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India subverted customs reporting rules to facilitate gold leasing in 1991

Section: Daily Dispatches

1991's Golden Transaction

By C. Rangarajan
The Indian Express, Mumbai
Monday, March 28, 2016

India's balance-of-payments situation had deteriorated sharply by the end of 1990. Even as attempts were being made to obtain normal and extraordinary funding from multilateral institutions, private banks and other market players were also being approached. With frequent changes in government, the responsibility of the Reserve Bank of India increased. Governor S. Venkitaramanan was so active that he was described by an economic daily as "lone (loan) ranger."

In the course of talking with various market players, one question that came up frequently was: What was India doing on its own to tide over the crisis? The implication was simple. India had a fairly large stock of gold as reserves. Why could not India use it? ...

In January 1991 the State Bank of India proposed to raise foreign exchange through the lease of gold held by the government. ...

The entire episode was not without its drama. For example, when any commodity is sent out of the country, the nature of the commodity has to be declared. I spoke with the commissioner of customs and a special authorisation from the finance ministry was obtained to send the gold without such a declaration. ...

There was no intention on the part of the RBI or the government to hide the transaction from the public. The RBI wanted to make it public once the operation was over. The shipment of gold made everyone aware of the enormity of the crisis facing India, and paved the way for economic reforms.


The writer is a former chairman of the Economic Advisory Council to the prime minister and a former governor of the Reserve Bank of India.

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