A Group of Ministers (GoM) on external security interface chaired by Pranab Mukherjee has agreed in principle on setting up a sovereign wealth fund to help companies acquire mineral and energy assets abroad. This caps discussions on the need for such a fund, which have been on for more than a year among various sections in the government. The money from the fund would be available only to state-owned undertakings, and not those in the private sector.
In its meeting on October 13, Finance Minister Mukherjee had said that the modalities of putting together a corpus for the fund required detailed examination. The government is studying two options ? dipping into the country?s $350 billion foreign exchange reserves, and setting aside monies from the budget. While Planning Commission Deputy Chairman Montek Singh Ahluwalia has recommended using a part of forex reserves, the Reserve Bank of India is opposed to such a move.
According to Ahluwalia, it is imperative to set up a sovereign wealth fund in the backdrop of rising coal and oil prices. He noted that a $10-billion fund would not be sufficient given the huge oil and coal import estimates over the next five years. During the Twelfth Plan, India would be importing about 150-200 million tonnes of coal and about 150 million tonnes of crude oil to meet domestic demand.
But the plan panel itself has differing views on how to create the corpus for such a fund and who could be its beneficiaries. In a note to the GoM, Plan panel member Saumitra Chaudhuri had suggested that the government provide for, what he termed, a ?strategic energy fund? from the budget itself. It could be $1 billion to begin with, and could be beefed up as and when required. He also said private sector firms could make use of the fund?s resources to acquire oil, gas and uranium assets abroad.
Bimal Julka, additional secretary, Department of Economic Affairs in the finance ministry, said the modalities for mobilising such resources can be finalised in consultation with the Reserve Bank of India. Steel Secretary Pradeep Kumar Misra told the GoM that the share of imported coking coal in future would rise to about 90 per cent and there was a need to ensure steady supplies through captive sources. Coal Secretary Alok Perti said Coal India Limited has increased efforts for securing coal properties abroad and is considering equity participation ranging from 15 per cent to 25 per cent for coal blocks to be acquired abroad.
Ahluwalia also said there was a need to correct the price of petroleum products to market parity. He pointed out that oil marketing companies were incurring under-recoveries of about Rs 1,16,000 crore on sale of fuel products at less than market prices. Mukherjee agreed and said it was not possible to fund such large under-recoveries from the Budget and other sources.