands. This new system
avoids the two pitfalls of adverse selection and moral hazard associated with traditional forms
of health insurance by using a combination of regulation and an insurance equalization pool.
Moral hazard is avoided by mandating that insurance companies provide at least one policy
which meets a government set minimum standard level of coverage, and all adult residents are
obliged by law to purchase this coverage from an insurance company of their choice. All
insurance companies receive funds from the equalization pool to help cover the cost of this
government-mandated coverage. This pool is run by a regulator which collects salary-based
contributions from employers, which make up about 50% of all health care funding, and
funding from the government to cover people who cannot afford health care, which makes up
an additional 5%.

The remaining 45% of health care funding comes from insurance premiums paid by the public,
for which companies compete on price, though the variation between the various competing
insurers is only about 5%.[citation needed]However, insurance companies are free to sell additional
policies to provide coverage beyond the national minimum. These policies do not receive
funding from the equalization pool, but cover additional treatments, such as dental procedures
and physiotherapy, which are not paid for by the mandatory policy.[citation needed]

Funding from the equalization pool is distributed to insurance companies for each person they
insure under the required policy. However, high-risk individuals get more from the pool, and
low-income persons and children under 18 have their insurance paid for entirely. Because of
this, insurance companies no longer find insuring high risk individuals an unappealing
proposition, avoiding the potential problem of adverse selection.

Insurance companies are not allowed to have co-payments, caps, or deductibles, or to deny
coverage to any person applying for a policy, or to charge anything other than their nationally
set and published standard premiums. Therefore, every person buying insurance will pay the
same price as everyone else buying the same policy, and every person will get at least the
minimum level of coverage.

24
New Zealand

Since 1974, New Zealand has had a system of universal no-fault health insurance for personal
injuries through the Accident Compensation Corporation (ACC). The ACC scheme covers most
of the costs of related to treatment of injuries acquired in New Zealand (including overseas
visitors) regardless of how the injury occurred, and also covers lost income (at 80 percent of the
employee's pre-injury income) and costs related to long-term rehabilitation, such as home and
vehicle modifications for those seriously injured. Funding from the scheme comes from a
combination of levies on employers' payroll (for work injuries), levies on an employee's taxable
income (for non-work injuries to salary earners), levies on vehicle licensing fees and petrol (for
motor vehicle accidents), and funds from the general taxation pool (for non-work injuries to
children, senior citizens, unemployed people, overseas visitors, etc.)

Rwanda

Rwanda is one of a handful of low income countries that has implemented community-based
health insurance schemes in order to reduce the financial barriers that prevent poor people from
seeking and receiving needed health services. This scheme has helped reach 90% of the
country's population with health care coverage.

Switzerland
Main article: Health insurance in Switzerland

Healthcare in Switzerland is universal[34] and is regulated by the Swiss Federal Law on Health
Insurance. Health insurance is compulsory for all persons residing in Switzerland (within three
months of taking up residence or being born in the country).[35][36] It is therefore the same
throughout the country and avoids double standards in healthcare. Insurers are required to offer
this basic insurance to everyone, regardless of age or medical condition. They are not allowed
to make a profit off this basic insurance, but can on supplemental plans.

The universal compulsory coverage provides for treatment in case of illness or accident and
pregnancy. Health insurance covers the costs of medical treatment, medication and
hospitalization of the insured. However, the insured person pays part of the costs up to a
maximum, which can vary based on the individually chosen plan, premiums are then adjusted
accordingly. The whole healthcare system is geared towards to the general goals of enhancing
general public health and reducing costs while encouraging individual responsibility.

The Swiss healthcare system is a combination of public, subsidised private and totally private
systems. Insurance premiums vary from insurance company to company, the excess level

25
individually chosen (franchise), the place of residence of the insured person and the degree of
supplementary benefit coverage chosen (complementary medicine, routine dental care, semi-
private or private ward hospitalisation, etc.).

The insured person has full freedom of choice among the approximately 60 recognised
healthcare providers competent to treat their condition (in their region) on the understanding
that the costs are covered by the insurance up to the level of the official tariff. There is freedom
of choice when selecting an insurance company to which one pays a premium, usually on a
monthly basis. The insured person pays the insurance premium for the basic plan up to 8% of
their personal income. If a premium is higher than this, the government gives the insured person
a cash subsidy to pay for any additional premium.

The compulsory insurance can be supplemented by private "complementary" insurance policies

that allow for coverage of some of the treatment categories not covered by the basic insurance
or to improve the standard of room and service in case of hospitalisation. This can include
complementary medicine, routine dental treatment and private ward hospitalisation, which are
not covered by the compulsory insurance.

As far as the compulsory health insurance is concerned, the insurance companies cannot set any
conditions relating to age, sex or state of health for coverage. Although the level of premium
can vary from one company to another, they must be identical within the same company for all
insured persons of the same age group and region, regardless of sex or state of health. This does
not apply to complementary insurance, where premiums are risk-based.

Switzerland has an infant mortality rate of about 3.6 out of 1,000. The general life
expectancy in 2012 was for men 80.5 years compared to 84.7 years for women.[37] These are the
world's best figures.

United Kingdom
Main article: National Health Service

The UK's National Health Service (NHS) is a publicly funded healthcare system that provides
coverage to everyone normally resident in the UK. It is not strictly an insurance system because
(a) there are no premiums collected, (b) costs are not charged at the patient level and (c) costs
are not pre-paid from a pool. However, it does achieve the main aim of insurance which is to
spread financial risk arising from ill-health. The costs of running the NHS (est. £104 billion in
2007-8)[39] are met directly from general taxation. The NHS provides the majority of health care
in the UK, including primary care, in-patient care, long-term health care, ophthalmology,
and dentistry.
26
Private health care has continued parallel to the NHS, paid for largely by private insurance, but
it is used by less than 8% of the population, and generally as a top-up to NHS services. There
are many treatments that the private sector does not provide. For example, health insurance
on pregnancy is generally not covered or covered with restricting clauses. Typical exclusions
for Bupa schemes (and many other insurers) include:

ageing, menopause and puberty; AIDS/HIV; allergies or allergic disorders; birth control,
conception, sexual problems and sex changes; chronic conditions; complications from excluded
or restricted conditions/ treatment; convalescence, rehabilitation and general nursing care ;
cosmetic, reconstructive or weight loss treatment; deafness; dental/oral treatment (such as
fillings, gum disease, jaw shrinkage, etc); dialysis; drugs and dressings for out-patient or take-
home use† ; experimental drugs and treatment; eyesight; HRT and bone densitometry; learning
difficulties, behavioural and developmental problems; overseas treatment and repatriation;
physical aids and devices; pre-existing or special conditions; pregnancy and childbirth;
screening and preventive treatment; sleep problems and disorders; speech disorders; temporary
relief of symptoms.[40] († = except in exceptional circumstances)

There are a number of other companies in the United Kingdom which include, among
others, ACE Limited, AXA, Aviva, Bupa, Groupama Healthcare, WPA and PruHealth. Similar
exclusions apply, depending on the policy which is purchased.

