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RBI debates setting up sovereign wealth fund

RBI governor says that India is yet to take a conscious view on the desirability of setting up a sovereign wealth fund, reports MC Vaijayanthi.

business Updated: Apr 15, 2008 20:58 IST

India is yet to take a conscious view on the desirability of setting up a sovereign wealth fund (SWF), YV Reddy, governor, Reserve Bank of India (RBI), said while speaking at the International Capital Markets and Emerging Markets Roundtable, in Washington DC, on Monday.

Sitting on the fence while giving the Indian perspective, Reddy, while outlining a possible methodology by which India could set up a SWF -- investment pools created by countries holding excess foreign exchange to invest in companies and assets across globe to earn higher returns -- pointed out reasons why it may not be possible to set up one right now.

The issue of SWFs acquiring considerable stakes in companies overseas has received global attention in recent times following a hawkish investment approach followed by countries like Singapore, UAE and China. A Bloomberg report quotes US Treasury officials estimating 40 SWFs worldwide managing $3 trillion dollars.

At present, the RBI holds the country's foreign exchange and under the RBI Act, and its mandate prevents the central bank from investing elsewhere for higher returns. In this backdrop Reddy suggested that the responsibility of setting up a SWF can be given to a different sovereign entity.

"If and when the country considers setting up of a SWF for the purpose, one of the methodologies could be to fund SWF by purchasing the foreign exchange from the central bank, to the extent required," he said.