Given the revenue account deficit and apprehensions of devaluation of rupee vis-a-vis dollar resulting in worsening fiscal deficit, the government has put the proposal of constituting a sovereign wealth fund (SWF) to acquire assets abroad on the back burner.
“Constitution of a SWF is possible and desirable only when the current account is surplus and investing funds in acquiring assets abroad, based on commercial decisions, give better returns as against putting these funds in treasury,” the finance ministry conveyed at a recent meeting in the Prime Minister’s Office (PMO). HT is in possession of the minutes of the meeting held in the PMO.
It is now being proposed that surplus funds with CPSE (central public sector enterprises) be utilised for making investments abroad and to acquire critical assets. An estimated R2.5 lakh crore surplus funds is presently available with the public sector companies.
Central government-run companies contribute over 6% of the country’s GDP, and their profits are at a record level of R1,00,000 crore. Public sector undertakings (PSUs) like Coal India had cash balance of R8,202 crore in 2011-12, NMDC R20,264 crore, NTPC R16,146 crore and SAIL R6,415 crore.
Officials disclosed that it was emphasised by the PMO that opportunities to acquire assets abroad in coal, gas and fertilizers sectors are increasingly becoming available and, therefore, there is dire need to evolve a suitable institutional mechanism to make investments in these sectors.
“An overarching institutional mechanism that would include institutional structure and remit of this mechanism, sources and approximate requirements of funds, and broad terms and conditions to access funds by user organisations is being worked out,” a top government official told Hindustan Times.
Lack of a institutionalised mechanism in the country has so far come in the way of such acquisitions even as rival economies like China are going ahead making large sized acquisitions.
“In the absence of a SWF or a mechanism, it is becoming difficult even to negotiate and finalise the long term agreements with countries, which are in possession of these assets as most of them expect huge investments by the acquiring countries in their economies,” officials said.