Recently (2009) the main representative body of British Medical physicians, the British
Medical Association, adopted a policy statement expressing concerns about developments in
the health insurance market in the UK. In its Annual Representative Meeting which had been
agreed earlier by the Consultants Policy Group (i.e. Senior physicians) stating that the BMA
was "extremely concerned that the policies of some private healthcare insurance companies are
preventing or restricting patients exercising choice about (i) the consultants who treat them; (ii)
the hospital at which they are treated; (iii) making top up payments to cover any gap between
the funding provided by their insurance company and the cost of their chosen private
treatment." It went in to "call on the BMA to publicise these concerns so that patients are fully
informed when making choices about private healthcare insurance."[41] The practice of
insurance companies deciding which consultant a patient may see as opposed to GPs or patients
is referred to as Open Referral.[42] The NHS offers patients a choice of hospitals and consultants
and does not charge for its services.

The private sector has been used to increase NHS capacity despite a large proportion of the
British public opposing such involvement.[43] According to the World Health Organization,

27
government funding covered 86% of overall health care expenditures in the UK as of 2004,
with private expenditures covering the remaining 14%.

Nearly one in three patients receiving NHS hospital treatment is privately insured and could
have the cost paid for by their insurer. Some private schemes provide cash payments to patients
who opt for NHS treatment, to deter use of private facilities. A report, by private health analysts
Laing and Buisson, in November 2012, estimated that more than 250,000 operations were
performed on patients with private medical insurance each year at a cost of £359 million. In
addition, £609 million was spent on emergency medical or surgical treatment. Private medical
insurance does not normally cover emergency treatment but subsequent recovery could be paid
for if the patient were moved into a private patient unit.

United States
Main articles: Health insurance in the United States and Health care in the United States

Short Term Health Insurance

On the 1st of August, 2018 the DHHS issued a final rule which made federal changes to Short-
Term, Limited-Duration Health Insurance (STLDI) which lengthened the maximum contract
term to 364 days and renewal for up to 36 months.[45][46] This new rule, in combination with the
expiration of the penalty for the Individual Mandate of the Affordable Care Act,[47] has been the
subject of independent analysis.

The United States health care system relies heavily on private health insurance, which is the
primary source of coverage for most Americans. As of 2012 about 61% of Americans had
private health insurance according to the Centers for Disease Control and
Prevention.[56] The Agency for Healthcare Research and Quality (AHRQ) found that in 2011,
private insurance was billed for 12.2 million U.S. inpatient hospital stays and incurred
approximately $112.5 billion in aggregate inpatient hospital costs (29% of the total national
aggregate costs).[57] Public programs provide the primary source of coverage for most senior
citizens and for low-income children and families who meet certain eligibility requirements.
The primary public programs are Medicare, a federal social insurance program for seniors and
certain disabled individuals; and Medicaid, funded jointly by the federal government and states
but administered at the state level, which covers certain very low income children and their
families. Together, Medicare and Medicaid accounted for approximately 63 percent of the
national inpatient hospital costs in 2011.[57] SCHIP is a federal-state partnership that serves
certain children and families who do not qualify for Medicaid but who cannot afford private
coverage. Other public programs include military health benefits provided
28
through TRICARE and the Veterans Health Administration and benefits provided through
the Indian Health Service. Some states have additional programs for low-income individuals.

In the late 1990s and early 2000s, health advocacy companies began to appear to help patients
deal with the complexities of the healthcare system. The complexity of the healthcare system
has resulted in a variety of problems for the American public. A study found that 62 percent of
persons declaring bankruptcy in 2007 had unpaid medical expenses of $1000 or more, and in
92% of these cases the medical debts exceeded $5000. Nearly 80 percent who filed for
bankruptcy had health insurance.[59] The Medicare and Medicaid programs were estimated to
soon account for 50 percent of all national health spending.[60] These factors and many others
fueled interest in an overhaul of the health care system in the United States. In 2010 President
Obama signed into law the Patient Protection and Affordable Care Act. This Act includes an
'individual mandate' that every American must have medical insurance (or pay a fine). Health
policy experts such as David Cutler and Jonathan Gruber, as well as the American medical
insurance lobby group America's Health Insurance Plans, argued this provision was required in
order to provide "guaranteed issue" and a "community rating," which address unpopular
features of America's health insurance system such as premium weightings, exclusions for pre-
existing conditions, and the pre-screening of insurance applicants. During 26–28 March, the
Supreme Court heard arguments regarding the validity of the Act. The Patient Protection and
Affordable Care Act was determined to be constitutional on 28 June 2012. The Supreme Court
determined that Congress had the authority to apply the individual mandate within its taxing
powers.

History and evolution

Main articles: Health insurance in the United States § History, and Managed care

In the late 19th century, "accident insurance" began to be available, which operated much like
modern disability insurance.[62][63] This payment model continued until the start of the 20th
century in some jurisdictions (like California), where all laws regulating health insurance
actually referred to disability insurance.

Accident insurance was first offered in the United States by the Franklin Health Assurance
Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries
arising from railroad and steamboat accidents. Sixty organizations were offering accident
insurance in the U.S. by 1866, but the industry consolidated rapidly soon thereafter. While there
were earlier experiments, the origins of sickness coverage in the U.S. effectively date from
1890. The first employer-sponsored group disability policy was issued in 1911.[65]

29
Before the development of medical expense insurance, patients were expected to pay health
care costs out of their own pockets, under what is known as the fee-for-service business model.
During the middle-to-late 20th century, traditional disability insurance evolved into modern
health insurance programs. One major obstacle to this development was that early forms of
comprehensive health insurance were enjoined by courts for violating the traditional ban on
corporate practice of the professions by for-profit corporations.[66] State legislatures had to
intervene and expressly legalize health insurance as an exception to that traditional rule. Today,
most comprehensive private health insurance programs cover the cost of routine, preventive,
and emergency health care procedures, and most prescription drugs (but this is not always the
case).

Hospital and medical expense policies were introduced during the first half of the 20th century.
During the 1920s, individual hospitals began offering services to individuals on a pre-paid
basis, eventually leading to the development of Blue Cross organizations.[65] The predecessors
of today's Health Maintenance Organizations (HMOs) originated beginning in 1929, through
the 1930s and on during World War II.[67][68]

The Employee Retirement Income Security Act of 1974 (ERISA) regulated the operation of a
health benefit plan if an employer chooses to establish one, which is not required.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) gives an ex-
employee the right to continue coverage under an employer-sponsored group health benefit
plan.

Through the 1990s, managed care insurance schemes including health maintenance
organizations (HMO), preferred provider organizations, or point of service plans grew from
about 25% US employees with employer-sponsored coverage to the vast majority.[69] With
managed care, insurers use various techniques to address costs and improve quality, including
negotiation of prices ("in-network" providers), utilization management, and requirements for
quality assurance such as being accredited by accreditation schemes such as the Joint
Commission and the American Accreditation Healthcare Commission.

Employers and employees may have some choice in the details of plans, including health
savings accounts, deductible, and coinsurance. As of 2015, a trend has emerged for employers
to offer high-deductible plans, called consumer-driven healthcare plans which place more costs
on employees; some employers will offer multiple plans to their employees.

