$10-bn Sovereign Wealth Fund plan on Govt table

Govt will soon consider a proposal to set up a SWF that will pursue strategic investment opportunities abroad.

Written by Priyadarshi Siddhanta | New Delhi | Published: July 19, 2010 4:28:15 am

The government will soon consider a proposal to set up a $10-billion Sovereign Wealth Fund (SWF) that will pursue strategic investment opportunities abroad. The corpus could be created either by dipping into the country’s foreign exchange reserves or through budgetary allocation or by raising funds from the domestic markets.

A government functionary,who did not wish to be named,said the proposal will soon be discussed by a group of ministers on external interface on energy security. Once the GoM approves the proposal,it will be placed before the Cabinet. The functionary said the target was to set up the SWF by January 1 next year.

The SWF that may be structured as an RBI subsidiary (if forex reserves are used) or as a fully-owned government entity (if funds are provided from the Budget) will be mandated to invest directly in strategic cross-border assets. The proposal envisages even funding private sector acquisitions of natural resources.

The primary motive,according to the functionary,is not to obtain higher returns on India’s foreign exchange reserves,as has often been argued in the past. “Through its operations,the SWF will guarantee access to foreign resources,provide cost advantage,open up markets for Indian goods and services and most importantly,enable India leverage in the global geopolitics,” he said.

While the government,through its oil and gas undertakings,and the private sector,have been buying assets abroad,it pales when compared with China. India’s efforts,at best,are small and piecemeal compared with the scale and ambition of China and other countries. “It is estimated that India lost bids worth around $12.5 billion to China in 2009 alone,” the functionary said.

To some extent,the SWF will help reduce the ‘energy disadvantage’ that India has. Unlike most large economies,India imports around 70 per cent of its oil needs. China has to import less than half its requirement,but has built an enviable energy footprint in Africa. Its two sovereign wealth funds,China Investment Corporation and SAFE Investment Company,have a combined corpus of $ 645 billion.

As being conceived now,the SWF’s board will comprise relevant ministers — Finance,External Affairs,Petroleum,Shipping,Mining,Environment and Forests,the RBI Governor,chiefs of oil and gas PSUs,two private sector representatives and the Planning Commission Deputy Chairman. But the fund will be managed by a professional team of investment professionals headed by a fund manager CEO,as is the practice in China,Australia or Malaysia which have active SWFs.

To reduce risks,there could be caps on individual investments,of say $1 billion. For investment requiring much higher exposure,the SWF could approach the Cabinet through its board. The board is envisaged to be “active”,meeting as often as required to take go or no-go decisions. “It will decide on strategies for specific opportunities and sign-off on final investments,” the functionary said.

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