Noor Mohammad, in his article “By Blaming UPA’s 80:20 Gold Import Scheme, BJP is Trying to Deflect Attention from PNB Fraud”, published March 11, 2018, in The Wire writes:
“Fearing a political backlash over the mega fraud perpetrated by Nirav Modi and Mehul Choksi in the Punjab National Bank (PNB), the ruling Bharatiya Janata Party(BJP) is trying to divert public attention by blaming it on the Congress-led UPA government’s 80:20 gold import scheme.”
On the one hand, Mr Mohammad — who had incidentally written two blatantly factually incorrect articles on khadi and rural electrification – claims that the party in office at the Centre, and by implication the current administration, is deflecting attention from the alleged PNB fraud case by citing the last administration’s 80:20 gold import scheme. On the other, he defends the 80:20 gold import scheme which was evidently controversial and suspects in both its intent as well as timing.
Not surprisingly, the writer’s claims become even more suspect when we take a closer look at the evidence available in the public domain regarding the gold import scheme.
(Incidentally, Mr Mohammad’s two previous articles mentioned above were refuted by The True Picture in “Who is Spinning Tales on Khadi Sales?” and “‘The Wire’ Writer Who Got Khadi Story Wrong Now Spins a Yarn About Rural Electrification” respectively.)
Let us now look in detail at the evidence on the 80:20 gold import scheme.
WHAT WAS THE 80:20 SCHEME?
- The UPA government was reportedly “worried” about rising gold imports and their impact on the current account deficit (CAD), which stood at $88 billion or 4.7% of GDP in 2012-13.
- On May 13, 2013, the RBI asked banks not to import gold on a consignment basis.
- This somehow ended up setting the stage for the most controversial and perhaps draconian step for bullion trade since the imposition of the Gold Control Act.
- The scheme was introduced when gold imports had hit unprecedented highs and were pressuring the CAD, resulting in a sharp fall in the rupee’s exchange rate against the dollar, then quoting at nearly Rs 70.
- After consultation, the RBI issued a circular on July 22, 2013, ruling that all gold imports would come with a commitment of re-exporting 20%. The export conditions were such that each a lot imported had to meet export requirements for the import of the next lot.
- Export zones were kept out of the scheme’s purview. Of all the imported lots, 80% could be sold in the domestic market, provided 20% was exported. Since gold imports must have RBI sanction, these were executed by means of the apex bank with instructions from the Ministry of Finance.
Mr Mohammad, in his article, writes that the scheme was successful. He says:
But in his apparent attempt to blame the current administration, Mr Mohammad clearly ignores the increased percentage of smuggling that took place under the purview of the said scheme. Reportedly, the 80:20 scheme led to an increase in gold smuggling. The details below serve as evidence:
- Gold import prior to the imposition of the restrictions was 294 tonnes, worth Rs 770 billion, in April and May 2013.
- After the imposition of the strictures, total gold imports in the following 10 months of 2013-14 stood at 325 tonnes.
- No doubt, imports fell from over 300 tonnes in May 2013 to just 10 tonnes in a month after the 80:20 scheme came into effect.
- However, smugglers made huge amounts of money as they were getting a 10% duty margin plus premium, as there was a big shortage of gold.
- Smuggling, which was not apparently prevalent prior to 2012, crossed 100 tonnes and was financed through hawala and/or unofficial dollars.
- In the absence of the scheme, this foreign exchange would have come through official channels.
THE TIMING: STAR TRADING HOUSES (STHS) & PREMIER TRADING HOUSES (PTHS)
It should be noted that it was only on May 21, 2014, 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.
What is the significance of the timing? Well, May 21, 2014, was a mere five days after the UPA government was defeated in the 2014 general election, as well as just five days before the new NDA government took office.
Mr Mohammad writes: “Before the PNB scam came into light, the BJP-led NDA government had not detected any flaw in the 80:20 gold import scheme.”
This is incorrect.
As per the evidence available in the public domain, the NDA government was informed about the flaw in the 80:20 scheme by the Directorate of Revenue Intelligence (DRI) long before the PNB scam came to light.
Reportedly, as per the DRI report, the export obligations were mostly met by exporting costly machine-made jewellery, such as bangles and chains, which were re-melted in Dubai and cast into primary bars for re-import. The report also said: “exports are generally related to front/ shell companies in UAE, Hong Kong and Singapore.” As per the DRI report, reportedly, this practice began after the UPA government relaxed the scheme to allow STH/ PTHs to import gold.
Let us look at some of the reported findings of the DRI report:
- The report apparently claims that the actual purpose was to use export as a cover for import. By making machine-made plain chains and bangles, “they are keeping the cost of export as low as possible”.
- The report apparently also said that another reason for exporting plain jewellery and not studded ones was because “Dubai has a customs duty of 0.325% and Sharjah a duty of 0.18% on studded gold jewellery.”
- Reason for exporting plain jewellery and not studded ones was because “Dubai has a customs duty of 0.325% and Sharjah a duty of 0.18% on studded gold jewellery.”
