A discriminatory mandate
Large surplus investment in gold will draw away funds from real estate.
16 Oct 2017 5:14 PM GMT
In two interesting decisions, earlier this month, the government, on the one hand, exempted the rich from submitting personal documents such as Aadhaar and PAN, for investing over Rs. 50,000 in gold jewellery. On the other, it made the unique identification number (UID) compulsory even for small postal savings in Public Provident Fund (PPF), National Savings Certificate and Kisan Vikas Patra schemes. The first part of the two contradictory regulatory decisions concerning economic and financial transparency was taken at the 22nd GST Council meeting on October 6. The government said it need not be informed on jewellery purchase of over Rs 50,000. Indirectly, this means jewellers will not have to report data on buyers to the government's Financial Intelligence Unit (FIU). Further, the government concluded that any entity dealing in gems, jewellery, etc. having a turnover of Rs 2 crore or more in a financial year will not be covered under PMLA (Prevention of Money Laundering Act, 2002). Only on August 23 this year, the government had extended the stringent provisions of PMLA to the gems and jewellery sector on suspicions of elements in the trade facilitating money laundering. The income tax act allows cash sales of up to Rs 2 lakh without KYC. PMLA restricted sales in any format to Rs 50,000 without proof of PAN, Aadhaar, driving licence or passport copy.
No explanation was given as to what provoked the concerned authorities to suddenly withdraw their earlier regulation intended to prevent money laundering and black money conversion. The government certainly owes an explanation to the public for its quick change of mind on money launderers. The latest order, benefiting the jewellery trade and investors in gold, diamond, and gems, not only goes against the government's avowed policy to fight black money and covert conversion of unaccounted wealth but also mocks at its commitment to transparency in financial transactions. In the last seven months, legally imported gold has entered India like never before as if the country is faced with a war like situation and the safest way to protect wealth is to invest in gold.
The government is supporting the unwarranted gold rush and clandestine retail transactions. The latest government order on jewellery purchase will particularly benefit a large section of bullion merchants and trade, based mostly in Gujarat and Mumbai. Bullion merchants are a political heavyweight in the region. Before, the 2014 Lok Sabha election, they directly approached Congress president Sonia Gandhi for reduction of import duty when the then Finance Minister, Palaniappan Chidambaram, was out of the country. The latter, on his return, refused to lower the import duty and the party had to face a very unhappy political consequence in Gujarat in the last Lok Sabha election.
Political critics say the latest government order is intended to please the powerful gems and jewellery lobby, employing and financially supporting lakhs of people in Gujarat, ahead of the state assembly election due in two months' time. Such a possibility can't be entirely ruled out. BJP certainly needs to win big in Gujarat, the prime minister's home state, after it made impressive victory in Uttar Pradesh and Assam and wrested power in politically beleaguered Bihar in collaboration with Chief Minister Nitish Kumar's Janata Dal (United) party. A big victory in 182-constituency Gujarat election, this year, and a recapture of power in 223-seat Karnataka assembly election, next year, are crucial for BJP, especially ahead of early 2019 Lok Sabha polls. And, for this, the party could go to the extent of temporarily bending its economic principle on transparency in high-value gold jewellery transactions if that helps. However, the economic impact of such transactions even for the next two or three months in the country will be substantial. The large surplus investment in gold will draw away funds from real estate, which is witnessing the worst ever downturn in recent memory leading to massive bank defaults from most developers, apart from impacting the trade deficit.
Also, it is inexplicable why the government had to issue four near-simultaneous notifications mandating the 12-digit UID (Aadhaar) number for establishing the identity of small savings account holders. What does this intend to convey? The rich rarely queue up before post offices for small savings. The government has given time to existing depositors till December 31 to submit their Aadhaar numbers. It appeared to be another step towards making the use of Aadhaar all-pervasive — barring surreptitiously high-value transactions in gold. The government said existing depositors who have not provided the Aadhaar number at the time of application for such small deposits "shall submit their Aadhaar number to the post office savings bank or deposit office concerned, on or before December 31, 2017". There are more than 1.18 billion Aadhaar card holders in the country. As many as 135 schemes (of 35 ministries) including the free cooking gas to poor women, kerosene and fertiliser subsidy, targeted public distribution system and the Mahatma Gandhi National Rural Employment Guarantee Act are covered by the extension.
Few will disagree that the Aadhaar enrolment has already become a nuisance for the poor. Often, they have to reauthenticate biometric signs of Aadhaar card, which costs around Rs. 400 each if done through the so-called authorised private agents, as the old fingerprints don't match. The reauthentication of the biometric identification of simple fingerprints to link with existing cellphones has become a real torture for many old people. Is the government or the UID authorities aware that how thousands of Aadhaar cardholders are made to rush to Aadhaar agents to reauthenticate their biometric identification like fingure prints as existing fingertips fail to certify at their mobile phone service stores?
Incidentally, the so-called mandatory Aadhaar application is yet to be fully heard and disposed of by a three-judge constitution bench. A total of 22 cases have been tagged to be heard by the constitution bench on Aadhaar. They challenge several aspects of Aadhaar and the use and sharing of data collected under the programme. Maybe, the Supreme Court should take note of the government's latest discriminatory mandate on the application of Aadhaar between the poor and the rich.IPA
(The views expressed are strictlypersonal.)
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