On the very day that the 2014 Lok Sabha results were declared by the Election Commission of India (ECI), outgoing Finance Minister P. Chidambaram (PC) okayed a schemed that benefitted 13 “select” private firms, including that of Mehul “Choksi”. Five days later, the then RBI governor Raghuram Rajan (R3) sanctioned a diluted 80:20 Gold Scheme, just five days before Modi took oath as PM. These 13 private firms accounted for more than 40% of the total gold imports of the country from May to September, 2014. Under the earlier scheme, only state-owned entities were allowed to initially import gold.
Members of a Public Accounts Committee (PAC) sub-committee have found that the Directorate of Revenue Intelligence (DRI) was not in favour of the 80:20 gold import scheme launched in 2013 during the tenure of FM Chidambaram. The PAC sub-committee, headed by BJP MP Nishikant Dubey, has also decided to recommend a CBI inquiry to look into the procedures followed by the then FM in launching this scheme. DRI had hinted that the scheme could lead to round-tripping of black money and money laundering. I must mention here that the 49-year old Dubey has an MBA degree from the prestigious Faculty of Management Studies, Delhi (one of the Top10 B-Schools in India), was a businessman in Bihar before joining politics, and a member of the Parliamentary Finance Committee from 2009 to 2014, during UPA-2.
The scheme was introduced by the UPA-2 government in August 2013, to curb gold imports. Under the scheme, up to 80% of gold imports could be sold domestically in the country, while at least 20% of imports had to be exported before importing new consignments of gold. Further, the permission to import the next lot was given only upon fulfilment of the export mandate. This policy was supposedly aimed at tackling the widening fiscal deficit.
The scheme was scrapped in August 2014, within three months of Modi coming to power, though this was effected only by November, 2014.
While discussing a CAG report of 2016 on gold imports, the members of the PAC sub-committee had questioned Chidambaram’s role over the alleged misuse of the 80:20 gold import scheme by jewellers, including fugitive Choksi for money laundering. The Revenue Secretary of India, top officials of the ED, the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) had appeared before the sub-committee.
The members of the PAC sub-committee pointed that the scheme resulted in a loss of over ₹1 lakh crore to the exchequer. They also said that even the CAG report had indicated that, in order to support the earning of every US dollar (around ₹65.70 then) for jewellers, the Government of India had to bear the expenditure in the form of import duty foregone of ₹221.75. Through the process known as round-tripping, black money that goes out of the country returns as white money.
Members asked the ED Director, CBDT Chairman CBEC Chairman and the Revenue Secretary to share all file noting’s with them, and also to probe the possible linkages between the scheme and the PNB fraud. The CBI has alleged that Choksi and his nephew Nirav Modi defrauded the Punjab National Bank (PNB) of around ₹12,636 crores. Both left the country in January, 2018.
After Choksi-Modi fraud on PNB, skeletons of the 80:20 gold import scheme of the UPA-2 government are beginning to come out. The RBI had been informed in writing about how its circular, issued a few days before the Modi government took office, helped a select few private parties.
On 21st May, 2014, five days AFTER the results of the general elections (declaring Modi’s victory) and five days before the UPA-2 government would demit office, RBI issued a circular, allowing the import of gold by private parties who had not even catered to their export commitments. The circular made the 80:20 scheme practically ineffective without scrapping it. The leading association of jewellers in the country, Indian Bullion and Jewellers Association (IBJA), had written to R3 about this, on July 26, 2014, explaining how “outgoing UPA government did a retreating army’s job by diluting the 80:20 gold import scheme”.
Gold price in India was quoting around $150 per ounce or 10% over the global prices of gold in those days. The original scheme was allowing gold import to those who had a track record of exports, and furnished proof of having exported 20% of previously imported lots, before importing a fresh lot. IBJA had told the RBI Governor that, “the May 21 circular allowed a few parties to import gold in clear violation of the spirit of the 80:20 scheme, though import was effected in the garb of the same scheme.” The circular sidestepped banks who were importing gold for the jewellers during those days and allowed private sector export houses to import up to two tonnes of gold at a time, even those export houses which were not in the business of bullion and gold jewellery.
How these importers of gold were using the same for re-exporting was also explained to the RBI by IBJA. Usually, making jewellery and re-exporting takes 15 to 90 days, but some exporters had different motives. IBJA said that those with the motive of importing gold and engaging in round-tripping, were converting gold into crude pendants or chains or bangles overnight, with the help of machines and not making crafted jewellery, for which India is known worldwide, and then exporting these crude pendants/chains/bangles to Dubai. In Dubai, the crude jewellery would directly go to refineries for converting into gold bars, which were sold within 24 hours. The costs incurred were more than compensated by trading in the domestic market, by using the rest of the 80% import quota, selling it at a huge premium.