NEW DELHI: The government plans to use disinvestment proceeds to set up its own version of a sovereign wealth fund (SWF) that will team up with state-run companies for acquiring overseas raw material and energy assets.
A senior government official said about one-third of the proceeds from sale of government equity would be channelised into this fund, and it could also leverage its equity to raise debt, thereby increasing the corpus.
“The thinking within the ministry is that disinvestment proceeds could be used in a more productive way… Creation of a sovereign fund is being actively considered,” said a senior finance ministry official.
Finance Minister Pranab Mukherjee has set up a high-level panel headed by Cabinet Secretary AK Seth to revamp the National Investment Fund and productively use the money raised from sale of government-owned shares in PSUs. The panel is scheduled to meet on May 9 to consider a plan for creating three funds, including the SWF variant.
China, Singapore, the UAE, Malaysia, Qatar and a number of current account surplus countries have set up sovereign wealth funds from their foreign exchange reserves to acquire assets overseas.
But while these bodies, typically, make big-ticket investments on their own, the Indian fund will basically finance the global aspirations of state-run companies as they scout for strategic energy assets such as oilfields and raw material sources such as coal mines.
The Planning Commission had mooted the creation of a sovereign wealth fund a few years ago to give some muscle power to Indian companies that have been losing out to their Chinese counterparts in the race for global natural resources in Africa and other countries. But New Delhi has found it difficult to find funds to seed the idea because of the country’s high fiscal as well as current account deficit.
“We first need to get the house in order. We need to control fiscal deficit and once we are revenue surplus, we should use disinvestment proceeds for creating such a fund,” said veteran banker and HDFC Chairman Deepak Parekh,
The fund can be operationalised at the earliest in 2013-14, as the government has decided this year to use the disinvestment proceeds to fund its expenditure and curb fiscal deficit. It had, in 2009, taken a two-year moratorium to use these proceeds to fund its expenditure until 2011-12. The moratorium was extended by another year this budget.
In addition to the overseas fund, which is being called the ‘inter-generational equity fund’, the panel headed by the cabinet secretary is considering setting up two other funds. One will provide the government resources to subscribe to equity of public sector enterprises to maintain majority government ownership while the other will generate income that will be used to finance the government’s social sector schemes. The government has set a disinvestment target of Rs 25,000 crore for the next fiscal.
Once the panel approves the three funds, the proposal will go to the cabinet for approval.
The National Investment Fund, which is now being revamped, was created in January 2005.