The Reserve Bank of India (RBI) is not keen on managing a sovereign wealth fund (SWF) and is in favour of setting up a dedicated autonomous entity to administer such a fund when it is set up. A SWF generally refers to special purpose investment vehicles usually carved out of the foreign exchange
reserves for strategic investments in overseas debt and equity markets.
There has been suggestions to set up such fund that could help Indian companies grow their global footprints through acquisition and also enable higher return on accumulated foreign exchange reserves, which in India's case is one of the lowest in the world.
RBI officials, however, told the Parliamentary Standing Committee on Finance at a recent meeting — held to discuss the issue — that the RBI would prefer a dedicated and independent entity be set up an act of Parliament to manage the wealth fund. It could purchase foreign exchange from the central bank, the RBI suggested, according to an official familiar with the matter.
The RBI is not mandated to use foreign currency funds for investing in overseas assets other than treasury instruments, said the official said, who didn't want to be named.
As the SWF will be a public enterprise, it will be required to conform to the applicable governance, transparency and disclosure standards, the RBI has told the House panel.
Although the prime minister's advisory council on trade and industry, headed by Ratan Tata, has suggested creating a sovereign wealth fund with an initial corpus of $5 billion, the government has yet to take decision.
The delay is being largely attributed to the fact that despite a large pile of foreign exchange reserves, which currently total $300 billion, India still remains vulnerable on the foreign currency front because of a high fiscal deficit and a widening current account deficit.
Typically, countries that have set up SWFs have surplus on the current account.