From ministries to markets: Why India needs a sovereign wealth fund

There are reports that India is looking to set up a sovereign wealth fund (SWF). The idea of an SWF isn’t new. The first SWF was created in 1953 by Kuwait to invest its oil wealth for future generations. Since then, two waves of such funds have reshaped how nations manage their assets. The first wave in the 1970s and 1980s came from oil-rich countries like Abu Dhabi and Brunei, seeking to stabilise volatile commodity revenues, and Singapore, aiming to be fiscally prudent by professionalising how government companies were run. The second wave, in the 2000s, was driven by fast-growing, export-led economies such as China, Korea, and Russia. These countries wanted to diversify their reserves away from US Treasuries and earn better, long-term returns.

 

Today, SWFs collectively manage over $11 trillion, making them some of the most powerful investors in the world. Within these funds, Temasek stands out as both a pioneer and a departure. While it shares the essential characteristics of sovereign wealth funds as enunciated in the Santiago Principles, it serves as an example of what’s possible when the state behaves as a smart owner. Temasek wasn’t built on oil or foreign-exchange reserves. It began when Singapore transferred ownership of companies like Singtel, Singapore Airlines, and DBS Bank into a single investment holding company. Temasek then diversified globally, reinvesting profits and expanding beyond national borders. It pioneered the “state-as-shareholder” model, proving that public ownership and commercial performance can go hand in hand.

 

Temasek went on to inspire a generation of funds across Asia: Malaysia’s Khazanah Nasional, Abu Dhabi’s Mubadala, Indonesia’s INA, and Saudi Arabia’s Public Investment Fund. Each learned to blend national strategy with professional investment discipline — a model India can draw on.

 

Turning to India, the government’s listed equity holdings are worth roughly ₹44 trillion ($495 billion). If those shares were pooled under one managed fund, it would instantly rank among the top 10 sovereign wealth funds in the world. And that’s just the listed portion.

 

India’s challenge is that these assets are scattered across ministries. Shares are technically held in the name of the President of India, while administrative control rests with the relevant ministry. Oil companies sit under the Ministry of Petroleum, banks and insurers under the Ministry of Finance, power firms under the Ministry of Power, and so on. This fragmentation creates duplication, weak oversight, and a lost opportunity.

 

Ministries are designed to set policy, not to run companies or make investment decisions. In today’s complex business world, they’re simply not equipped to play fund manager. Pooling all government equity under one sovereign wealth fund would bring coherence, accountability, and professional oversight. The fund’s architecture, governance structure, and mandate need careful thought.

 

Take just the impact on the treasury. At present, dividends and disinvestment proceeds flow directly into the central treasury. Shifting ownership to a fund mustn’t create a sudden fiscal hole.

 

Other SWFs offer a way forward. In Norway, the equity is legally owned by the state, while being managed independently by Norges Bank Investment Management under strict transparency and governance rules. India already has a precedent for this in its National Pension Scheme (NPS), where ownership and fund management are separated. A similar arrangement could see public sector unit (PSU) equity transferred from ministries to a central holding company — perhaps under the Cabinet Secretariat, if the idea of a fund is too extreme — with professional oversight, sectoral experts, and clear lines of accountability.

 

The SWFs offer other lessons too. Abu Dhabi’s ADIA separates strategic direction (decided by its board) from investment execution (done by professionals). Temasek has shown that separating ownership from management improves transparency and boosts valuations. Khazanah Nasional follows a strict fiscal rulebook defining when the government can add or withdraw funds, ensuring financial discipline. And Ireland’s Strategic Investment Fund shows that sovereign funds can also invest domestically while maintaining commercial rigour.

 

Originally, most of these funds were built as rainy-day buffers — to provide a cushion during downturns or commodity price crashes. But in recent years, they’ve evolved into strategic investment arms, helping countries build national industries and future-proof their economies. Today, sovereign funds invest in green energy, rare minerals, artificial intelligence, and critical technologies — sectors that shape global competitiveness.

 

India must do the same. A sovereign wealth fund can invest not just abroad but also in India’s clean energy transition, semiconductor ecosystem, and infrastructure pipeline. This will turn passive ownership into active economic strategy.

 

As R Shyamsunder, a private equity professional and former Temasek managing director, puts it, a “Bharat Sovereign Wealth Fund” could be transformative. Even a modest 2 per cent annual divestment could raise over $10 billion a year, trimming the fiscal deficit by around 30 basis points. But the bigger prize is the multiplier effect — its ability to attract global partners and co-investors, drawing tens or even hundreds of billions in foreign capital over time.

 

At its core, an SWF is about rethinking how the Indian state manages wealth. Our current system was designed nearly 70 years ago, for a very different era. The world has changed; our structures haven’t.

 

An SWF, combined with the scale of our pension assets and the deft management of our foreign currency and gold reserves, will give India greater economic heft, expand its global influence, and build enduring national wealth. It’s time to move from ministries to markets.

 

The author is with Institutional Investor Advisory Services. The views are personal. X: @AmitTandon_in