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Mumbai, New Delhi, Aug 12: Sovereign wealth funds (SWFs) are back on the Centre’s agenda. The high-level coordination committee on financial markets has decided that the Reserve Bank of India (RBI) and the Securities & Exchange Board of India (Sebi) would now collect and analyse data on SWF investments through the FDI and FII routes, and share it with the government.
At the last meeting of the coordination committee on August 1 in Mumbai, it was felt there is merit in collecting and analysing data relating to SWF investments in India, before deciding whether the government needs to draw up a policy framework for such funds.
RBI has already defined an SWF as “a government investment vehicle, which is funded by foreign exchange assets, and which manages those assets separately from the official reserves of the monetary authorities”. Sebi, on its part, has also identified FIIs/sub-accounts that can be classified as SWFs. Sebi is compiling the investment data of SWF FIIs and will be sending this to the finance ministry on a monthly basis.
However, the committee meeting also highlighted the fact that data collection by RBI and Sebi may not cover indirect investments by SWFs through the FII/sub-account routes and would, therefore, provide only partial information. However, if there was any discernable pattern to the data, then a policy response could be drawn up.
The rapid growth and increase in the number of SWFs, the pace of asset accumulation and the sheer size and scope of these funds—putting them on par with some of the largest public pension plans and central bank reserves—has meant that a policy framework may need to be drawn up relating to their investments, sources said.
The government and the regulators have turned their attention to SWFs following the critical role played by them in the global economy and in assuaging some of the problems of the ongoing crisis in the financial markets. These funds have also attracted attention at international fora like the G-7.
At this year’s World Economic Forum (WEF) summit in Davos, speaker after speaker dwelt on various facets of SWFs, which together control a staggering $8 trillion-plus in wealth. This could grow to over $20 trillion over the next five years, making these funds even more powerful players globally.
WEF 2008 co-chair Kundapur Vaman Kamath, managing director & CEO of ICICI Bank, had told FE in an interview earlier this year that SWFs may not have been given due credit for providing much needed funds to stabilise the global crisis at just the right time. Finance minister Palaniappan Chidambaram had said in Davos that India was in favour of greater transparency by such funds, and that the government was discussing this issue.
The coordination committee had, in January this year, discussed various aspects of the functioning of SWFs, including the treatment given to FII, foreign venture capital investor and FDI routes available to them. At the time, there was talk that their investment activities need to be tracked.
Issues in this connection were arriving at a suitable definition for such funds, whether they should be treated as any other investor with commercial objectives or as a separate class whose objectives may extend beyond commercial ones. The other issues pertaining to SWFs were whether they should be barred from some segments, and whether there should be guidelines for such funds.
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