Made in gold black money

TALKING POINT

Madhusudhana Rao S

Few expected to see a Hyderabad-datelined news item that appeared on web pages on December 15 and in print the next day would stir a hornet’s nest three days later and hit national headlines. The news story was about the Hyderabad High Court directing the Income Tax and Enforcement Directorate not to make any arrests till December 21 in connection with the on-going probe into the gold-for-cash scam in which the owners of a local jewellery shop were allegedly involved in the wake of demonetization of big currency notes.

The owners of the jewellery shop had knocked the doors of the High Court by filing a petition to stall any arrests by the IT and ED authorities. The court, after hearing the arguments of the petitioners, had directed that no arrests should be made till December 21 and at the same time it asked the petitioners to appear before the IT and ED authorities whenever needed.

The IT and ED authorities had informed the court that according to their preliminary investigations it was found that the jeweller had transacted business with over 5,000 people within four hours of the announcement of demonetization of big notes by the Prime Minister. As per the CCTV evidence, it was gathered that 65 people had bought gold worth Rs 75 crores. The amount was seized. The seller has been identified later as Musaddilal Jewellers who have claimed that they received demands and advance payments and sold the gold to 5,200 customers and made Rs 100 crores and that the business was transacted till the midnight of November 8-9.

It’s a well known fact that thousands of crores in Rs 1000 and Rs 500 denominations were carted to jewellery shops soon after PM Narendra Modi completed his address to the nation on November 8 to exchange soon-to-become worthless paper currency for precious yellow metal.  In fact, it was a talking point in the following days of demonetization how the unaccounted money had been converted into gold bars overnight.  The trend continued in the following weeks with the connivance of bullion traders and jewellery shops in towns and cities across the country.

The modus operandi was simple: jewellery shops sold ornaments and gold bars at a premium with backdates and issued receipts accordingly. In some cases, fictitious receipts had been allegedly created promising delivery of gold or related articles worth several lakhs to customers against prepaid amount. Apparently, the jewelers wanted to beat the PM’s decision to root out black money in many different ways. Not surprisingly, both black-moneyed people and jewelers have benefited from the insidious way of converting paper into gold!

Every city and big town in the country had witnessed this phenomenon of fat cats and money bags visiting the local, familiar jeweler instead of the banker to turn black money into yellow metal. Their number may be a few, but the unaccounted money they managed to get rid of is huge. If we go by the quantity of gold the Enforcement Directorate and Income Tax officials have been seizing in raids, the quantity of black money-turned gold is staggering. 

In this respect, Hyderabad, the fabled city of gold and diamonds, has earned the dubious distinction of living up to its reputation when people were queuing up for hours in front of banks and ATMs to get a few hundred rupee notes. Enforcement Directorate (ED) is reported to have found gold biscuits worth Rs 2,700 crores bought with cash in Hyderabad between November 8 and November 30. It is also revealed that Rs 8,000 crores of cash came into Hyderabad and the city gold stock was up by 1,500kg between December 1 and 10.

Media reports have said that gold as bullion was imported into Hyderabad through companies like Metals & Minerals Trading Corporation, MD Overseas Ltd, State Trading Corporation Diamond India, and almost all commercial banks as well as government-owned State Bank of India.

Hyderabad is not alone. Every other important metropolitan city is involved in cash-for-gold scam. In the national capital Delhi, the IT Department has found that one company sold 200-250 kg of gold worth Rs 100 crores at its three outlets in just four hours between 8pm and 12 midnight on November 8.

What is coming out into public notice is only the tip of the iceberg. When the authorities disclose how much gold has been seized in the commercial capital Mumbai, it will be not in kilos, but in tons. What does this show is the black-moneyed people have converted their piles of unaccounted cash into ‘yellow’ metal and sitting pretty on a few kilos/tons of gold. When the gold price goes up and the demonetization heat simmers down, they will sell their stock in little quantities and make more ‘white’ money. How is the Modi government going to tackle this new ‘black-yellow’ money?

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