New Delhi: India is eyeing a sovereign wealth fund which will reinvest the government’s funds in profitable instruments to aid the government’s development activities. The Centre has reportedly held discussions with regulators, namely, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the International Financial Services Centre (IFSC)-GIFT City.
What is a sovereign wealth fund?
Sovereign wealth funds (SWFs) are self-explanatory in the sense that the government sets up funds which are infused with surplus funds earned from trade surpluses and energy exports, among other sources. According to an IMF paper, Kuwait was the first to set up an SWF in 1953. The government of Kuwait decided to park its revenues from oil production and sales in the fund to invest in lucrative avenues for the country’s future generations. Today, a plethora of countries including Norway and Singapore have their SWFs which are invested in a range of opportunities from pension funds to startups. China and Brazil also have their SWFs.
Why is India keen on setting up an SWF?
India is keen on setting up an SWF to capitalise on opportunities in the infrastructure sector abroad, CNBCTV18 reported, citing people familiar with the matter. According to one of the people cited above, the SWF is expected to augment India’s stature and pique investors’ interest.
India can create investment opportunities worth nearly $10 billion with a starting SWF of $5 billion, said the person cited above. Government officials have also discussed the idea of starting an SWF with multiple public sector undertakings, the person added.
Is India ready for SWF?
Nilesh Shah, MD at Kotak Mahindra AMC, said that Indians are at the helm of several sovereign wealth funds overseas. Further, countries in the Nordic region, as well as the Middle East, apart from Singapore have shown what professionally managed SWFs can do for the economy, he added.
Shah said he believes that India was ready for a professionally managed SWF that can monitor the returns on the government’s assets in the form of shares, foreign exchange reserves, infrastructure sector assets as well as unlisted equities, among others, CNBCTV18 reported.
To be sure, sovereign wealth funds have their share of concerns raised by global bodies, especially in terms of transparency, CNBCTv18 reported, citing India’s WTO Ambassador Jayant Dasgupta. However, he added that SWF route can be used by India to finance specific projects that are of mutual importance to India as well as the beneficiary.
Capitalmind founder Deepak Shenoy cautioned against going down the SWF route since it may expand India’s fiscal deficit and they may lead to higher borrowing, CNBCTV18 reported. He suggested that the government may utilise the mutual fund route to invest abroad in a regulated manner.
The Indian government has held discussions with regulators as well as public sector companies over the idea of setting up a sovereign wealth funds (SWFs). Let us understand what experts have to say about the procs and cons of an SWF. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
