Monday, August 6, 2012

Does India really need a sovereign wealth fund?

Sovereign wealth funds (SWF) enjoyed a lot of interest from investors and policy makers alike during the heydays prior to 2008. So much so that it even caught the fancy of otherwise sedentary Indian policy makers. SWFs did have appeal until 2007 since several countries seemed to be making money through canny investments.  Particularly the oil-rich countries like Norway, the UAE, Saudi Arabia and Kuwait. As per Business Standard, all these funds have assets of close to US$ 500 bn. But how relevant is the idea of having such a fund for India is the question!

Well, for one, our policy makers are keen to have such a fund. Even if that means pulling out Rs 10 bn from budgetary resources. But that very idea reeks of imprudence! Most obviously, India does not have a large amount of money from natural resources that it needs to invest. Nor does it have a sustained current account surplus, such as China runs. The budget deficits are everyone's knowledge. The RBI is opposed to the idea of using India's falling forex reserves for capital investments. And rightly so. It has therefore been suggested that alternatively the government would raise money from the market. Or use surplus cash lying with public-sector units. With our government already having destroyed enough investor and tax payers' wealth, this could be the last nail in the coffin!

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