30
Implications on healthcare Appropriate steps were initially taken to avoid inconvenience to the
public for first 16days by allowing older high denomination notes at several government
outlets, including government run hospitals and pharmacies.4 Even after weeks following
demonetization, several reports highlighted health serviced allegedly being denied to patients
with old currency.5,6 Since majority of patients in India seek medical care in private sector
clinics or hospitals, the rejection of healthcare services resulted in unavoidable sufferings and
trauma. In addition, a high proportion of India’s rural, tribal and migrant population did not had
access to any means of electronic money to aid during demonetization drive.7 Not only
patients, even hospitals and pharmacies were facing the cash-crunch.8 On human grounds,
some large-scale private hospitals operated their outpatient clinics for initial fewdays.9 But that
was not the case for small clinics as most of them had no means of accepting electronic mode of
payment. Also, independent, private practitioners too faced low patient turnover during the
initial days of demonetization. Mainly because they largely preferred physical currency towards
their payment, but also because most of the customers haven’t turned up for minor health issues
in order to save the smaller denomination notes they already had. Similarly, pharmacies
accepting old notes since the demonetization was imposed soon started to face problems. As
more and more people turned to pharmacies knowing that older denominations are being
accepted, the pharmacies soon faced lack of smaller denomination currency and started turning
down the customers. Most of the pharmacies remained closed during the initial days of
demonetization.

FINANCIAL SECTOR:
This sector shows out the impact of demonetization on banks; liquidity conditions and
transmission of monetary policy; non-banking financial intermediaries; and, Jan-Dhan
accounts.

EFFECTS ON BALANCE SHEET OF SCHEDULED COMMERCIAL

BANKS:

The demonetization move has had a significant impact on the balance sheet of
scheduled commercial banks (SCBs), both in terms of size and composition.
After the announcement of demonetization, within the 4 days, the old ₹500 &
₹1,000 banknotes worth ₹3 trillion (US$45 billion) were deposited in the banks and
about ₹500 billion (US$7.4 billion) supplied out as withdrawals from the bank

31
accounts.
During these 4 days after demonetization, Indian banking system handled about 18
crores (180 million) transactions.
Decline in currency in circulation because of the demonetization escorted to a huge
rise and surge in the bank deposits. The demonetized notes were accepted at bank
counters till December 30, 2016.
Between October 28, 2016 and January 6, 2017 (i.e., days immediately prior to and
after demonetization for which fortnightly banking system data are available), total
currency in circulation declined by about ₹ 8,800 billion.
Remonetisation has been progressing at a fast pace. (Remonetizing is the process of
restoring to the status of legal tender).
Between end-December 2016 and early March 2017, there was a net increase in
currency in circulation by about ₹ 2,600 billion. During the same period, there was
also found a decrease in deposits with banks moderately.

Banks states data on their major assets and liabilities on a fortnightly basis. As per
data available for the reporting Fridays of October 28, 2016 (prior to

32
demonetization) and February 17, 2017 (latest available), aggregate deposits of SCBs
increased by ₹ 5,549 billion during the period.

Table 2: Changes in Major Assets and Liabilities of SCBs –

October 28, 2016 and February 17, 2017
(₹ billion)
Liabilities Assets
1. Aggregate Deposits 5,549 1. Bank Credit 1,008
2. Borrowings (-56) 2. Investment in 4,560
Government Securities
3. Net Other Assets (-75)
Total 5,493 Total 5,493
Note: Data are provisional.
Source: RBI

33
 PROFITABILITY OF BANKS:

Banks’ net profits essentially reflect the difference between interest earned on loans
and advances and investments, and interest paid on deposits and borrowings, adjusted
for operating costs and provisions.
Loans and advances and investments, which are the main sources of interest income,
together constitute more than 85 per cent (61 per cent accounted for by loans and
advances and 25 per cent by investments) of banks’ consolidated balance sheet.
After the demonetization, there has been a surge in the CASA deposits of banks.
CASA is abbreviation of Current Account Savings Account. It is the ratio that
indicates how much of the total deposits with the bank are in the current account and
savings account.
The biggest beneficiary from the demonetization policy is the banking sector. This is
mainly due to the queues of people depositing cash in the banks – which will result in
substantial liquidity with the banks. As the deposits with the banks will increase so
will increase the CASA, which will increase the Net Interest Income and the Net
earnings of the banks.
This way the banks get funds at no or very low cost (interest). Banks do not pay
interest on the current account deposits and pays a very low % of interest on savings
account deposits. Hence, it is a good measure to get deposits at no or very low cost.
As the banks get a lot of liquidity in their hands, they are expected to enhance the
borrowing cycle by lending the money at a lower rate of interest. Hence, the interest
rates on borrowing money are expected to be lower down.

34
 NON-BANKING FINANCIAL INTERMEDIARIES:
Demonetization has impacted various financial intermediaries differently. As
explained earlier, consolidated balance sheet of SCBs has expanded by about ₹6.7
trillion in the post-demonetization period.
Debt oriented mutual funds and insurance companies have also gained.
Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs)
were adversely affected, both in terms of disbursals and collection of dues. However,
the situation with regard to most NBFCs has started to improve from late December
2016.

PRADHAN MANTRI JAN-DHAN YOJANA ACCOUNTS:

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial
Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit
Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. Account
can be opened in any bank branch or Business Correspondent (Bank Mitra) outlet.
After demonetization, 23.3 million new accounts were opened under the Pradhan
Mantri Jan-Dhan Yojana (PMJDY), proportion of which 80% were with public sector
banks. 53.6% of the new Jan Dhan accounts opened, were in urban areas and 46.4%
in rural areas.
The amount of deposits under PMJDY accounts increased significantly post
demonetization. On 9th November, 2016 the total balance in PMJDY accounts was
₹456 billion which peaked at ₹ 746 billion as on December 7, 2016 i.e. an increase of
63.6% in the total balance of accounts in almost less than a month.
Moreover, there were reports regarding the use of these accounts to convert black
money i.e., unaccounted money or illegal money into white, the government and
authorities have issued warrant against such accounts which were misused. In order to
check the misuse of Jan Dhan accounts by black money hoarders following the
demonetization, the Reserve Bank of India has restricted the withdrawal from such
accounts to ₹10,000 per month. However, Branch managers were allowed further
withdrawals beyond ₹10,000 a month

35
within the current applicable limits only after ascertaining the genuineness of such
withdrawals and duly documenting the same on bank's record.

Table 3 : PMJDY: Number of Accounts

(in million)
Bank Group As on November 9, As on March 1, 2017 Variation (01-03-2017
2016 over 09-11-2016)
Rural Urban Total Rural Urban Total Rural Urban Total

Public Sector Banks

114.3 89.3 203.6 122.1 100.8 222.9 7.8 11.5 19.3

(6.8) (12.9) (9.5)

Regional Rural Banks

37.1 6.0 43.1 40.0 6.4 46.4 2.9 0.4 3.3

(7.8) (6.8) (7.7)

Private Sector
5.3 3.1 8.4 5.4 3.6 9.0 0.1 0.5 0.6
Banks

(1.3) (16.8) (7.0)

Scheduled
156.7 98.4 255.1 167.5 110.9 278.4 10.8 12.5 23.3
Commercial Banks

(6.9) (12.7) (9.1)

Note: Figures in parentheses are percentage variations.

Source: Pradhan Mantri Jan Dhan Yojana website.

36
 DIGITAL MODES OF PAYMENT:
An aftereffect of demonetization was that the digital modes of payments picked up
sharply. After demonetization, there has been a significant emphasis on digital modes
of payment.

