Private companies made Rs. 4500 cr windfall gain under 80:20 scheme: Govt
The Union Government has issued a clarification on the gold imports scheme (80:20 scheme), which was introduced by former Finance Minister P Chidambaram during the UPA Government in 2013.
“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 statement reads.
The statement explained that how the opening up of the 80:20 gold import scheme for private companies resulted in making huge windfall gains.
“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 per cent of imported gold supplied to domestic market earning the premium,” the statement said
The Central Government also said that the export obligations under the scheme were misused. “The export obligations 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,” it said.
The government said that it will examine the whole network and will take action against those who might have made windfall gains. “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,” it said.
Launched in August 2013 to reduce gold import and tame current account deficit, the 20:80 scheme required traders to export 20 per cent of all gold imported while retaining the rest for domestic use. “However, from 21.5.2014, premier trading houses (PTHs) and star trading houses (STHs) 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 US$ 100 to US$ 150 per ounce (Approximately Rs 2 lakh per Kg) was being charged from the domestic customers,” the statement said.
When came in power, The NDA government reviewed the scheme and abolished it in November 2014. “It was noted that since the liberalisation 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 per cent of all imports compared to 20 per cent 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,” it said.
“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,” the statement concluded.