By K Raveendran
Media reports had raised a scare about the possibility of another gold control order mandating the compulsory declaration of all household gold and gold jewellery. According to these reports, the move was to be accompanied by a gold amnesty scheme that will allow individuals and households to declare their holdings of the yellow metal, giving them an opportunity to come clean on their assets.
The reports had suggested that the new scheme would have such sweeping impact and reach that it would be nothing short of Demonetisation 2 as drive against black money. Gold holdings are considered one of the most convenient methods to hoard wealth and dodge taxes as it is a family tradition and closed to scrutiny.
Thankfully, the government has since clarified that there is no gold amnesty scheme under consideration. Government sources dismissed the media reports as seasonal speculative tendency that occurs regularly ahead of the budget making process.
It may, however, be pointed out that the government has only denied any move to introduce a gold amnesty scheme. This does not, however, preclude some move involving gold and jewellery, which is one of the easy options to mop up additional resources that the country needs badly to pursue the development goals.
But there is no doubt that Demonetisation 2, whenever it happens, would be more disastrous than Demonetisation 1, the tragedy of which has not played out fully yet. The nation is paying dearly for the botched effort, which has virtually become parentless as it not only failed to achieve whatever was in the mind of its originators, but drove the country’s economy to unmitigated disaster.
Gold for Indians is an emotional commodity and a symbol of well-being. Women consider it as no less sacred than their mangal sutra and any attempt to tinker with it is liable to be considered an unpardonable violation, which the offending government will have to pay with its own longevity.
There have been several attempts in the past to tap the family gold, which is variously estimated between 25,000 tonnes and 30,000 tonnes. But none of these ever succeeded. In fact, these ended up with exactly the opposite results.
The first Gold Control Act, introduced in 1962 by the then finance minister Morarji Desai in the wake of a serious foreign exchange situation in the wake of the border clash with China. Under the rule, all gold loans given by banks were recalled and the forward trading in gold was banned. Also banned was the production of gold jewellery above 14 carat purity.
This was followed by the introduction of a gold bond scheme in 1965, which offered tax immunity to hoarded gold, ultimately paving the way for another Gold Control Act in 1988, a gold bond scheme was launched with tax immunity for unaccounted wealth. But these steps failed to yield the desired result. Morarji finally launched Gold Control Act, 1968, which prohibited owning of gold bars and coins by individuals and families. All existing holding of gold coins and bars had to be converted to jewellery and declared to the authorities.
The law also put restrictions on the jewellery trade, with dealers not allowed to hold more than 2kg of gold, and that too conditional to the number of goldsmiths employed by them. No individual goldsmith could possess more than of 100 grams of the yellow metal.
But Morarji had failed miserably to understand the emotional value that gold meant to Indians. Whatever he did to discourage owning of gold and jewellery had the opposite result as the craze for the precious metal soared, leading to large-scale smuggling of gold. It also led to the development of an aggressive havala market to finance the gold smuggling; so it came as a double-whammy for the economy.
It is estimated that up to 70 percent of all gold inflow into the country was on account of smuggling. In fact, this led to the development of a new parallel economy, which provided a new dimension to black money in the country.
As the strictures failed to achieve the desired results, most of the restrictions had to be lifted gradually. The inflow of gold, which accounts for a major part of the foreign exchange outgo of the country, is now sought to be controlled through the duty regime. But smuggling continues unabated as the price difference between the domestic market and places like Dubai presents a huge opportunity for smugglers.
It is said that onions have the power to bring down any government as high onion prices have mostly been accompanied by fall of the incumbent government. If onions have such power, gold has it 10 times over. It is no wonder, therefore, that Prime Minister Modi as a Gujarati does not want to face the ignominy his Gujarati predecessor suffered. (IPA Service)