Jewellers body warned RBI of swindle in 2014

The previous government yielded to cronies: Letter

In a dramatic twist in the ongoing PNB-Nirav Modi scam tale, it has now been revealed that the Indian Bullion and Jewellers Association had forewarned the RBI governor of the time — Raghuram Rajan — of an epic swindle in the works as far back as July 26, 2014.

In what is a a scathing indictment of the system, Mohit Kamboj president of the IBJA at the time and bullion trader of repute himself told this newspaper, “The finance minister P. Chidambaram ostensibly brought the 20: 80 gold policy at that time to control the burgeoning current account deficit which had shot into the stratosphere due to rampant gold import. In this policy the jewellers had to export 20 per cent of the gold that they got from banks.

“In reality, this was done by the finance minister P. Chidambaram to benefit a handful of cronies going under the nomenclature of Star Trading Houses and Premier Trading Houses ( which included both Nirav Modi and Mehul Choksi groups) since scarce gold was sold at a mark up of approximately 10 to 15 per cent per kilo. We made several representations not just to the RBI Guv but to finance ministry mandarins including P. Chidambaram himself but all to no avail. Our fervent pleas fell on deaf ears. Neither did we get any response from them, nor any reply to the catalogue to letters and missives. It is only in July 2014 after the NDA Govt had come to power was cognisance taken of the clutch of continuing representations to the PM Modi and FM that Mr Jaitley acted and clamped down in November on this dubious and even suspicious scheme.”

Under the scanner is finance minister P. Chidambaram’s controversial decision to allow 13 traders to import gold four years ago which has now come back to haunt the NDA Govt like Banquo’s ghost.

Mr Kamboj in his capacity as president of IBJA wrote to RBI governor Raghuram Rajan on July 26, 2014 accusing the UPA government of “deliberately yielding to the cronies” by changing the gold policy days before demitting office.

A decision was taken on May 21, 2014, five days before the UPA government officially demitted office, which allowed 13 ‘ star trading houses ( STH)’ and ‘ premier trading houses ( PTH)’ including Choksi- led Gitanjali Gems to import gold and sell about 80 per cent of their total bullion shipment in local markets under the so- called 80: 20 scheme.

This was tantamount to giving preferential access to these specific traders to profiteer by artificially inflating retail prices.

An imprimatur of UPA was to give preferential access to a handful of cronies to natural resources, be it 2G spectrum or coal and now as it transpires gold; giving birth to the term — crony socialism.

IBJA said that the RBI circular on May 21, 2014 had “sidestepped nationalised banks, which have been the backbone support of our bullion importing and jewellery exporting members by allowing certain private sector export houses to import gold up to two tonnes at one time, even for those who are not in the business of bullion and gold jewellery”.

Further, the association also asked Mr Rajan to “make a prudent appraisal” of the decision and “check the loopholes before it was too late,” in a grim and prescient warning about what was looming on the radar and has now become a deep set emergent crisis after a welter of evidence regarding Nirav Modi and Mehul Choksi's shenanigans.

The tone and tenor of IBJA’s representation to the RBI Guv was grave and warned of a clear and present danger, but it was all to no avail.

“Certain private players who were calling the shots in the domestic bullion market in the pre80: 20 era had considerably lost the lucrative trader volumes and had been lobbying hard since the scheme was introduced,” IBJA fulminated in this letter.

The letter went on to say, “Having achieved the targeted current account deficit ( CAD) level, the outgoing government did not care for future sustenance of the current account deficit and deliberately yielded to the cronies by effecting last minute changes in the gold policy.”

This massive change in the extant policy allowed the STH and PTHs to import gold only under the condition that this will be exported entirely after adding value such as creating jewellery.

During June- Nov. 2014 India imported 588.1 tonnes of gold. As much as 60 per cent of this or 352.86 tonnes were shipped in by 13 STH and PTHs that included companies ranging from rice exporters to stock broking firms to large manufacturing conglomerates.

By arrangement with the Financial Chronicle

The finance minister P. Chidambaram ostensibly brought the 20: 80 gold policy at that time to control the burgeoning current account deficit which had shot into the stratosphere due to rampant gold import. — Mohit Kamboj, former president of IBJA