Govt probes source of cash crunch, discovers large payments without 'any economic logic'
The government now appears to have ample evidence that the ongoing cash crunch was caused, as Union Finance Minister Arun Jaitley said Monday, by a "sudden and unusual" increase in "some areas."
In recent weeks, government sources say, there have been high-volume cash withdrawals worth crores - first in Telangana, then in northern Karnataka, and later in Andhra Pradesh. A closer look at the map shows the cash rush started in contiguous areas in these three states.
On the other hand, sources have categorically denied that the recent surge in demand for cash was caused by excessive withdrawals made by ordinary citizens, or from ATMs.
"The shortage started with large payments using cheques and other banking instruments by some - in a specific region", a senior official said.
Now, government agencies are trying to determine why the large withdrawals were made - for hoarding as black money, for use in the upcoming assembly election in Karnataka, or for something else.
'NO ECONOMIC LOGIC'
The I-T department has found - using data mining - that a large number of rice millers, contractors, and agro-traders in the three southern states began making large payments in the second half of March, through cheques and other banking instruments, India Today has learned.
In fact, in the last few days, the taxman has conducted 40-odd surveys. It has discovered instances where a single business made almost 20 high-volume payments in the span of a few hours, a top source in the Ministry of Finance said.
Government sources said some of the players who could have triggered the cash crunch are already being investigated.
The I-T department has already quizzed many of the contractors, rice millers and agro-traders involved under Section 131* of the Income Tax Act.
Scrutiny of their current and past accounts revealed that the payments they made didn't tally with their past spending, and had little economic rationale. In many cases, payments were made to entities which did not previously have business links to the issuing company, or the recipient had no business to justify the receipt.
For the moment, it's unclear why these transactions happened.
"There seems to be no reason why these large number and volume of payments were made", an income tax official said. "The department is trying to question the recipients to find what did they do with the payments they received without any economic logic."
HOW THE CASH CRUNCH MAY HAVE SPREAD
In March-April, there was a 13-day period when withdrawals worth Rs 45,000 crore took place (Normally, the number is just Rs 20,000 crore), sources in the Ministry of Finace said.
Government sources explained that the high-volume withdrawals led to a shortage of cash in the southern regions where they occurred.
News of the crunch spread like wildfire, leading to higher withdrawals elsewhere - for bank account holders didn't want to be left strapped for cash.
The panic was particularly pronounced in places where Rs 2,000 bills were being hoarded, and where all ATM machines are yet to calibrated to dispense Rs 200 bills in abundance.
*This section empowers I-T authorities to conduct inquiries, and invests it with the power to summon individuals and examine them under oath, issue commissions, and ask for the production of documents and books of account.