‘Current reserve position doesn’t allow the Govt to have a sovereign wealth fund to acquire assets ’

The Prime Minister’s Office (PMO) has asked the Department of Economic Affairs (DEA) to work out an institutional mechanism for pooling surplus cash of Central Public Sector Undertakings (CPSUs) to make acquisitions abroad.

The decision to work out this new mechanism comes after the DEA conveyed to the PMO that the current reserve position does not allow the Government to have a sovereign wealth fund (SWF) to acquire assets. It said the constitution of a SWF is possible only when the current account is surplus.

“In the prevailing situation of deficit in the revenue account and the apprehension of devaluation of rupee vis-à-vis the dollar, it would be advisable if PSUs with adequate surplus funds and technical knowhow consider acquiring assets based on commercial gains,” the DEA has stated.

The PMO has asked the DEA to get a study conducted on utilising CPSU surpluses and other funds for making investments abroad by acquiring critical assets.

It was decided in a meeting, convened by Pulok Chatterjee, the Principal Secretary to the Prime Minister, that the proposed mechanism should, inter-alia, include an institutional structure, sources and approximate requirement of funds, and the broad terms and conditions that would allow user organisations to access the funds. The PMO has also directed the Department of Fertilizers and Ministry of Petroleum and Natural Gas to identify shelf of projects/ assets to be acquired abroad, and to clearly define operational responsibilities of various agencies, a mechanism to evaluate assets and criteria to make investments based on expected returns.

Price advantage

However, the Petroleum and Natural Gas Ministry has stated that it is essential to have a SWF to acquire assets abroad as most of these investments pay off in the long-run apart from giving a certain price advantage to the country.

“Exploration of resources requires huge funds, and unless SWF is available, not much headway would be possible to make in this direction,” it informed the PMO.