FE Editorial : Look before you leap

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The Financial Express: Sep 12 2011, 01:11 IST

The sovereign wealth fund (SWF) theme is a battle the Planning Commission has often waged with the finance ministry over the past few years. The Commission has pushed for sequestering a sum from the foreign exchange reserves to develop a fund that can stand as support for Indian companies when they scour foreign markets to buy into typically resource-rich companies. Every time, the ministry has turned around the concept to argue instead for an infrastructure fund that will generate resources from global markets to invest within India. So it is difficult to guess if the latest suggestion from Planning Commission deputy chairman Montek Singh Ahluwalia for an SWF will travel far. The plan is slated to be discussed by a group of ministers, although Ahluwalia did not give any time frame for when it might happen. The latest proposal involves absorbing $5 billion from the foreign exchange reserves while another $5 billion will be pooled from reserves of cash-rich PSUs. It is expected that the corpus will be used to bankroll the acquisitions of assets abroad. Of late, several countries have endorsed the building up of such wealth funds and some, like Australia, have baulked at it. The principal objection to such a fund is the power it hands over to a bureaucracy to run the fund. The potential misuse of this power by a government is immense, and India, buffeted by allegations of corruption, can scarcely afford to create another spigot for it.

So, while the plan may be very

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