India's demonetisation drive hitting budget preparations

Prime Minister Narendra Modi`s surprise decision to scrap high-value banknotes has upset preparations for next year`s budget because of the resulting disruption to growth, revenues and asset sales, two government sources said.

Modi scrapped 500-rupee and 1,000-rupee banknotes on Nov. 8 in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed to the taxman.

Officials fear the move will slow economic activity for much longer than originally expected, as millions of people continue to queue at banks and ATMs for cash and companies struggle to pay wages and suppliers.

"We had thought the demonetisation will be a game changer," said one official, who has direct knowledge of budget preparations, adding the central bank should have taken more steps to ease the pain of ordinary people. 

"We still have to start work on the budget."

(Reporting by Manoj Kumar; Editing by Douglas Busvine and Kim Coghill)