Rice mills encash gold rush

[parijataka]

Few days ago there was a news report that exports of gold jewellery and diamonds (diamonds are imported, cut and exported from Surat, Gujarat) had suffered due to government restrictions on import of gold and diamonds to prevent `round tripping` i.e. import and re-ecport of the same item again. I was wondering why the central govt wold want to harm an industry that is providing employment to so many skilled craftsmen and is a major export earner. Looks like the shenanigans (this sounds so familiar in this country) of a few crooked people are hurting the genuine jewellery and gem industry.

Two things seem to be happening here -

1> Some business people are taking advantage of special incentives such as high rates on deposits for exporters in banks.

2> Something called `muraba trading` forbidden by RBI. Pasting a comment from TOI that explains this -

raghvan (mumbai)
3 hrs ago (08:08 AM)

The explanation given is not full. The author has not mentioned that after a specified period the deposit matures and the original gold import is paid . The original gold import value is higher than the export value and is effectively the interest on the deposit. This is called muraba trading which is not permitted by RBI . It is resorted to give a return to muslims who are not permitted to take interest.

Rice mills encash gold rush

NEW DELHI: Trading in gold seems to have become so lucrative in recent months that even rice mill owners have shifted their focus to foreign trade in precious metals instead of the humble food grain.

The gold rush has, however, meant that the government is grappling with a current account deficit as $41 billion worth of gold was traded in the past one year, constituting 11% of the total imports in 2010-11.

Before raising the duty on gold in the 2012-13 Budget, the government asked its revenue intelligence agencies to look into the reasons behind this sudden rise. A raid by the Directorate of Revenue Intelligence on a rice mill owner at the Noida Special Economic Zone revealed that during the last three months this entity alone had traded in gold worth Rs 1,700 crore. DRI has sought the company's full year's trading details as it suspects that the annual turnover from the yellow metal could be more than Rs 4,000 crore from the SEZ, raising doubts on the possibility of money laundering.



Significantly, despite the fact that the government had imposed curbs on the circular trading of gold and diamonds, it was found that the rice mill owner had imported the metal from Dubai and exported the consignments to Dubai the very next day without adding much value to the goods.

Sources said three other rice mill owners are under the DRI scanner for circular trading in gold while it has found that applications from half-a-dozen others are pending for approval seeking permission to trade in the precious metal.

What is so lucrative about gold imports and its export without adding any value? A senior DRI official said these traders by doing such circular trading enhance their company turnover which helps them in procuring big loans from banks and financial institutions for their other group businesses. Besides, high turnover, these companies earn a star export house status that brings with it many concessions. In addition, group companies of such high-turnover exporters get up to 30% exemption on income tax for the group, the official said.

Circular trading of gold, platinum and palladium out of Noida SEZ has been going on for past several years with the Commerce ministry failing to curb the practice despite several cases coming to light pointing out irregularities and suspicion of money laundering in the garb of gold and diamond trades.

Few years ago when the DRI had conducted a survey on similar traders who were self-proclaimed exporters, with connections in Dubai and Singapore, it was found that they were minting money by exploiting the scheme which offers lucrative incentives against export credits.

The modus operandi in many cases reveal these so called exporters, import gold, platinum and palladium from Dubai allegedly for "manufacturing jewellery". They import consignments on letter of credit (LC), export the same consignment the very next day, without any value addition, and receive payments. This payment is put in fixed deposits in Indian banks for a period of one year (the period of the LC) earning a high rate of interest as compared to interest offered in foreign countries. With the trades in several thousands crores, the earnings of the operators in Dubai and India are in hundreds of crore in Indian currency.