Amid a political slugfest surrounding the over Rs 13,000 crore scam allegedly perpetrated by billionaire Nirav Modi, 80:20 gold scheme which was introduced by the previous government in 2013 is in the news. Even as the ruling party allege that scheme introduced by the then finance minister P Chidambaram aided the main accused Mehul Choksi and Nirav Modi to launder money, we take a closer look at the 80:20 gold scheme, and why it was introduced.
80:20 scheme introduced to curb gold imports
The scheme was introduced in in August 2013 with the aim of curbing gold imports. Under the scheme, up to 80% of gold imports could be sold in the country and while at least 20% of imports had to be exported before bringing in new consignments of the yellow metal. Further, the permission to import the next lot given only upon fulfilment of the export mandate. The policy was aimed at tackling the widening fiscal deficit.
Rules relaxed in May-14
Interestingly, India’s central bank RBI had relaxed the rules under the scheme at the behest of the Finance Ministry, after jewellers, bullion dealers, authorised dealer banks and trade bodies had approached the body seeking respite. The RBI relaxed the rules with the aim to facilitate gem and jewellery export, which had declined due to the import curbs. Following relaxation of the rules, private firms were allowed to import gold under the scheme. Notably, in May 2014, the RBI had allowed certain premier export houses to import the gold subject to some restrictions. These private firms accounted for 40% of the total gold imports in April-September-14. Under the earlier scheme, only state-owned entities were allowed to initially import the yellow metal.
Scheme scrapped in November-14
Within six months of the NDA-government taking charge, the 80:20 rule was scrapped. In a RBI circular dated August 2013, the central bank said that announced that the Government of India has decided to withdraw the 20:80 scheme and the restrictions placed on the import of gold. “Accordingly, all instructions issued about the scheme from time to time starting with circular number 25 dated August 14, 2013 stand withdrawn with immediate effect,” the RBI said. Sources told The Indian Express that the scheme had encouraged smuggling and had been grossly misused by some traders.
Scheme dented exchequer by Rs 1 lakh crore
A CAG report published in 2016 found that the 80:20 scheme had resulted in a loss of Rs 1 lakh crore to the exchequer. A sub-committee of the Public Accounts Committee headed by BJP MP Nishikant Dubey has reportedly sought details from the Revenue Department and any alleged link with the PNB fraud.