OREANDA-NEWS. September 8, 2011.  India’s policy makers will discuss next week a proposal mooted by corporate chiefs to float a sovereign wealth fund (SWF), which would potentially invest in overseas projects and companies to secure access to natural resources for one of the fastest-growing economies in the world. A committee headed by Reserve Bank of India Governor D Subbarao will discuss the merits of the proposal on September 15, according to senior officials.

The committee operates under the umbrella of the Financial Stability and Development Council, or FSDC, a forum of regulators monitoring financial stability and interregulatory co-ordination.

The government was first sounded out on the sovereign fund by top CEOs at a meeting organised by Finance Minister Pranab Mukherjee a month ago to seek suggestions from industry to accelerate growth. What the CEOs have in mind is a national priority sovereign fund, which would invest in projects and companies linked to natural resources such as oil and minerals. The committee headed by Subbarao will also consider a proposal to ease norms governing use of external commercial borrowings or overseas loans.

This includes a proposal to exempt loans with a maturity of five years for infrastructure projects from the need to seek government approval. Under current norms, companies borrowing abroad need government permission.

CHINA EXAMPLE  Corporate India may have been encouraged to suggest the formation of a sovereign fund seeing the experience of China, which has used its overseas investment vehicle, China Investment Corporation or CIC, with a corpus of over USD 400 billion, to buy natural resources abroad. CIC has also picked up stakes in firms that possess advanced technology. HDFC Chairman Deepak Parekh is a strong votary of such a fund.

"India should have a sovereign wealth fund with a smaller fund size. Our reserves are invested in foreign currencies like dollar, pound and euro where the current rate of interest is 1-2%. Even long-term rates in the US have come down to 2%. So there is no harm in allocating a small share of our reserves to buy commodities including oil, or shares of commodity companies," he said.

Parekh says even if 1% of India's forex reserves (USD 319 billion) are invested in such assets, it would be a good start. The world's biggest sovereign wealth funds include those of Abu Dhabi Qatar and Singapore.

RBI cool with sovereign wealth fund idea  Singapore's investment arms are Temasek Holdings and Government of Singapore Investment Corporation, or GIC. Malaysia, Norway and some oil rich countries such as Saudi Arabia also possess substantial SWFs.