Government Issues Clarification on Gold Imports Scheme
The past few days have seen some misapprehensions being generated on the scheme of gold imports known as the 80:20 scheme. The factual position is being clarified.
The increase in gold imports had put pressure on the current account deficit in 2012-13. A series of steps were taken in response to this situation, including increasing the import duties on gold and gold products, and placing restrictions on gold imports. Subsequently first on 22.7.2013 and then on 14.8.2013, the restrictions were modified to introduce the 20:80 scheme, under which, it was mandated that at least 20% 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 20:80 formula. The scheme was designed to restrict the import of gold, conserve foreign exchange by imposing export obligations, and ensure that the premium from purchase and sale of gold resided in the hands of public agencies.
However, from 21.5.2014, the Premier Trading Houses and Star Trading Houses were also allowed to import gold under 20:80 scheme. The then Finance Minister approved the modified scheme on 13.5.2014, even though the model code of conduct was in place since 5.3.2014 with the announcement of the Lok Sabha Polls, and the counting was due on 16.5.2014. 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 USD 100 to USD 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 an opportunity of windfall gain, as the benefit of the high premium on gold could now be availed of by these agencies. It has been observed by CAG that 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 cr to these agencies during this period, assuming a premium of Rs 2 lakh per kg and 80% 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.
The new Government reviewed the scheme. It was noted that since the liberalization in May 2014, recorded gold imports had increased substantially averaging about 140-150 tons a month. The increase in gold imports had benefitted disproportionately the STH/PTHs whose imports had shot up by 320 percent and who then accounted for 60% of all imports compared to 20% before May. 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. Therefore, it was found that the advantage to the STHs/PTHs extended in May 2014 was unfair and this discrimination in their favour needed to be eliminated. Therefore, the new Government took a bold decision of ending the discrimination and liberalizing the import and scrapped the 20:80 scheme altogether on 28.11.2014.
Government will definitely examine the circumstances as to why private parties PTHs/STHs were benefitted by allowing to import gold under 20:80 scheme by the previous Government when the Government was in transition and will take necessary action against the persons involved.
As regards the Unstarred Question No 3700 answered on 13.08.2014, the question was on “Institutionalisation of bullion trade” and the reply was factual in nature stating various measures taken by the Government to institutionalize the bullion trade. The 20:80 scheme was one such measure. As can be seen from the reply, no view on the merit of the scheme or otherwise has been indicated. The allegation of justification for the scheme or allowing PTHs/STHs are completely erroneous. The review of the scheme by the Government was underway and a decision to abolish the scheme was taken in November 2014.
The impact of abolition of 20:80 scheme on any particular company or all such PTHs/STHs is not a policy issue to be decided by the Government. As has been pointed out by CAG, average monthly import of gold declined to 71.50 MT after abolition of 20:80 scheme (from December 2014 to March 2015) from a high of 92.16 MTs during June 2014 to November 2014 when PTHs/STHs were allowed under 20:80 scheme. It was merely 33.60 MT per month under 20:80 during August 2013 to May 2014 before PTH/STHs were allowed in May 2014.
Thus, it is clear that abolition of 20:80 scheme eliminated undue advantage to PTHs/STHs and import of gold was reduced.
MM