DIGITAL AND CASHLESS BANKING FACILITY:

The Government of India and the Reserve Bank of India have initiated a series of
measures, some of which are temporary, to promote movement from cash to non-cash
modes of transactions which are as follows;
(i) Reduction in the merchant discount rate (MDR) and point of sale (POS)
fees;
(ii) Monetary incentives in the form of discounts and prizes;
(ii) Service tax relief on MDR for small transactions;
(iv) Waiver of charges for small value transactions under Immediate Payment
Service (IMPS), Unified Payment Interface (UPI) and Unstructured
Supplementary Service Data (USSD) based *99# platform;
(v) Broadening Prepaid Payment Instrument (PPI) reach by enhancement of
limits;
(vi) Introduction of a new category of PPIs;
(vii) Permitting banks to issue PPIs to a larger set of entities; and
(vii) Permitting National Payments Corporation of India (NPCI) to launch
(a) the common app for UPI; and
(b) National Electronic Toll Collection (NETC) system.
The government also announced that it would ensure that transactions fee/MDR
charges associated with payment through digital means shall not be passed on to
consumers. These measures are encouraging migration of consumers from cash to
digital modes of payments.
After the announcement of demonetization, digital activity levels were low in the
initial weeks as people were busy depositing/exchanging SBNs. However, in
December 2016, digital payment activity increased alongside progressive
remonetization. The usage statistics show that growth for major modes of electronic
payments was good in October 2016, mainly on account of festive

37
season. The continuance of that high growth with a further pick up in some
components from November to January 2017 (Table 4) was a positive fallout of
demonetization. However, the pace of growth moderated somewhat in February 2017.

Table 4 : Growth in Select Electronic Modes of Payments

(y-o-y growth in percentage)
Category Oct-16 Nov-16 Dec-16 Jan-17 Feb-17
NEFT Volume 16.2 23.3 39.0 38.0 34.5
Value 37.6 38.3 40.8 60.2 49.5
CTS Volume -1.1 23.0 58.4 52.7 20.2
Value 2.9 8.6 13.0 19.3 0.8
IMPS Volume 116.7 89.6 157.2 177.7 150.4
Value 150.7 135.9 186.6 196.7 184.2
NACH Volume 53.0 30.8 58.3 19.8 -0.9
Value 89.8 76.3 116.7 22.8 54.2
Source: RBI Bulletins and Press Releases on Electronic Payment Systems - Representative Data

Glossary:
1. National electronic funds transfer (NEFT) is a nation-wide payment system
facilitating one-to-one funds transfer. Under this Scheme, individuals, firms
and corporates can electronically transfer funds from any bank branch to any
individual, firm or corporate having an account with any other bank branch in
the country participating in the Scheme. Under NEFT, the transactions are
processed and settled in batches. There is no limit – either minimum or
maximum – on the amount of funds that could be transferred using NEFT.
2. Immediate Payment Service (IMPS) offers an instant, 24X7, interbank
electronic fund transfer service through mobile phones. IMPS transfers money
instantly within banks across India through mobile, internet and ATMs.
3. Cheque Truncation System (CTS) is the process that obviates the need to
move the physical instruments across bank branches. This reduces the time
required for their collection and brings elegance to the entire activity of
cheque processing.
4. National Automated Clearing House (NACH) implemented by NPCI is a
web based solution for making bulk transactions towards

38
 distribution of subsidies, dividends, interest, salary, pension etc. and also for
bulk transactions towards collection of payments pertaining to telephone,
electricity, water, loans, investments in mutual funds, insurance premium etc.
5. Unified Payments Interface (UPI) is a system that, through a universal
application for transaction, connects multiple bank accounts into a single
mobile application (of any participating bank) for immediate money transfer
through mobile device round the clock 24x7 and 365 days. It uses a single
mobile application for accessing different bank accounts. Recently NPCI has
launched a front-end app called BHIM that can be downloaded on mobiles to
use UPI for fund transfer.
6. Unstructured Supplementary Service Data (USSD) service of NPCI caters
to the need for immediate low value remittances. The USSD service brings
together diverse ecosystem partners such as banks & telecom service providers
and allows customers to access financial services by dialing *99# from their
mobile registered with the bank. The service works across all GSM service
providers all types of handsets – smart phones and feature phones.

39
 ELECTRONIC WALLETS:
Electronic wallets also known as Mobile wallets and their companies have turned out
to be the largest beneficiary of India’s biggest ever cash shortage due to
demonetization which overnight sucked out 86% of the country’s currency in
circulation.
Paytm a mobile wallet App was facing their traffic increased by 435%, app
downloads grew 200%, and there was 250% rise in overall transactions and
transaction value after demonetization. The company’s founder and CEO Vijay
Shekhar Sharma said in media that he is living a dream. While Paytm’s rise is a
success story in itself, it also underlines the growth of cashless transactions in the
country.
Other mobile wallet companies like MobiKwik and Snapdeal-owned Freecharge also
witnessed sudden upward growth. State Bank of India’s SBI Buddy wallet became the
fourth largest mobile wallet in the country.
Bipin Preet Singh, founder and CEO of MobiKwik said, “There might be few POS
machines, but most of the people nowadays have smartphones, which have become
the new medium of payment”.

40
 IMPACT ON DEMAND OF GOLD:

After demonetization, there was a sudden spike in domestic demand for gold (or gold
items), with buyers reportedly willing to pay huge premiums to dispose of old
currency notes with jewelers. Reflecting this development as well as the seasonal
jump, the volume of gold imports surged in November, even above the elevated
October level. Gold imports, however, declined sharply in December 2016 and
January 2017 (Table 20). As around 80 per cent of the gems and jewellery purchases
in India are made in cash, consumer demand was reported to have been impacted due
to the cash shortage.
Several domestic factors impacted demand for gold such as weak rural demand,
destocking of earlier purchases, recycling of jewellery of households, increased
regulations towards transparency and the possibility of some demand being partly met
through smuggling.15 Besides, high and volatile international gold prices also
appeared to have impacted gold demand.

Table 5 : Gold Imports

Value Volume Value Volume
Month
(US$ Billion) (Tonnes) (US$ Billion) (Tonnes)
2015-16 2016-17
April 3.1 86.8 1.2 31.0
May 2.4 69.2 1.5 46.6
June 2.0 56.6 1.2 39.5
July 3.0 89.4 1.1 26.5
August 5.0 152.9 1.1 25.7
September 2.0 64.2 1.8 50.5
October 1.7 48.7 3.5 99.7
November 3.5 110 4.4 119.2
December 3.8 121.8 1.9 54.1
January 2.9 93.3 2 53.2*
February 1.4 48.3
March 1 26.8
*: Estimated.
Source: DGCI&S.

