A regressive decision

Relaxing KYC norms for jewellery purchase is questionable

The government’s decision to raise the exemption limit in the Prevention of Money Laundering Act (PMLA) for jewellery purchases without meeting the know-your-customer (KYC) norms undermines its own stance against black money. Individuals can now purchase up to Rs 2 lakh worth of jewellery (four times the limit earlier) at a time without documentation. The PMLA was amended in August 2017, making the citation of PAN and Aadhaar mandatory for jewellery purchases beyond the threshold of Rs 50,000 per transaction. That notification has now been rescinded. No doubt, the move brings relief to the trade during the festive season. Indeed, jewellers say that about a third of their annual turnover is generated during the Navratri-Diwali period. Industry associations reckon that the relaxation will lead to a pick-up of at least 20-25 per cent in volumes. 

However, while this may stimulate activity in the gems and jewellery trade, repeated purchases of jewellery at below the stipulated limit will also allow the conversion of large sums of unaccounted cash. Apart from making it easier to launder money, this relaxation may also have an adverse effect on external finances at a time when the current account is under some pressure. Gold remains, as ever, the second largest item of imports. The data is illuminating. Between January and August 2017, India imported 617.5 tonnes of gold, up 158 per cent compared to the first eight months of the calendar year 2016. In the financial year 2017-18, the April-August period saw gold imports at $15.24 billion, a 200 per cent rise over April-August 2016 imports of $5.08 billion. Some buying was driven by fears of a massive rise in tax imposts under the GST, but in reality, the GST impost of 3 per cent is not that much higher than the previous tax rate of 1.25 per cent. The reduction to Rs 50,000 in the non-KYC limit came into effect on August 23. Gold imports fell to 42 tonnes in September, down 40 per cent compared to September 2016. Now that the PMLA limit has been relaxed, October imports are expected to see a rebound to hit the 70-tonne mark. The current account deficit (CAD) has already risen to a four-year high of $14.3 billion, or 2.4 per cent of gross domestic product. Gold imports have contributed to this gap and a surge in demand for the precious metal will not be healthy for the overall trade balance.

This government came to power promising to reduce corruption and tax evasion and to unearth black money. In the past three years, it has also implemented several policies that raise the bar against tax evasion and money laundering. The crackdown on participatory notes used by overseas portfolio investors, more stringent KYC norms for cash transactions, linkage of Aadhaar to PAN and bank accounts, action against shell companies, and of course, demonetisation — all have been presented as part of an ongoing war against corruption. However, this move will not only undermine the government’s bold agenda against black money but also put more pressure on the external account. The confusing image — of the country’s poor lining up with Aadhaar numbers in order to receive basic amenities even as the rich have an opening to evade taxes — is one that the government could have done without.