Millennium Post

Sonia bats for rich, Rahul for poor

Sonia bats for rich, Rahul for poor
Why is Congress president Sonia Gandhi suddenly lobbying for higher gold import into India? If her reported letter to Commerce Minister Anand Sharma seeking relaxation in import duties on gold is true, it goes totally against the interest of the nation. Indian economy has been reeling under the burden of an unprecedented increase in gold imports since 2010, making a laughing stock of this poor country as it emerged the world’s largest gold importer and consumer. High gold imports to whet the appetite of the rich and help convert black money into risk-free gold in the last three years had led to an alarmingly high level of the country’s current account deficit (CAD) and subsequent collapse of Rupee, which lost over 30 per cent in exchange value vis-à-vis US dollar, last year, tumbling the entire economy. The country had imported gold to the tune of a mind-boggling sum of nearly US$ 200 billion in the last 40 months.

Did the Congress president discuss the complex economics surrounding the global and local gold trade and its societal relevance to the majority impoverished people of India with the prime minister or the finance minister, who had gone to attend the world economic forum (WEF) at Davos, a ski resort on the Swiss Alps, or the Reserve Bank governor, who had just announced a softer version of ‘demonitisation’ of high value currency notes issued prior to 31 March 2005, to curb black money hoards in a desperate bid to control money supply and inflation, or her more qualified son, Rahul Gandhi, who have been championing the cause of the poor and criticizing Narendra Modi’s nearness to industry and trade, including bullions? The RBI too had acted upon, a few months ago, to curb the gold import.

What is it that had led to the paradoxical political perception between the mother and the son on the country’s trade and economic priorities? Did the Congress president care to know the extent of the contribution of the massive agri-products export to the increasingly high domestic food inflation, including the prices of onions, garlic, ginger and potatoes, in the last three years? Who used up the export revenue at the cost of the common man’s belly? Gold importers, of course. With Rupee systematically losing its value and the finance minister determined to put some kind of tariff leash on gold import, Mumbai’s bullion merchants pressed for even larger amount of gold import within the first three months of 2013-2014. The gold import peaked in May at 162 tons. However, three successive customs duty hikes on gold import and the imposition of stringer requirement of jewellery exports did the trick. Gold imports dipped to 19.3 tonnes in November, last. The customs duty on standard gold was raised to 10 per cent from two per cent to restrict imports which had caused the ballooning of the current account deficit to an all-time high of 4.8 per cent of gross domestic product.

Meanwhile, in July last year, the Reserve Bank of India had introduced an 80:20 scheme which means that at least 20 per cent of the bullion imported has to be exported back. Imports were also not allowed if importers were unable to meet the 20 per cent norm. The government also banned trading of gold in special economic zones. The measures had the desired impact of slowing down gold and silver imports to $25.5 billion in April-November, last year, from a corresponding level of $33.5 billion in the year earlier. The RBI is hopeful that the CAD is more likely to be in the range of $56 billion during the current fiscal against the lifetime high of $88.2 billion in 2012-2013. The government had practically no choice but to impose restriction on gold import to contain the high current account deficit, a measure of a country’s net foreign exchange outflow in a year.

The domestic jewellery trade is overwhelmingly based on cash transaction. Even well-known jewellers are known to issue multiple receipts, all below Rs 50,000 each, for a single transaction to protect their ‘valued’ regular customers from the income-tax department scrutiny. Purchase of jewellery has long been the best and the safest way to hide black money or its conversion into white. Globally, investment in gold is also regarded as one of the most popular means of hedging currency exchange risks. The rich has more to lose from a dipping domestic currency than the poor who are forced to tighten their belt further under the pressure of inflation caused by the falling exchange value of the domestic currency. The current inflation is not caused by the short supply of agri-products and foods alone. It is also fuelled by massive circulation of black money in the market. The total worth of the high value notes – in the denominations of Rs 1,000, Rs 500 and Rs 100 each – in circulation at the end of March, 2005 was said to a whopping Rs 3.18 lakh crore and a good portion of it could be in the form of black money.

The higher import tariff on gold, its export linkage and, now, the RBI move requiring the specific old currency note swap with the new can be termed as a triangular attack on CAD and black money hoards which are crippling the economy. The currency note swap is a common practice in black money-infected economies. Italy had, in the past, had followed the practice more frequently than others. Therefore, one is most curious to know what led Sonia Gandhi directly take up the cause of gold importers with the commerce minister over the head of the prime minister and the finance minister to please the powerful lobby of Mumbai bullion merchants ahead of the Lok Sabha election? Although seemingly pro-poor Rahul Gandhi has kept mum on his mom’s unusual interest in more gold import, Finance Minister P Chidambaram has reportedly retorted from Davos saying the government has no plan to roll back the curbs on gold import.

Poor Congress! The party president’s unusual interference with the country’s trade and economic policy and direct intervention in the function of the union commerce ministry apparently at the behest of the All India Gems and Jewellery Trade Federation at this point of time may raise fresh political debate about the party’s so-called pro-poor public intent versus on-field please-rich actions. Her action is against the belated effort on the part of the government to implement a concerted policy to control trade deficit and combat the conversion of black money or surplus funds of the rich into gold.

Worse still it may lead to an open rift between the Congress president cum UPA chairperson and senior leaders in the union cabinet on the issue of the country’s economy management and, in the process, put vice-president Rahul Gandhi in a awkward situation. Her letter to the commerce minister also exposes, if anything, how hollow is her understanding of complexities of economy and its management and her gullibility to external parleys.

IPA
Nantoo Banerjee

Nantoo Banerjee

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