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 HUMAN TRAFFICKING:

Yes, industry of the human trafficking which is India’s one of the most horrendous
mafia working and kidnapping innocent little girls, women and use them as sex
workers has been come to a grinding halt. Recently, the rescue workers on the ground
revealed this information. According to the study, until November the girls are
kidnapped from all over the country every year, and are transported to different places
both nationally and internationally using middleman. The trafficked persons are sold
to brothels, placement agencies and as child brides. Many times, people who indulge
in black magic also buy them through dealers.
But ever since the demonetization was declared on November 8th, the rescue workers
have said that the trafficking has been stopped completely and not a single girl has
been trafficked!! The rescue workers told that they had never seen the human
trafficking business shut off from root any time before.
All the selling and buying transactions of human trafficking used to happen through
cash and now the operators and mafia heads do not have money to pay to the
middleman. These people mostly used 500 and 1000 rupee notes as it was easy, but
now there is no cash liquidity that has badly hit the business.
Nobel Prize winner Kailash Satyarthi said, “After demonetization, the brothel owners
have literally lost their business since they cannot exchange money in banks and new
currency is not readily available in the markets yet. So the customers have stopped
going to brothels and brothel owners since they have no cash to pay them”. He also
added to his statement that his team met the Prime Minister appraised him about the
development and suggested to take further steps to ensure that black money doesn’t
get accumulated in the system again.

42
 HAWALA TRADING:

Demonetization has impacted an unprecedented hit on the hawala trading. After

demonetization, Hawala operators in India, Pakistan & Dubai say that only 3•5% of
the trade is functioning.
According to the media reports during the initial period of demonetization, Delhi a
hub of money laundering & the agents in the city were tremendously affected. Many
of them had even closed shops as both customers & cash were negligible following
the 8th of November.
Gujarati hawala traders working in the capital city of the country were mostly affected
& then run the risk of going bankrupt. Their usual custom was to shut down offices
for Diwali & go back to Gujarat for 15•20 days. But after 8th of November, these
traders haven’t even returned back to Delhi. The cash that was kept by these people in
great volume has become useless after the announcement of demonetization.
Such channels of money laundering are the life saving rope of drug dealers, terrorists
& other criminals. With just 3•5% of the trade still intact, it is but obvious that
terrorism & other mafia activities have suffered a huge blow.
According to reports of investigation agencies these hawala and money laundering
networks are attempting to restore their business by parking new currency in
neighbouring countries. But the officials are tightening the screws especially near
Bangladesh & ensuring that this is kept to a bare minimum.

43
 RAILWAY TICKET BOOKINGS:

As of November 2016, Indian Railways did not have the option to make payment with
cards at the counters. After the demonetization move, the government announced to
make card payment options available at railway counters in the country. In a
statement from the Railway Ministry states, “With a view to facilitate convenient
booking of reserved and unreserved tickets by passengers through cashless modes of
payment at the ticket booking counters, it has been decided to install 10,000 POS
(Point of Sale) (Swipe) machines at the PRS (Passenger Reservation System) and
UTS counters (including Suburban stations).”
Railways have more than 13,000 ticket booking counters across the country. In the
long term, their plan is to equip all its ticket counters with POS machines. It is also
planning to accept payments through mobile wallets.
But as the Indian Railways on Monday said it will accept old demonetized bank notes
of ₹500 and ₹1,000, for buying tickets and for onboard catering till 24 November.
Indian Railways authorities observed that a large number of people started booking
tickets particularly in 1A and 2A classes for the longest distance possible, to get rid of
unaccounted cash.
A senior railways official reportedly said that 4.27 crore passengers were nationally
booked across all classes. Out of these, the number of passengers booked, when
27,237 passengers had booked tickets in 1A and 69,950 in 2A on 9th November."
After a very short time, The Railways Ministry and the Railway Board responded and
decided that ticket cancellation and refund of tickets of value
₹10,000 and above will not be allowed to given in cash by any means. The payment
can only be through cheque/electronic payment. Tickets above
₹10,000 can be refunded by filing ticket deposit receipt only on surrendering the
original ticket. For any cash transaction above ₹50,000 a copy of the PAN card must
be submitted.

44
 TRANSPORTATION HALTS:

India’s apex transporters body, All India Motor Transport Congress (AIMTC)
claiming to have 93 lakhs truckers, 50 lakhs buses and tourist taxis and cab operators
under the demonetization’s bend.

"Our about 4 lakh trucks are stranded across India with about 8 lakh drivers and
conductors have been severely impacted due to demonetizing the ₹500 and ₹1,000
notes. The sudden ban on higher denomination notes have made them stand in long
queues before banks in different parts. The withdrawal limit is minuscule with ATMs
at many places not working and paralyzing the transport business," said AIMTC
president Bhim Wadhwa demanding speedy increase in cash withdrawal limits.

45
 E-COMMERCE BUSINESS:

With the ban on ₹500 and ₹1,000 currency notes, eCommerce players were forced to
stop “cash-on-delivery” payment modes on their site. Certain eCommerce players like
Flipkart and Snapdeal made restrictions on the order purchase value to below ₹1,000.
While Amazon India stopped Cash-on- Delivery orders, a day after the big
announcement. These eCommerce companies also stopped receiving old
denomination notes of ₹500 and ₹1,000 and paid more emphasis on other means of
digital payments.
The Demonetization move has hurt the eCommerce conversions of various companies
from Flipkart to Zomato, which is a food discovery and delivery portal with other
companies that mainly generate revenues through hard cash that accounts for around
60-70% of total orders. With fall in CoD orders, demonetization has led to jump in
digital payment options for making online transactions. As per a research done by the
Forrester Research, “The cash on delivery share will come down and it will force
customers to make payments online. Initially, in the next 1-2 months it may hurt
ecommerce companies.”
Demonetization has given a boost to digital payments and is encouraging people to
shop online more. This will definitely provide an opportunity for ecommerce players
to push customers towards adopting cashless instruments and recalibrate business
models to incentivize cashless instruments.

46
 MUNICIPAL & LOCAL TAX PAYMENT:

After demonetization, Government of India allowed the use of demonetized notes of

₹500 and ₹1,000 for the payment of municipal and local body taxes, it led to people
using demonetized currency notes to pay large amount of outstanding and advance
taxes. In the return, the collection of revenue from taxes of civic bodies increased
tremendously.
As per media reports, Municipal tax collection in Gujarat has risen almost six- fold in
just three working days after 8th November, all thanks to the demonetization of high
value currency notes. The Gujarat Municipal Finance Board (GMFB) said that
municipal bodies of whole Gujarat collected ₹171 crore in those three days.
Ahmedabad Municipal Corporation (AMC) collected
₹54.5 crore tax those of Surat collected ₹43.8 crore, Rajkot and Vadodara got
₹13 crore and ₹5.4 crore, respectively.
The revenue generation by tax collection by local bodies have surged over 260% and
more than ₹15000 crore collected after 14 days of demonetization. According to
Finance Minister Arun Jaitley, the total indirect tax collection rose to 14.2% only in
the month of December.

47
 REAL ESTATE SECTOR:

In the context of Real estate sector demonetization was found to be a short term
restless situation, particularly for land deals, commercial transactions, hospitality or
retail. Small builders and those in specific cities/ micro markets where cash dealing
was more prevalent will be most impacted. Registration prices in residential space
also gone up to adjust for cash component. Therefore, resale of property impacted
more than primary sales. Organized real estate sector also faced demand slowdown
for a short while, largely due to ‘wait and watch’ susceptibility of buyers and
investors.

FAKE CURRENCY:

The impact on the fake currency would be more significant. Many dealers with the
existing counterfeit notes would be trapped, as they would have to take the notes to
the bank and have better chances of getting their racket exposed. Thus, they have only
option to destroy their notes and incur losses. A study done by National Investigation
Agency (NIA) and India Statistical Institute in 2016 estimated that fake Indian
currency notes in circulation have a face value of Rs 400 crore. This works out to
0.022% of the currency which was demonetized. Countries which face the issue of
fake currency resort to phased replacement of old series of notes with new notes
that have better security features. Worldwide demonetization is generally not used as
a tool to deal with counterfeiting.

