As BJP and Congress spar over whether the scheme is to be blamed for the Nirav Modi-Mehul Choksi scam, trade experts say onus was on monitoring agencies.
A salesperson attends to a customer (not pictured) inside a jewellery showroom, during Akshaya Tritiya, a major gold-buying festival, in Mumbai, last year. Credit: Reuters/Shailesh Andrade/File Photo
New Delhi: Fearing 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.
The scheme, introduced in August 2013, mandated minimum 20% export of imported gold. It was meant to curb import of the yellow metal and rein in the country’s yawning current account deficit (CAD), which kept the rupee under pressure.
To that extent, it was successful given that India’s gold import fell by 25% to 638 tonnes in 2013-14 from the previous year. The decline in value terms was even higher at 35%, with gold imports declining to Rs l.60 lakh crore in 2013-14 from Rs 2.45 lakh crore in 2012-13.
The CAD, which hit a historic high of $87.8 billion (4.8% of GDP) in 2012-13, fell to $32.4 billion (1.7% of GDP) in 2013-14, mainly due to the decline in gold import.
Before the PNB scam came into light, the BJP-led NDA government had not detected any flaw in the 80:20 gold import scheme. In fact, in August 2014, Nirmala Sitharaman, then commerce minister, endorsed the scheme in parliament. Sitharaman referred to the 80:20 gold import scheme as one of the measures taken by the government to institutionalise bullion trade.
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.
With a view to institutionalising bullion trade, the government has taken measures like allowing import of gold on consignment basis by both nominated agencies (premier and star trading houses) and banks to meet the needs of exporters, Sitharaman informed the Rajya Sabha.
Union minister Ravi Shankar Prasad alleged that the 80:20 scheme had favoured ‘select’ private players. Credit: PTI Files
Significantly, the BJP has alleged that RBI’s decision had favoured select private players at the cost of others.
“There was a scheme 80:20 introduced in August 2013 and repealed in November 2014.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 results, the then finance minister gave ‘aashirvaad‘ to seven private companies under the 80:20 scheme. One of those companies was Gitanjali (Nirav Modi’s firm),” Union minister Ravi Shankar Prasad alleged recently, inviting a strong rebuttal and counter-charges from the Congress.
Hitting back at BJP, Congress spokesperson Randeep Singh Surjewala asked Prasad if he considered the scheme a “scam” and whether he would recommend registration of a case against Sitharaman who, as commerce minister in the Narendra Modi government, justified the scheme as well as import of gold by “star trading houses” in parliament.
As per available data, the turnover and profit of Mehul Choksi’s (Nirav Modi’s uncle) companies surged by more than 200% after the Modi government scrapped the 80:20 scheme on November 28, 2014. Choksi companies’ 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.
They suffered losses of Rs 22.65 crore in 2013-14 but were back in the black in 2014-15 with a profit of Rs 18.86 crore.
“Did the abolishing of ‘Gold Import Scheme 80:20’ not lead to free and unchecked import of gold by the likes of Nirav Modi and Mehul Choksi? Did it not lead to a sudden turnaround in the fortunes of their companies from losses to profits to the extent of 200%?” Surjewala said during a press conference, citing data.
The central bank had prohibited import of gold on consignment basis in August 2013 but it later overturned the decision in May 2014 as gold shortage hit jewellery exports.
Did BJP’s abolishing of 80:20 not lead to free and unchecked import of gold by the likes of Nirav Modi and Mehul Choksi?, said Congress leader Randeep Surjewala Credit: PTI / Shirish Shete
India’s gems and jewellery exports fell by 11% to $34 billion in 2013-14. Export of gold jewellery and medallions suffered a precipitous drop of 39.50% during the year. According to the Gems and Jewellery Export Promotion Council, the decline in gold jewellery export was mainly due to non-availability of gold, which limited the extent of trade for many Indian players.
The fall in international gold prices also contributed to the decline in value of gems and jewellery exports.
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 UPA government brought the 80: 20 scheme after a series of measures taken by it in 2013 failed to deter gold imports.
On January 21, the government hiked import duty on gold from 2% to 6%. Next day, the duty on raw gold was more than doubled to 5%. On May 3, the RBI restricted import of gold on a consignment basis by banks. The government again hiked duty on gold import from 6% to 8% in June, which was further raised to 10% on August 13.
Earlier, private traders were allowed to import gold only for exports. But on May 21, 2014, the RBI permitted about a dozen private players, including Rajesh Exports and Kanak Exports, to import gold under the 80:20 scheme.
After the amended policy came into effect, there was a sudden surge in India’s gold imports during June 1 and November 28, the day the scheme was scrapped by the Modi government.
The BJP has blamed it on RBI’s decision to allow private players to import gold under the 80:20 scheme. However, trade experts said there was nothing wrong with the scheme itself and if anyone is to be blamed for the import surge, it is the monitoring agencies.