80:20 gold import scheme: Will take action against those who relaxed norms to favour private parties, says govt

The government on Monday said it would take a suitable action against those who were responsible for relaxing the norms while launching the 80:20 gold scheme, which resulted in a windfall of around Rs 4,500 crore to 13 private entities in just six-month time. On March 7, the members of the sub-committee of Public Accounts Committee (PAC) had found that the 80:20 gold import scheme was given a go ahead against the Directorate of Revenue Intelligence decision.

Now the government has said the norms were relaxed to allegedly to favour certain private trading houses during the last days of the UPA government.
Faced with a barrage of attacks from the Congress over the Rs 12,700-crore fraud at Punjab National Bank, Union Law Minister Ravi Shankar Prasad on March 6 had said former finance minister P Chidambaram helped Mehul Choksi's Gitanjali Group through the UPA government's 80:20 gold import scheme. Mehul Choksi and Nirav Modi are both the main accused in the country's biggest bank fraud case.

Without naming any of the jewellers who may have benefited from the scheme, the government said on Monday it would definitely examine the circumstances as to why some private parties were benefitted by allowing them to import gold under the 20:80 scheme when the government was in transition.

The government said the increase in gold imports had put pressure on the current account deficit in 2012-13. And after coming to power, the NDA government took a series of steps, including increasing the import duties on gold and gold products and placing restrictions, a government release said.  
The release added that at first on July 22, 2013, and then on August 14, 2013, the restrictions were modified to introduce the 20:80 scheme, under which, it was mandated that at least 20 per cent of gold imported is to be used for export. Under this scheme, only banks and PSUs like MMTC, STC, etc. were allowed to import gold for domestic use following the 20:80 formula.

The scheme was designed to restrict the import of gold, conserve foreign exchange by imposing export obligations, and ensure the premium from purchase and sale of gold resided in the hands of public agencies.  

However, from May 21, 2014, the Premier Trading Houses (PTH) and Star Trading Houses (STH) were also allowed to import gold under the 20:80 scheme. "Then finance minister (P Chidambaram) approved the modified scheme on May 13, 2014, even though the model code of conduct was in place since March 5, 2014, with the announcement of the Lok Sabha Polls, and the counting was due on May 16, 2014," said the release.

At the time when the scheme was announced, it was known that there was a shortage of gold for domestic use, and a premium between $100 to $150 per ounce (approximately Rs 2 lakh per kg) was being charged from the domestic customers. "Allowing private companies like PTHs and STHs to import gold provided these agencies opportunities of windfall gain, as the benefit of the high premium on gold could now be availed of by these agencies," said the release.  

The release said a CAG report had indicated that the gold imported by 13 trading houses during June 2014 to November 2014 was 282.77 MTs, which means a windfall gain of about Rs 4500 crore to these agencies during this period (assuming a premium of Rs 2 lakh per kg and 80 per cent of imported gold supplied to domestic market earning the premium). Even the export obligations were being met through export of plain jewellery, viz., bangles and chains, which were re-melted in offshore locations through front/ shell companies for the purpose of re-import, it said.  

After the NDA government came to power, it reviewed the scheme and noted that since the liberalisation in May 2014, recorded gold imports had increased substantially averaging about 140-150 tons a month, the release said. "The increase in gold imports had benefitted disproportionately the STH/PTHs whose imports had shot up by 320 per cent and who then accounted for 60 per cent of all imports compared to 20 per cent before May," it said.

This benefit stemmed from a de facto discrimination in their favour because the expanded 20:80 scheme privileged these STHs/PTHs, who being traders and exporters (of anything and not just gold), and best positioned to take advantage of the scheme, said the release. On November 28, 2014, the NDA government had scrapped the 20:80 scheme altogether.