As this writer reported for the the Hindu BusinessLine in September 2014, the industry whispered of this “innovative” method openly during a gold convention in Pune in August that year. The scheme was discontinued by the Narendra Modi government in November 2014.

Before we go into the innovativeness of the industry and other consequences that have followed, let us look at what the 80:20 scheme is about.

The scheme is one that allowed imports of gold only if an importer exported 20 per cent of the yellow metal brought into the country in value-added form. For example, if firm ABC imported 10 bars of gold initially, it could import further only if it had exported at least two bars in value-added form, like jewellery. As per government norms, the value-addition norm for gold jewellery made by machinery is 1.5 per cent and that of handmade jewellery is 3 per cent.

The then-UPA government came up with the scheme after gold imports zoomed to a monthly record of 165 tonnes in May 2013 following a crash in global prices of the yellow metal. Manmohan Singh further raised import duty on gold to 10 per cent from 6 per cent. Other regulations included asking importers to produce records of purchase for the previous three years to buy gold from government-nominated agencies like the State Trading Corporation or The Metals and Minerals Trading Corporation or banks.

The impact of the 80:20 scheme was such that gold imports came to a halt. But it led to increased smuggling of gold. According to the World Gold Council, about 200 tonnes of gold were smuggled into the country in 2013 after the government curbed imports by raising customs duty to 10 per cent and imposing the 80:20 norms.

How did the industry become innovative to beat the stipulations? Well, they followed a simple process. For example, if an importer brought some five gold bars into the country, he would have to import at least one-fifth of it in value-added form. Some of the importers did a very simple thing – they used a machinery to convert the bar into a cheap, long chain for export.

The chain that was shown as value-added export would again be smelted into a bar while it would also help bring in four more bars. Finance Ministry officials were aware of what was happening. But they expressed helplessness because they couldn’t be opening each and every export consignment.

At the 2014 gold convention in Pune, the managing director of a gold exporting firm made a candid observation on stage during discussions that jewellers were meeting 70 per cent of their gold demand through smuggling.

Many skeletons have begun tumbling out of the 80:20 scheme cupboard. One of it is the fact that the Department of Revenue Intelligence opposed the scheme, warning that it would result in money-laundering and round-tripping. The scheme in itself helped a few well-to-do stocked-up traders, with many charging a premium of $50-100 an ounce. However, some allegations that have been made against former finance minister P Chidambaram were that some banks were asked to charge a $10 premium for some of their friends or contacts.

If these were the damages that the UPA government caused to the nation, in general, and the bullion industry, in particular, the worst followed on 15 May 2014. Just as his government was being swept out of power, Chidambaram signed an order that permitted 13 private trading houses, including absconding diamond jeweller Mehul Choksi’s firm Gitanjali Gems, to import gold under the 80:20 scheme.

The Indian Bullion and Jewellers’ Association, in a letter to the Reserve Bank of India, alleged that the private trading houses were allowed to import gold under the scheme instead of nationalised banks, and the UPA government did not care for the sustenance of the CAD. The association charged that the UPA government had deliberately yielded to some cronies “having achieved the targetted current account deficit (CAD) level”.

This resulted in trading houses bringing in huge amounts of gold during June-November 2014. Gold imports jumped 309 per cent during the period, compared with the same period a year ago.

The PAC report has been pending for submission since April for reasons unknown. Efforts should not only be made to publish the report, but the government should order a thorough inquiry into the whole scheme and take action against the culprits.