48
IV.12. PRADHAN MANTRI GARIB KALYAN YOJANA:

Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY) is a pardoning scheme

launched by the PM Modi led Government of India in December 2016 on the lines of
the Income declaration scheme, 2016 (IDS) launched earlier in the year. A part of the
Taxation Laws (Second Amendment) Act, 2016, the scheme provides an opportunity
to declare unaccounted wealth and black money in a confidential manner and avoid
prosecution after paying a fine of 50% on the undisclosed income. An additional 25%
of the undisclosed income is invested in the scheme, which can be refunded after four
years, without any interest.
Valid from 16th December, 2016 to 31st March, 2017, the scheme can only be availed
to declare income in the form of cash including old demonetized bank notes of ₹500
and ₹1,000 or bank deposits in Indian bank accounts and not in the form of jewellery,
stock, immovable property, or deposits in overseas accounts.

49
IV.13 FORECAST OF GDP BY GLOBAL AGENCIES:

After looking and assuming the impact of the demonetization on the Indian economy,
Global analysts cut their forecasts of India's GDP growth rate due to demonetization.
India's GDP for the financial year 2016-2017, earlier in 2016 was estimated to be
US$2.25 trillion, hence, each 1 per cent reduction in growth rate represents a shortfall
of US$22.5 billion (₹1.54 lakh crores) for the Indian economy.

Table 6 : GDP Forecasting by various agencies

2016-17
Agency
Pre-demonetization Post-demonetization
IMF 7.6 6.6
World Bank 7.6 7.0
ADB 7.4 7.0
Economic Survey, Government of India 7.0 to 7.75 6.5 to 6.75
Morgan Stanley 7.7 7.3
HSBC 7.4 6.3
Nomura 7.8 7.1
Goldman Sachs 7.6 6.3
ICRA 7.9 6.8
CARE Ratings 7.8 6.8
CRISIL - 6.9
FITCH 7.4 6.9
BofA-ML 7.4 6.9
Sources: Growth projections by the Financial Institutions and Rating Agencies were compiled
on the basis of media reports published during November and December 2016.

50
 Review of Literature:
The demonetization of the old ₹500 & ₹1,000 notes has been a fascinating and
intriguing subject matter of numerous researches from various disciplines because of
its great significance and immediate impact on the state of the Indian economy as a
whole and particularly each and every sector of the country working with cash. Being
a recent move, there have been various researches on different aspects of the initiative
ranging from the economical to social and ethical dimensions. Some of these
researches retrieved through internet searches have been reviewed here.

1.) The view point of Rajni Arora in her article published on 5th November, 2012
study of different aspects of black money and its relationship with policy and
administrative measures in our country reflects the policy and strategies that the
Government has been pursuing in the context of recent initiatives, or need to take up
in the near future, in order to address the issue of black money and corruption in
public life. She concludes that there is no doubt that existence of black money has a
significant impact on social, economic and political levels of our lives which has a
significant effect on the institutions of governance and conduct of public policy in the
country. So we can’t say that India is a poor nation. Infact, India is amongst the
Richest Nations if Stashed Black Money is brought back & converted to White
Money and fresh generation of Black Money is put to an end.

2.) Arpit Guru and Shruti Kahanijow (2010) researchers analyzed the black money
income? Need for amendment in DTAA & ITEA and analyzed that black money is
spread everywhere in India up to a large extent which continuously stashed towards
abroad in a very large amount. The researcher also identified how black money had
caused menaces in our economy and in what ways it is used.

3.) Care Rating in their study: Professional Risk opinion – 2016), suggested that the
initial disruptions in the system, eventually change well assimilated and will prove
positive for the economy in the long run. Black money hoarders

51
will definitely lose out and eventually boosting the formal economy in the long run.
Short-term fall in real estate prices might benefit middle class citizens. This move by
the Government along with the implementation of the GST will eventually make the
system more accountable and efficient.

4.) Veerakumar. K, (2017), in his paper analyzed demonetization is taken for several
measures such as tax evasion, counterfeit currency and funding of illegal activities.
Some people are depositing currency notes in excess of specified limits directly into
bank accounts and has showed the unaccounted income subject to higher tax and
other penalties. Alternative payment methods such as e-wallets, online transactions
using e-banking, debit and credit card usage have been increased and this will shift an
efficient cashless infrastructure.

5.) Tax Research Team (2016) of the National Institute of Public Finance and Policy
published their study called Demonetization: Impact on the economy, The main
objective is to analyze the impact of demonetization on Indian economy and it shows
the impact of such a move on the availability of credit, spending level of activity and
government finances. They concluded the study by the opinion as, The
demonetization undertaken by the government is a large shock to the economy. The
impact of the shock in the medium term is a function of how much of the currency
will be replaced at the end of the replacement process and the extent to which
currency in circulation is extinguished. While it has been argued that the cash that
would be extinguished would be “black money” and hence, should be rightfully
extinguished to set right the perverse incentive structure in the economy, this
argument is based on impressions rather than on facts. While the facts are not
available to anybody, it would be foolhardy to argue that this is the only possibility.
As argued above, it is possible that these cash balances were used as a medium of
exchange. In other words, while the cash was mediating in legitimate economic
activity, if this currency is extinguished there would be a contraction of economic 182
activity in the economy and that is a cost that needs to be factored in while assessing
the impact of the demonetization on the economy and its agents. It is likely that
there would be a spurt in the

52
banking deposits. While interpreting the phenomenon, however, one has to keep in
mind that a large part of their deposits were earlier used for transactional purposes.

6.) Prof. Sandeep Kaur, an assistant professor in Khalsa College, Mahilpur in his
research paper published in International Journal of Research about the impact of
demonetization concludes that this is a historical step by the Modi Government and
should be supported by all. This decision of government will definitely fetch results in
the long term. From an equity market perspective, this move would be positive for
sectors like Banking and Infrastructure in the medium to long term. This could be
negative for sectors like Consumer Durables, Luxury items, Gems and Jewellery, Real
Estate and allied sectors, in the near to medium term. This move can lead to improved
tax compliance, better fiscal balance, lower inflation, lower corruption, complete
elimination of fake currency and another stepping stone for sustained economic
growth in the longer term.

7.) Boulding (1950), shows that the state’s fiscal policy mostly deals with quantity of
money supply and the monetary policy sets regulation and determines its prices i.e.,
short-term interest rates in the markets. To boost the aggregate demand, Friedman
(1969) has proposed the concept of “helicopters money”, an irreversible increase in
the supply of fiat money by the State. In contrast to Friedman (969), Minsky (1986; p.
249) has viewed that money is created and destroyed endogenously at the normal
course of banking business [6]. He has considered money as a “medium of payment”,
instead of as a “medium of exchange” given that taxes bring value to the states, and
has replaced the “state money” concept in knapp (1924) with the “bank money”
concept in Schumpeter (1934). Goodhart (1989) criticises that the orthodox money
view keeps “neutral” from the problems the authority is facing for any given high-
power money base as if it “is under their control, all their operational problems ….
have been resolved” Goodhart (1989, p. 129)

8.) Sukanta Sarkar (2010), conducted a study on the parallel economy in India:
Causes, impacts and government initiatives in which the researcher

53
focused on the existence of causes and impacts of black money in India. According to
the study, the main reason behind the generation of black money is the Indian
Political System that is the Indian government just focused on making committees
rather than to implement it. The study concludes that laws should be implemented
properly to control black money in our economy

9.) Geeta Rani (2016), in her study shows that initially the demonetization effects on
market were painful but this investigate the shopkeepers and consumers to adopt
cashless means such as paytm, debit card use, internet banking to buy goods. By
adopting the cashless means economy will be sound in coming time and Indian
Economy will get benefits of early and hassle free transactions.

