The ruling dispensation is reportedly mulling a Bharat sovereign wealth fund (SWF)-a state-owned entity that invests domestically and abroad-that generates a steady stream of non-tax revenues for the exchequer. Such a fund, whose initial size is pegged at $50 billion, could invest in energy, critical mineral assets, technology, and other important sectors and generate returns as a business entity like Singapore’s Temasek, according to FE.
The idea of setting up such a SWF, however, is not new and goes back to 2007-08 when there was a surge in capital inflows. In 2010-11, the Planning Commission revived the concept by recommending a $10-billion fund from the country’s foreign exchange reserves to secure oil and gas assets overseas. The group of ministers agreed in principle to a SWF but no final decision was taken. A decade ago, the government set up a quasi-sovereign fund of sorts, the National Investment and Infrastructure Fund Ltd, but its size is nowhere near the SWFs in the world that manage assets worth trillions of dollars.
Unlike other SWFs that were set up with oil riches, foreign exchange reserves or budgetary surpluses, India is not so fortunately placed in this regard as it is fiscally constrained with multiple development challenges. A well-run fund is perhaps needed as it could generate resources for socio-economic programmes on a sustained basis. The big question naturally is from where the resources will come for the $50-billion SWF.
Senior officials indicated to this newspaper that this won’t be a problem as leakages could be plugged in government programmes, schemes that have lost relevance would be shut down, and assets would be monetised. However, the government’s track-record in this regard leaves much to be desired. If the Bharat SWF is to emulate Temasek, the ownership of state-owned companies will have to be transferred to it. Temasek successfully managed investments of Singapore’s state-owned companies and evolved into a global investor, turning an initial corpus of $273 million to $335 billion.
A full-fledged Bharat SWF can similarly transform the management of government’s equity holdings in listed public enterprises, unlocking an estimated wealth of $450-500 billion which can make it into the top 10 SWFs in the world. The challenges, however, are considerable. These public enterprises are under various ministries that are best suited to enact policies than run them efficiently.
There is bound to be considerable resistance from officialdom as this fund will be run by professionals rather than bureaucrats to make it succeed. As R Shyamsunder, a former Temasek MD-Investments, puts it, central to Bharat SWF’s success is a governance overhaul with independent public enterprises operating at arm’s length from the ministries and reduced bureaucratic oversight. This has eluded the best efforts of the ruling dispensation so far despite its stated intention that government has no business to be in business.
The Bharat SWF’s potential impact is staggering as a modest 2% divestment could generate $10 billion-plus annually. But these resources will flow to the fund than directly to the exchequer. The fund could also resort to borrowings to fund its investments, domestic and overseas, which will increase the nation’s interest repayment burden. With the prospect of a fiscal hole, it takes a leap of faith to expect that Bharat SWF would provide a steady stream of non-tax revenues to fund the national budget like Temasek.
