India's paranoid economic history: The gold story

In the days when India was under the “license permit raj”, crime had colour, even technicolour. The film ‘Once Upon a Time in Mumbai’ was said to be based on the life of one Haji Mastan, though the producers denied it in a disclaimer. Mastan was born in 1926 in Tamil Nadu. A Google search will throw up more than one birthplaces; that is how poor people are born – anywhere. Mastan was a quick learner. While working in the Bombay (as it was then called) Dockyards as a porter, he saw people living it up. He wanted to be like them. And he learnt a thing or two about getting there while hoisting up or jerking down sacks with steel hooks onto ships or waiting trucks.[caption id=“attachment_1489769” align=“alignleft” width=“380”]  The gold trail. Reuters[/caption] Those were the days of pervasive controls. What our governments did not realise was that you can ban something but you cannot outlaw desire: for watches, electronic items, and gold – especially gold. Unlettered Mastan understood human psychology. He learnt smuggling. He had a network of contacts among the staff and officers of the docks. He had a quicksilver way of whisking low volume high value items past customs. So Mastan made his pile over the years and acquired clout; he was brazen enough, according to a newspaper, to wish a police officer whom he had gotten transferred, goodbye at the airport. In his heyday, Mastan would be attired in designer suits and flashy ties. With slick combed back hair, he would puff on 555 cigarettes and be driven around in a Merc – symbols which were immortalised in Bollywood flicks from the 70s and 80s. But a spell in jail during the Emergency made him a reformed man. He renounced smuggling before Jai Prakash Narayan, acquired the tag Haji after a pilgrimage, took to film distribution, gave money to the poor at his durbars, hobnobbed with film stars, and even floated a political outfit. His successor was Dawood Ibrahim, now holed up in Karachi. The event that robbed crime of its colour happened on 29 February 1992. It was the second budget of finance minister Manmohan Singh and the first-ever to be telecast directly. Unlike now, when the Budget speech is made soon after 11 am, by dispensing with the usual Question Hour, the Budget of 1992 followed the British tradition and began at 5 pm (because it would be Noon in Westminster!). It was interrupted for twenty minutes over allegations that contents had been leaked to the World Bank and IMF. Eventually, Singh began his speech at 5.20 pm. He spoke till 7 pm. A newspaper observed that ‘he did not take a break or even a sip of water’. Apart from making the rupee partly convertible, Singh abolished the Gold Control Act. He said non-resident Indians could import 5 kg of gold with dollar earnings and by paying 15 percent (Rs 450) for 10 grams as customs duty. The magnitude of change, and the leap that finance minister Singh took under the political cover provided by prime minister Narasimha Rao, becomes clear when we realise that till then imports were tightly regulated; Indians could own only jewellery, but not coins or bars. Annual smuggling till then was about 200 tonnes or Rs 6,000 crore annually. It went to finance real estate, films, drugs and more smuggling. Crime came up as a collateral industry. Within a week after the Budget, gold prices dropped by Rs 500 (per 10 grams). Shantilal Sonawala, then president of the Bombay Bullion Association, told the Times of India that ‘it is the most dramatic drop in the history of India’. The bullion trade came over ground. Customs collections from gold duty rose to around Rs 400 crore a year. Jewellery exports and jobs got a boost. Narayanan Vaghul, CMD of Industrial Credit and Investment Corporation of India (ICICI Bank now) said hawala and gold smuggling would ‘disappear in six months’. Gold prices then were $113 per 10 grams (around Rs 3,000). They are now $487 at Rs 60 to the dollar or a little over Rs 29,000. That is nearly a ten-fold rise over 22 years. Customs duty on gold had dropped to 2 percent (until it was hiked to 10 percent a few months back, as a temporary measure to arrest the current account deficit). Haji Mastan had the instinct and native intelligence of a successful man – he knew when to exit the gold “business”. News reports say he passed away peacefully at his palatial house on Warden Road (now Bula Bhai Desai Road). Just imagine if he had not called it a day in the mid-70s? A silent finance minister, many years later, would have choked him – not by tightening the noose of controls but by totally relaxing the grip! There have been funny and ironic moments in India’s paranoid economic history - at least Once Upon a Time in Mumbai.