The proposal of the Prime Minister’s Office (PMO) to create a Sovereign Wealth Fund (SWF) has been scrapped following overall assessment that India does not have sufficient foreign exchange to support it.
The most vocal resistance came from the Finance Ministry, with both the economic affairs and expenditure departments saying cash-rich PSUs should use their reserves and decide independently on commercial terms. “In the prevailing situation... it would be more advisable if PSUs with surplus funds and technical know-how take independent decisions to invest in acquiring assets based on commercial gains,” said the economic affairs department at a meeting held by the principal secretary to the PM.
The expenditure department’s view was that “current reserve position of the government does not allow a SWF. PSUs with strong intrinsic financial strength... should come forward to acquire assets on their own”.
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 PMO has now asked the economic affairs department to conduct a study on utilising the surplus funds and to suggest an institutional mechanism for investments abroad.
The Fertiliser and Petroleum ministries have been told to identify projects and assets while defining the need for investment in them based on expected returns.
Last July, the PMO had directed the economic affairs department to submit a concept paper on a $20-billion SWF. One option being touted was to develop special investment instruments through which PSUs could channel their cash surpluses into the SWF, which would then be used to shop overseas.