FinMin opposes sovereign wealth fund out of forex reserves

Finance Ministry has opposed creation of a $10 billion Sovereign Wealth Fund (SWF) to acquire oil and gas and fertiliser assets abroad, saying the country did not have sufficient foreign currency to support the fund.

At a recent meeting called by PM's principal secretary Pulok Chatterjee, departments of economic affairs and expenditure were of the opinion that cash-rich PSUs should use their reserves and decide independently on overseas acquisition on commercial terms, official sources said.

Planning Commission had mooted setting aside of $10 billion from the nation's foreign-exchange reserves and creating a sovereign wealth fund to secure energy assets overseas.

Sources said at the meeting the Department of Economic Affairs expressed view that SWF was possible and desirable only when the current account was surplus.

It was of the opinion that in the prevailing situation of deficit in revenue account and apprehension of devaluation of rupee vis-a-vis dollar resulting in worsening fiscal deficit, it was more advisable if cash-rich PSUs take their independent decisions to make investment in acquiring assets abroad.

Sources said the Expenditure Department also felt that current reserve position of the government does not allow to have a SWF.

India, which had $295 billion in foreign-currency reserves, has been outpaced by China in the quest to acquire oil blocks and coal fields to meet growing energy demand in the world's fastest-growing major economies. China has $3.3 trillion in foreign currency reserves.

The External Affairs Ministry also affirmed that "a group of PSUs need to be identified which can join hands and make investments abroad based on commercial decisions".

The Prime Minister's Office, they said, has now asked the economic affairs department to conduct a study on utilising the surplus funds of the state-owned firms and to suggest an institutional mechanism for investments abroad.

Ministries of petroleum and fertiliser were asked to identify projects and assets while defining the need for investment in them based on expected returns.

Around 30 countries, including China, Singapore, the UAE, Malaysia and Qatar, operate SWFs. A number of current account surplus countries have set up SWFs from their foreign exchange reserves to acquire assets overseas.