- According to the evidence cited in media reports, “The comparative data of exports that the DRI studied showed that the quantity of gold export surged to 20,166.89 kg (worth Rs 4,799.80 crore) between January and July 2014, compared to 6,063.92 kg (worth Rs 1,599.45 crore between January and July 2013, and 1,508.56 kg (worth Rs 404.93 crore) during January and July 2012.”
- Reportedly, the DRI report also said: “It is seen from above data that exports of plain gold jewellery in terms of quantity have in 2014 grown at an astronomically high rate of 1,236%, compared to the same period during 2012…”
The sudden and rushed change in the rules made by then Finance Minister P. Chidambaram reportedly resulted in a spike in gold imports. In the six months from June 1 to November 30, 2014, gold imports rose to 553 tonnes. Almost 60% of this was accounted for by only 13 PTHs and STHs.
The RBI’s May 21, 2014, notification bringing in the change actually overturned August 14, 2013, notification, also by the RBI, which had barred STHs, PTHs, and units in SEZs, from importing gold for sale in the domestic market. The August 2013 notification was aimed at restricting gold imports for use in the domestic market. This was ultimately aimed at curbing the ballooning the CAD.
On July 26, 2014, the Indian Bullion and Jewellers Association (IBJA) had severely criticised the change in policy and wrote a letter to the RBI saying that the change helped only large private trading houses and conglomerates, many of which had no history of gold imports, and thus uninterested in promoting the jewellery business: “(They) do not have a mechanism to ensure the end use of gold sold… [and] are engaged in circular/fictitious export”. This was also because of the 20% re-export stricture.
The letter also said: “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 CAG, in its 2016 report, had raised the alarm on the allegedly preferential treatment meted out to 13 trading houses vis-à-vis gold imports. The IBJA had also listed 13 trading houses allegedly using circuitous routes to export jewellery and bringing it back to India where the same bullion would be sold at a hefty premium.
The 13 trading houses that allegedly increased their imports during the period in question were: Rajesh Exports, MD Overseas, Kundan Rice Mills, Kanak Exports, Edelweiss Commodities, Zaveri & Co, Riddhi Siddhi Bullions, Khandwala Enterprise, Jindal Dyechem, Gopal Jewels, Reliance Industries, GITANJALI GEMS, and Su-Raj Diamonds.
Thus, from the evidence in the public domain, the then UPA government’s decision to allow STH and PTH houses to import gold had resulted in the Mehul Choksi-led Gitanjali Gems importing gold and selling about 80% of the total bullion in the local market under the 80:20 scheme. This, it may now seem, encouraged gold hoarding and preferentially allowed some traders to indulge in profiteering by artificially inflating the retail prices.
SCRAPPING OF THE 80:20 SCHEME
During June-November 2014, India reportedly imported 588.1 tonnes of gold. Again, 352.86 tonnes were shipped in by 13 STH and PTHs that included companies that ranged from rice exporters to stock-brokerage firms as well as to large manufacturing conglomerates. The import surged to 151.6 tonnes in November 2014.
Anxious at what this import was doing to the Indian economy, the current government took action and scrapped the scheme. The RBI’s circular stated: “It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on the import of gold. Accordingly, all instructions issued about the scheme from time to time starting with circular number 25 dated August 14, 2013, stand withdrawn with immediate effect”.
To say that the party in office, or even the Central government, is deflecting public attention would then appear to be baseless. First of all, we cannot draw a direct correlation between the 80:20 gold scheme and the PNB scam per se. However, it seems to be quite evident from the information in the public domain that the scheme, controversial and suspect as it was, created an enabling environment for malpractice and perhaps even fraud. The role of the then UPA government in the 80:20 scheme and the reported early warning given to Raghuram Rajan as well as the involvement of Nirav Modi and Mehul Choksi, founder of Gitanjali Gems, would appear to demand a closer re-look at how the scheme benefited select trading houses, including the one in question here.
OpIndia Editor’s Note :
The leftist propaganda website ‘The Wire’, has a history of shoddy journalism. Just recently, we had preemptively busted an impending hitjob against the Finance Minister Arun Jaitley and his daughter law firm which was meant to be a desperate bid to connect the firm to Mehul Choksi. After that, the portal had cried foul and conceded that this was their plan. Earlier, ‘The Wire’ had conducted a hit job against Amit Shah’s son Jay Shah for which, the High Court has found a prima facie case of defamation. They had also infamously compared General Bipin Rawat to General Dyer for which they faced severe criticism. Vinod Dua has already spread several lies. In fact, reports had claimed that a report in ‘The Wire’ had also led to violent protests in Assam district bordering Nagaland.
We had pointed out how ‘The Wire’ has not a single article detailing P Chidambaram’s 20:80 Gold Scheme that facilitated the Mehul Choksi scam and that these desperate hot jobs to tie the Finance Minister to Choksi is a bid to protect Chidambaram and Congress. It is thus not surprisingly, that the first thing they write on the subject is an article defending the UPA’s scheme.