10.) Prof. Prabhat Patnaik (2016) in his article published in Countercurrent.org

summarized the demonetization by concluding it as; “The summary way
demonetization has been effected is leading to a riot like situation in the country. We
demand that the Government ensure that common people have immediate access to
enough money to pay for their daily needs and health emergencies. Failing which, we
demand the rollback of demonetization or suspension of demonetization to enable the
common person to make adequate arrangements for daily needs and for more orderly
phasing out of the old notes. The role of the Government is to undertake honest tax
administration and not to treat the common person like a criminal making him/her
stand in line and filling forms to access his/her own legitimate money.”

11.) Rahul Deodhar, an investor and an author in his book Black Money and
Demonetization said that demonetization will not eliminate black money by itself
alone. It is just one move of one piece in the chess board of black money. To check-
mate the black money king, you have to win the board. There are various steps
required as detailed in his book, ‘black money and demonetization’. Government can
play all these moves and still fail if they play improperly. All we can say is that
Government is playing well. But will it

54
succeed? The efforts will bring massive amounts of cash into the banking system – a
benefit in itself. Once the money is in the legitimate channels, it should be better
utilized and revenue will be generated from its use. If that is success enough then yes.

12.) Dr. Dinesh Kumar Gupta, a Ph.D in management holder author in his research
about the demonetization concluded that Inspite of a number of criticism of the big
step of demonetization, it is true that proponents of demonetization certainly had good
intentions, which proved with the overwhelming response to the government in the
assembly polls of February and March 2017, but the suffering it has caused to
millions of Indians is unwarranted. Government has come out with a number of
incentives on cashless transactions like waiver of surcharge on transactions in
cashless mode. But the banks find difficulty in getting other alternate modes of
revenue generation. Specially the Public Sector Banks, which are already burdened
with whooping NPA and subsidies on a number of credit schemes and they are
extending services in the remotest areas of the country, inspite of losses, just for the
cause of rural banking and bank to the unbanked. As far the other motives behind the
big step are concerned, only the time can tell as the steps for curbing of black money
may have far reaching effects and will be visible in the time to come. It is hoped that
the general public will adopt the cash less mode of banking transactions
wholeheartedly in their own interest and understand the need of hour. It is also hoped
that the huge amounts spent on technology up gradation by the banks for secured and
hassle free alternate channel banking, will not go waste and the trigger for cashless
adoption by the general masses will gain momentum.

13.) Dr. Paritosh Chandra Sinha, in his research Demonetization of the Indian
Economy: Philosophical Research stated conclusion as, “The demonetization drive
has boosted the aggregate deposit base in the hands of the banks and resulted huge
savings. It can improve monetary transfusion in the economy and can reduce lending
rate. It can enlarge tax net, induce positive impact in the bond market, create rooms
for monetary accommodation and financial inclusion via Jan Dhan Yojana, and
finally, it

55
can enhance the GDP growth potentials of the nation state. The heterodox school
argues that the government may create a reserve capacity for future spending without
causing inflation.

14.) G R Hari, Chief Executive Partner of Manohar Chowdhry & Associates

Chartered Accountants firm in his report study demonetization as the term
demonetization has become much more than a household name since the old Rs 500
and Rs 1,000 notes were pulled out of circulation. While as per dictionary
demonetization means "ending something (e.g. gold or silver) that is no longer the
legal tender of a country", one needs to understand that there is much more than the
literal meaning to the word. One need to understand that 80% of India's labour force
is employed in the informal sector, which comprise of 45% of the GDP of our
country. Over 60% of population of India lives in below the international poverty
threshold line of 1.9$ per day. Since our economy is an under banked economy,
present demonetization move, would no doubt cause a severe social experiment,
across the segment of our population. At the first place, and on a short term basis this
move would benefit the Government, which shall effectively deploy its resources to
percolate the impact to the poor and needy of our country.

15.) Biswajit Chatterjee, in an article Square Patton Boggs reviewed the impact of
demonetization by concluding his article as, “the comprehensive long term impact of
these demonetization measures cannot be fully ascertained at this stage, the overall
economy is expected to benefit from a decrease in unaccounted cash transactions and
an elimination of counterfeit currency notes, leading to more effective tax collection
and increased transparency in ascertaining transaction costs. An increase in
transparency is also likely to improve attractiveness for foreign investors, while
higher bank deposits and formalizing large hitherto unaccounted for income streams
is expected to improve the fiscal deficit of India.”

56
 CHAPTER VII
DATA ANALYSIS AND
INTERPRETATION

57
Data of questions asked in the research instrument to the respondents and its
interpretations are as follows:

1. Do you think that black money exists

in India?

9%

Yes
No

91%

From the above diagram of chart, it can be seen that 91% of the total respondents
agreed that Black money exists in India and the rest 9% have opinion that the country
is free from black money.

58
 2. Did the demonetization cause
inconvience to you?

No
20%

Yes
54%

Yes, but I don't

mind it
26%

As interpreting from the answers of the respondents, 20% didn’t had any
inconvenience from the demonetization and 54% agreed that demonetization caused
inconvenience to them and 26% answered that they felt inconvenience but they don’t
mind it as they think that demonetization was necessary to fight against various anti-
economy agents.

59
 3. How much you spent at ATMs/Banks
to withdraw or exchange money during
fifty days of demonetization?

7%

11%

0-1 hours
1-3 hours
3-8 hours
21% more than 8 hours
61%

The above pie chart gives answer of the respondents that how much time they spent to
exchange or to deposit or to withdraw cash and 61% of the total sample spent less
than 1 hour only, 21% people spent 1 to 3 hours, 11% people spent 3 to 8 hours and
only 7% people have to stand in the que for more than 8 hours.

60
 4. Have you faced any
personal/professional crises due to
severe cash shortage?

49% Yes
51% No

The above chart concludes that 49% i.e. 49 people of the 100 respondents faced
personal or professional cash crises due to shortage and unavailability of cash in the
market. 51% people didn’t face any crises due to less cash.

61
 5. How did you manage the cash
shortage?
How did you manage the cash shortage?

Debit/Credit card 66%

E-wallets 31%

Internet Banking 28%

None of the above 12%

The bar diagram shows that 66% respondents used debit/credit card during
demonetization and 31% used e-wallets and 28% accepted to use Internet banking
facility. As respondents were allowed to choose more than 1 answer the figures in
percentage differs and there are the respondents who used more than 1 cashless option
to manage cash shortage.
12% of the total respondents agreed that they didn’t use any of the cashless option due
to unavailability or lack of knowledge to above preferred mode of payments.

