Govt blames Chidambaram for relaxing 80:20 gold import scheme

The central government blamed former Union finance minister P Chidambaram for deciding to relaxing the 80:20 gold import scheme three days before the 2014 general election, saying 13 export houses were benefited to the extent of ~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 (~200,000 a kg) was being charged from domestic customers". The government note says, “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 ~45 billion to these agencies during this period”.

This assumes a premium of ~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.

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