First, it would be very difficult to reckon in the Indian context “as is the case with many other countries, the ‘reserve adequacy’ in a dynamic setting and on that basis divert a part of ‘excess’ reserves for a higher return from riskier assets.” Second, while most other countries that have set up SWFs have amassed large reserves either on account of persistent current account surpluses or due to revenue gains from commodity exports, in particular of oil and gas, the Indian economy has twin deficits — a current account deficit as also a fiscal deficit. India’s export basket is diversified and does not have any dominant “exportable” natural resource output, which might promise significant revenue gains at the current juncture.

Third, India has experienced consistent but manageable current account deficits barring very few years of a modest surplus. India also has a negative international investment position (IIP) with liabilities far exceeding assets. The country has not yet considered regulatory initiatives specifically addressing SWFs. The existing provisions in regard to the fit-and-proper or take-over code are, however, applicable to all investors, including SWFs. Currently, the pros and cons for the establishment of an Indian SWF, as generally understood now, are still under debate. India is monitoring recent developments in regard to enhancing transparency and disclosure in respect of hedge funds, private equity and SWFs.

In particular, India is watching with great interest the development of global codes, standards and practices in regard to SWFs, both in view of the presence of SWFs in the financial markets and the ongoing debate on establishing an Indian SWF.

... contd.