62
 6. Are the ATMs/Banks in your locality
being regularly supplied with cash?

Don't know
16%

Yes
36%

No
48%

The respondents were asked to give their opinion about the availability of cash in
Banks and ATMs in their respective locality in the present time. 48% people still
don’t get cash available to them when needed.
36% people have the availability of cash in their locality. 16% people are unaware of
the cash availability as they might not be gone to withdraw cash from bank or ATM.

63
 7. Are you finding it difficult to use
2000 rupees note?

49% Yes
51% No

The above diagram shows that 51% of total respondents are finding new note of 2000
rupees difficult to be use or to get its change. 49% respondents didn’t find it difficult.

64
 8. What was the impact to your
purchasing power?

8%

41%
Decreased
Unchanged
Increased

51%

From the above pie chart , it can be seen that 51% of the total respondents’ purchasing
power during demonetization was unchanged and 41% people admitted that their
purchasing power decreased during the move was in implementation phase.
However, 8% people found increment in their purchasing power.

65
 9. Do you think the currency ban by
Modi government was the right
decision to fight against black money
60%

50% 48%

42%

40%

30%

20%

10%
10%

0%
Yes Yes, but need much better No
planning

When it asked about their opinion over the objective of demonetization to fight
against black money. 42% respondents agreed about the demonetization as a right
decision by government and 48% people agreed but suggested to take and implement
the decision with better planning.
However, 10% of the total respondents said No to the government’s decision
of demonetization to fight against black money.

66
 10. Demonetization will improve the
quality of life of a common man in
India.

19%

Agree
50% Can't say
Disagree

31%

From the above diagram it can be analyzed that 50% respondents agreed that
demonetization will improve quality of life of a common man in the country, 19%
respondents disagreed that it won’t make any difference in common man’s quality of
life.
Still 31% of the respondents didn’t have any positive of negative opinion over
the question.

67
 11. What do you think about
implemention of whole
demonetization process?

6%
9%

42% Good Experience

Could improve
Bad Experience
Can't say

43%

When the respondents were asked to provide their view on the experience of
implementation of the whole move of demonetization, 42% people found that
implementation of demonetization was good experience for them and 43% people
emphasized that process and implementation of demonetization could improve and
9% of the total respondents consider it as a bad experience for them.
And 6% respondents didn’t have any opinion over it.

68
 CHAPTER VIII
RESULTS AND FINDINGS

69
 Results and findings of the primary data research is that almost every
person agrees that there are people in India who are the holder of black
money that is unaccounted money and money earned by illegal means
which is obviously unrecorded and unaccounted.
 Demonetization is just a part of process of tackling and removing the black
money in the form of currency and to hit the roots of fake currency. Almost
every person was facing cash crunch and inconvenience during the phase of
those 50 days of demonetization but many of them accepted the fact of
demonetization was necessary to fight against the determinants which were
impacting negatively on the Indian economy.
 People were ready to stand in llines before banks and ATMs to deposit and
exchange their old notes for the withdrawal of new currency notes. No
matter how long they have to stand, they had the feeling to contribute to in
the surgical strike against the black money, corruption, inflation and
counterfeit notes for the betterment of India.
 Digitalization has ignited them to opt for the digital payment modes and
make cashless society.
 Still there is a threat of fake currency in the new currency notes as well as
the most of the people are not aware about the security features of the new
notes, there are chances of the use of new fake currency notes with the
person who is not fully aware about the new note.
 Most of the respondents agreed and admired the demonetization move of
the Modi government as a risk taking move but considering the risks aside,
the move was much needed for the fight against money laundering, terror
funding, parallel economy, hyperinflation, though in the long run, but
resulting into betterment of the each individual citizen of the nation.

70
 CHAPTER IX
LIMITATIONS OF THE STUDY

71
 The major limitation of the study was that it didn’t include the detailed impact
of demonetization on the micro economic agents of the Indian economy.
 The study doesn’t include the impact of demonetization on the Financial
markets such as Stock Market, Mutual Funds, Derivative markets.
 The impact of demonetization on the foreign trade as in Import-Export of the
country is not studied in this project report.
 The data interpreted was based on the sample size of 100 respondents of
Ahmedabad city only. So the view of them cannot be generalized or
considered as the opinions of the whole population who got affected by
demonetization.

72
 CHAPTER X
CONCLUSION OF THE STUDY

73
 Overall, the assessment is that the impact of demonetization in India has
been transient, given the information so far.
 The analysis in this paper suggests that demonetization impacted various
sectors of the economy and on individual lives as well..
 However, the adverse impact, in general, was short-term as it was felt
mainly in November and December 2016.
 The impact moderated significantly in January and dissipated by and large
by mid-February 2017, reflecting an accelerated pace of remonetisation.
 Though the impact on GDP growth was felt in Q3 of 2016-17. The latest
CSO estimates suggest that the impact of demonetization on GDP growth in
Q3 of 2016-17 was felt mostly in real estate and construction, but because
of stronger growth in agriculture, manufacturing, electricity, and mining,
the overall impact on GDP growth was modest. With remonetisation
progressing at a fast pace, the adverse impact is expected to have reversed
from the latter part of Q4 of 2016-17. GDP growth is estimated to recover
significantly in 2017-18.
 The sharp increase in low cost CASA deposits by banks is expected
to have increased banks’ net interest income.
 Jan-Dhan accounts increased by 23.3 million post demonetization, while
deposits under Jan-Dhan accounts increased by Rs. 187 billion (41 per
cent).
 Imports of gold increased sharply in November, but moderated in
December.
 There has been a significant improvement in the use of digital modes of
payments post demonetization, although their base is still small.
 Overall, demonetization has some negative impact, which, however, has
been transient as remonetisation has moved at an accelerated pace in last
twelve weeks. More importantly, demonetization is expected to have a
positive impact over the medium to long-term.

74
 ANNEXURE
QUESTIONNAIRE:

This questionnaire is part of an educational research on the impact of demonetization

at health insurence. We would appreciate your honest opinions. Please specify your
appropriate answer in the right box.

Name:
Email id/ Mobile number:
Occupation:

1. Do you think that black money exists in India?

 Yes
 No

2. Did the demonetization cause inconvenience to you?

 Yes
 Yes, but I don’t mind it
 No

3. How much time you spent at ATMs/Banks to withdraw or exchange money during 50
days of demonetization?
 0-1 hour
 1-3 hours
 3-8 hours
 More than 8 hours

4. Have you faced any professional or personal crises due to a severe cash
shortage?
 Yes
 No

5. How did you manage the cash shortage?

 By using E-wallets
 By using Internet bank transfer
 By using Debit/Credit card
 All of the above
 None of the above

75
6. Are the ATMs/Banks in your locality being regularly supplied with cash?
 Yes
 No
 Don’t know

7. Are you finding it difficult to use new ₹2000 note?

 Yes
 No

8. What was the impact to your purchasing power?

 Decreased
 Unchanged
 Increased

9. Do you think the currency ban by the Modi government was the right decision to fight
against black money?
 Yes
 Yes but needs much better planning
 No

10. Demonetization will improve the quality of life of a common man in India.
 Agree
 Can’t say
 Disagree

11. What do you think about the implementation of the whole demonetization
process?
 Good experience
 Could improve
 Bad experience
 Can’t say

76
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