New Delhi: The government doesn’t appear to be any closer to setting up an overarching mechanism for acquiring fertilizer and mineral assets abroad nearly four months after it had constituted a committee of secretaries (CoS) to look into the issue.
Three senior officials who have been present in various meetings of the CoS have said this independent of each other. All three declined to be identified.
The government had decided to constitute the CoS under cabinet secretary Ajit Kumar Seth after a meeting on the issue that was chaired by Prime Minister Manmohan Singh on 10 August. Mint had first reported this on 20 August. The latest meeting of the CoS, held on Tuesday, discussed the acquisition of fertilizer assets. The committee includes officials from the ministries of finance, fertilizers, commerce, petroleum and mines.
While there are several ideas on the table on how to go about the issue, no workable solution has emerged. One of the three officials cited above said that an idea of creating a sovereign wealth fund has been floated in these meetings, but there is no unanimity within the government on the issue. He said that sections of the government feel that such a fund is unworkable because India has a current account deficit. “Such a fund is viable only in countries like China, that have a current account surplus,” this official said.
On 22 August, the Hindustan Times newspaper had reported that the government was considering forming a $10 billion sovereign wealth fund to acquire energy assets abroad. The concept of the sovereign wealth fund, the news report said, had been floated during a meeting of a group of ministers (GoM) on 8 July. The GoM, headed by finance minister Pranab Mukherjee, has been looking into issues related to energy security.
On 30 September, the Reserve Bank of India had said that India’s current account deficit in the quarter ended 30 June stood at $14.1 billion compared with $12 billion in the year earlier.
Another idea under consideration is to provide sovereign guarantees to private companies willing to acquire assets abroad and to give them an interest subsidy on money that they would need to raise in order to buy the stakes. “The finance ministry is apprehensive about going in for interest subsidy as this has never been done before,” the first official said.
N.R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy, however, does not think that interest subsidies are a viable option, considering the gap between interest rates in India and abroad.
“Large conglomerates will likely take the external commercial borrowing route, as interest costs outside the country are far lower than in India,” he said.
The second official said that in addition to the above ideas, the government has also been considering tying up defence purchases with buying mineral assets or securing supplies on a quid pro quo basis, but this idea, too, has few takers within the government. “The idea is to link defence offsets with such supplies, but it has gone nowhere thus far,” this official said.
Under its defence procurement procedure, India imposes counter-trade obligations on original equipment manufacturers that are awarded defence contracts worth more than Rs 300 crore by way of transfer of critical technologies and production of components in India. To meet this obligation, foreign vendors partner with Indian firms. The offset obligation varies between 30% and 50% of the total forex outgo on the contract.
Several deals for buying foreign assets in the minerals and fertilizers sectors have been in the works in the last several months. On 10 August, Mint had first reported that India was eying a 20-25% stake in Belarus potash company JSC Belaruskali for $6-7 billion. Following this, India sent a delegation to Belarus, but the talks have hit a stalemate.
On 30 November, C.S. Verma, chairman, Steel Authority of India Ltd, had said that a consortium led by the company would need to spend $11 billion to develop steel mines and a steel plant in the Hajigak region in Afghanistan. The Afghan government had awarded three of the four blocks in the region to a consortium of Indian companies led by SAIL in November.
Despite no concrete steps being taken, the third official said the meetings had been “fruitful” and that the government was moving forward. “Such decisions do not get taken in a hurry. It will take time,” he said.