India looks to get a share from West Asian sovereign wealth funds

India looks to get a share from West Asian sovereign wealth funds

New Delhi: India is looking to woo sovereign wealth funds from West Asia to invest in the country’s equity markets that have seen foreign institutional investors withdraw around $8.8 billion (Rs40,304 crore) in the first nine months of this year (till 24 September).

The move comes two months after India’s finance ministry gave the green signal for such funds, also called SWFs, to operate here, and in the background of a credit crisis in the US that has cascaded across the world.

Finance minister P. Chidambaram and Planning Commission vice-chairman Montek Singh Ahluwalia had briefed the cabinet committee on economic affairs, or CCEA, on this at a special meeting convened by Prime Minister Manmohan Singh on Friday, a senior cabinet minister who was present disclosed.

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“One of the points that came up during the briefing was whether India should decide whether to take a renewed interest in sovereign wealth funds set up by the Arab countries as they may be seeking new destinations to invest, given the situation in the US," said a person familiar with the discussion who did not want to be named. Ahluwalia and Chidambaram were not immediately available for comment on Wednesday evening.

Several countries have set up SWFs to invest their foreign exchange surpluses that have grown because of soaring oil prices and trade. Countries such as the United Arab Emirates, Norway, Saudi Arabia, China, Kuwait, Russia and Singapore control the world’s largest SWFs.

According to the International Monetary Fund, their aggregate size is likely to grow threefold over the next five years to $6-10 trillion.

The cabinet meeting also emphasized the need to ensure that SWFs investing in India do so transparently, and have no association with terror or other criminal outfits.

In addition, the cabinet also cautioned that rising share of investments from West Asia should not be used by some of these countries to try and influence India’s position on issues such as its ongoing dialogue with Pakistan on Kashmir.

However, Bharat Karnad, an expert on security issues with New Delhi think tank Centre for Policy Research, said that any financial leverage handed to other countries “will be used by them (to influence policy decisions) sometime in the future. We could be under pressure later."

National security advisor M.K. Narayanan had earlier said that these funds were not transparent and that their ownership was not clear. This led to the Prime Minister asking for a report from the finance ministry, which, as reported in Mint on 22 July, had allayed these fears.