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| image credits: Ananda Prabhu Naveen Kumar |
News:
80:20 gold scheme: UPA-II flouted rules to benefit private firms, says government. ~Times of India
Facts:
The 80:20 scheme, introduced in August 2013 by the previous UPA government under the finance minister P. Chidambaram, mandated that 20% of all gold imported be exported and the remaining 80% to be used in the domestic market. A May 21 circular also allowed private players to take part in this scheme for import of gold. This scheme was scrapped under the Modi government in November 2014.
Side:
The Congress claims that the allegations by the government are just ways to distract public attention from the PNB scam which happened right under the government’s nose. The 80:20 scheme was introduced in August 2013 with the intention of reducing gold imports so as to address India’s widening Current Account Deficit (CAD). The current account deficit is a measurement of a country’s trade and is the difference in value between the goods and services it imports and the goods and services it exports.
After the scheme was introduced, India’s import of gold fell by 25% in the year 2013-14 (compared to the previous year). The government also managed to meet its CAD target in the year as it fell from 4.8% of GDP in 2012-13 to 1.7% in 2013-14 after the 80:20 restriction was introduced. Thus, the economy benefited due to the decline in import of gold caused by this scheme.
In fact, even the current government had applauded the 80:20 scheme before making it a scapegoat at the altar of the PNB scam. In August 2014, then commerce minister, and now defence minister, Nirmala Sitharaman, referring to it as a successful measure by the government to institutionalise trade in precious metal, had endorsed the 80:20 scheme in parliament. The minister also appreciated the Reserve Bank of India’s May 21, 2014, decision allowing select private players to import gold under the prevailing 80:20 scheme. In August 2014, Arvind Mayaram, the then finance secretary, said there was no need to review the 80:20 scheme as it was “working fine”.
The allegation that the 80:20 scheme was meant to benefit a few are baseless as it points to a rapid increase in imports and export by a handful of private firms after the scheme was introduced. But, by the same logic, the Modi government could be held culpable too as after it scrapped the 80:20 scheme on November 28,2014, the overall profit of the above-mentioned players, including PNB scam accused Nirav Modi’s uncle Mehul Choksi’s Gitanjali Gems, increased vastly. In fact, Mehul Choksi’s company profits surged by 200% and jewellery exports increased from Rs 1,019 crore in 2013-14 to Rs 2,454 crore in 2014-15 while domestic sales went up from Rs 1,685 crore to Rs 2,073 crore during the same period.
The UPA government brought the 80: 20 scheme for government and private Star or Premium Trading Houses after a series of measures taken by it in 2013 had failed to deter gold imports. Thus it is clear that the actual scam involved is the abolishing of ‘Gold Import Scheme 80:20’ by Modi and his cronies leading to a free and unchecked import of gold by the likes of Nirav Modi and Mehul Choksi.
Flip Side:
The bone of contention against the UPA is its approving private players in the 80:20 scheme with dubious timing. Union Minister Ravi Shanker Prasad said, “There was a scheme 80:20 introduced in August 2013 and repealed in November 2014. On May 16, 2014, the date of the declaration of the results, then finance minister gave ‘aashirvaad‘ to seven private companies under the 80:20 scheme. One of those companies was Gitanjali (Nirav Modi’s firm),”
On May 21, 2014 - 5 days after the election results gave an overwhelming mandate to the Modi led BJP government and 5 days before the swearing in of the new government - the then UPA administration decided to allow “star trading houses (STHs)”, “premier trading houses (PTHs)”, and units located in Special Export Zones (SEZs), to import gold and sell up to 80% of imports in the local market. The fact that such an amendment to the original 80:20 scheme, effectively subverting its purpose, was rushed through bureaucratic tangles and passed in such a short while is enough proof of its questionable intent. Union Minister Ravi Shankar Prasad said that “any person having the slightest consideration of democratic integrity, propriety and sanity of democratic polity would never do this”.
By allowing STH, PTH and SEZs to import gold, the UPA government effectively allowed organisations with no interest in the jewellery business to import gold. The 20% to be exported was converted overnight into machine made jewellery and exported to havens like Dubai where it was melted and recast into primary bars to be reimported. This was then sold at a hefty premium. By this roundabout smuggling, known as round-tripping, black money goes out of the country and comes back in as white money. This exercise in money laundering is what led to a growth in export of plain gold jewellery in terms of quantity at an astronomically high rate of 1,236% in 2014 compared to 2012, a Directorate of Revenue Intelligence (DRI) report stated. And a lions share of this surge was accounted for by just 13 PTHs and STHs, including Gitanjali Gems.
On July 26, 2014, the Indian Bullion and Jewellers Association (IBJA) wrote a letter to the RBI criticising the amendment allowing private players in the 80:20 scheme. The IBJA letter also accused the UPA of acting like a "retreating army“ in diluting the 80:20 scheme. "Having achieved the targeted current account deficit (CAD) level, the outgoing government did not care for future sustenance of the CAD and deliberately yielded to the cronies by effecting last minute changes in the gold policy”, the letter alleged. The IBJA also listed the 13 trading houses involved in round-tripping.
The Comptroller and Auditor General (CAG), in a 2016 report, named the same 13 entities of having received preferential treatment from the previous government with regard to gold imports. The CAG report also estimated a loss of revenue loss to the exchequer of around Rs 1.3 lakh crore from the 80:20 scheme before it was scrapped by the Modi government.
There was a shortage of gold in the domestic market during the time period from June to November 2014, and a premium of Rs 2 lakh per kilogram was being charged from domestic customers. By providing an unfair advantage to the 13 involved trading houses, the UPA government was complacent in allowing them a 'windfall gain' of Rs 4,500 crore in this time period via the dubious round tripping exports and by hoarding gold to keep the prices high. The scam, and the UPA government's role in enabling it, is thus clear.
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