Former Finance Minister P Chidambaram | PTI Photo
The central government blamed ex-Union finance minister P Chidambaram for deciding to relax the 80:20 gold import scheme three days before the 2014 general election, saying 13 export houses were benefited to the extent of Rs 45 billion.
The government did not name Chidambaram directly but said "then finance minister". Nor did it name the 13 entities.
Sources in the bullion market said three of these were known jewellery houses. One importer defaulted and left India in 2013 but a company controlled by him was given permission to import gold as a trading house under this relaxation.
The 80:20 scheme was diluted on May 21, 2014, by issue of a circular, days before current government was to take charge. In a ' factual clarification' the government said on Monday that the then FM "cleared the scheme three days before the general election results were to be out and the model code of conduct was in place".
It stated the then government knew there was a huge shortage of gold for domestic use due to import restrictions and "a premium of $100-150 per ounce (Rs 200,000 a kg) was being charged from domestic customers". The government note said: "Allowing private trading houses 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. The comptroller and auditor general (CAG) has observed that gold imported by 13 trading houses during June to November 2014 was 282.77 tonnes, which means a windfall gain of about Rs 45 billion to these agencies during this period."
This assumes a premium of Rs 200,000 per kg and 80 per cent of imported gold supplied to the domestic market. "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 circular of May 21 allowed premier and star trading houses to import gold. They had been kept out since the scheme was introduced in July 2013 -- the idea was to control a widening fiscal deficit, with gold import considered a major contributor.
According to a bullion analyst, in the pre-election year, funds from Swiss banks got converted into gold and entered India as official imports before such restrictions were placed. In April and May 2013, around 300 tonnes of gold was imported.
In Monday's statement, the government said after finding the benefit of import relaxation was to a select few, "the new government took a bold decision of ending the discrimination and liberalising the import, scrapping the 20:80 scheme altogether on November 28, 2014".
Quoting the CAG, the note says, "Average monthly import of gold declined to 71.5 tonnes after abolition of the 20:80 scheme (from December 2014 to March 2015) from a high of 92.16 tonnes during June 2014 to November 2014, when private trading houses were allowed. It was merely 33.6 tonnes per month under 20:80 during August 2013 to May 2014, before premier and start trading houses were allowed in May 2014. "