LIKE millions of Indians fed up with corruption and counterfeiting, Vimal Somani cheered Prime Minister Narendra Modi’s shock move to replace all high-value banknotes. Two weeks on, his business is being hammered by the ensuing cash crunch.

    Sales at Somani’s aluminum foil maker, Rockdude Impex, have fallen by roughly a quarter in the past week, and the cash shortage that followed the “demonetization” drive has left his supply chain in tatters: his trucks are stranded with no money for fuel, workers won’t load goods for free and distributors can’t pay up.

    Modi’s move Nov. 8 was aimed at cracking down on corruption and flushing out funds stashed away in India’s “black economy.” But the cancellation of 500 and 1,000 rupee notes (US$7.3 and US$14.7), more than 80 percent of currency in circulation, threatens to push Asia’s third-largest economy into a liquidity crisis.

    Consumer spending makes up 56 percent of India’s US$2 trillion economy. But with just the small stock of smaller denomination notes available and a struggle to get hold of new bills, consumers are holding back.

    The government has acknowledged that the disruption would last weeks because of delays in note printing and technical problems with ATM machines, but Modi has made a plea for patience until Dec. 30.

    The government said it could not have printed new notes or recalibrated cash machines in advance for fear of the move leaking out.

    Meanwhile, supply chains at small, medium and even larger companies are breaking down, underlining just how much corporate India — not just the shadow economy — relies on hard cash.

    “The entire supply chain has broken,” said Somani, who employs 150 people across India from his base outside Mumbai.

    Problems at Rockdude go from its network of suppliers to its 1,500 distributors and 150 stockists. Its sales team, spread from Delhi to Nagaland in the east and all the way to the south, is rapidly running short of cash to promote a planned new product, even for the rickshaw rides they use to travel.

    Revenues have frozen, Somani said, but fixed costs continue, including wages. These are paid online, but his staff cannot get access without being given time off to queue at the bank.

    “We are cutting production,” he added. “If this goes on for two more months, then it will hit us very badly.” (SD-Agencies)