Q+A: 80:20 Scheme
After the recent fraud of around Rs 12,000 crore from the Punjab National Bank, questions are being raised on the 80:20 gold import scheme. It was launched by the UPA government and allegations are that an RBI circular issued then, assisted in selecting a few private parties who took advantage of this scheme to carry out the process of this huge money laundering.
What was the 80:20 Scheme?
The 80:20 scheme was launched by the UPA government in the year 2013. The scheme made it compulsory for traders to first export 20 per cent of the gold that they acquired from the previous import and then import new gold. The remaining 80 per cent can be sole in the domestic markets too. It was introduced at a time when the country’s macroeconomic indicators, especially the current account deficit (the excess of imports over exports), were very weak.
What went wrong?
The scheme went through several impacts on the economy before it was finally scrapped. In May 2014 the RBI had relaxed the norms after request from trade bodies, dealer banks, bullion dealers and jewelers. The intent then was to boost the export of gems and jewellery that had apparently received a setback after the curbs on imports. Since this circular allowed private firms to import gold, some premier export houses imported gold subject to some restrictions. Almost 40% of the gold imports by September was by these firms. Finally, in November the NDA government scrapped this scheme along with the circular of RBI.
What was CAG /PAC calls on the scheme?
In a CAG report of 2016, it was estimated that around Rs 1 Lakh crore loss was caused to the exchequer. The recent loss may also add to the list. The sub-committee of Public Accounts Committee (PAC) headed by Nishikant Dubey called for an inquiry into the procedure being followed by the then Finance Minister in introducing this scheme. It is alleged that the Directorate of Revenue Intelligence (DRI) was against introducing this scheme amidst fear of money laundering and smuggling.
How this scheme worked for ulterior motives?
In India, it takes around 15 to 90 days to process jewellery before it is exported. But the process has now made it easy to procure gold with ulterior motives, make crude pendants or bangles or chains and export any quantity to Dubai overnight. It directly gets converted to gold bar and within 24 hours from Dubai. This round-tripping at times results in conversion of black money to white money.