Rs 1,000-cr initial corpus for sovereign wealth fund to buy resources

After much dallying, India is likely to have a sovereign wealth fund with an initial corpus of Rs 1,000 crore to buy natural resource assets such as coal blocks abroad.

The initial corpus was likely to be contributed by the government through budgetary support, which might come from a supplementary grant, an official told Business Standard.

The official said the fund could be a trust or a company like the Specified Undertaking of the Unit Trust of India. “Besides the initial Rs 1,000 crore, the new entity could raise funds from the market or could use surplus cash lying with public sector units,” the official said.

The money is not needed immediately as the fund will take some time to pick up since the markets would have to be identified first, according to those in the know of the development. During inter-ministerial consultations, various suggestions have come with regard to the corpus. Some said it should be a $5-billion fund (roughly Rs 27,500 crore) while some suggested it should be at least a $10-billion fund (about Rs 55,000 crore). A final view will be taken by Finance Minister P Chidambaram and Economic Affairs Secretary Arvind Mayaram. After that, a Cabinet note could be moved.Earlier, Coal Minister Sriprakash Jaiswal had said the government was thinking of creating such a fund to make it easier to acquire coal blocks abroad.

“There are issues which need to be resolved urgently in regard to acquisitions abroad, especially in view of the fact that other energy-deficit countries are rapidly buying assets abroad,” Jaiswal had said. He was referring to China’s acquisitions in places like Africa. For coal blocks, India may target Australia, South Africa, Mozambique, the US and Indonesia. Sovereign wealth funds are typically created by countries that have huge foreign exchange reserves. Countries such as China, Norway, Singapore, Saudi Arabia and other oil-rich nations in West Asia have large sovereign wealth funds.

They buy equity, gold or other assets within their countries or abroad.

Earlier proposals to create such a fund out of forex reserves had met with objections from the Reserve Bank of India. India’s foreign exchange reserves stood at $287.34 billion for the week ended July 20. China’s, on the other hand, were over $3 trillion at the end of June, 2012.

As such, SWF in India will be limited to buying assets of only natural resources overseas.