"The council has suggested that there is a need to create a sovereign fund of $5 billon to begin with for financing acquisition of companies abroad," Chidambaram told the Rajya Sabha. He, however, did not disclose if the government was looking into the suggestion. In a recent interview to a newspaper he had said that the government was not looking at a fund at the moment. |
Last week, Reserve Bank of India Governor Y V Reddy had said that India was still weighing the pros and cons of a fund. He went on to elaborate a possible mechanism for using foreign exchange reserves, estimated at $312 billion on April 11.
Sovereign funds are owned by governments and are mostly formed out of large foreign exchange reserves for investments in debt and equity markets of other countries.
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Reddy had said that one way could be to finance the sovereign wealth fund by purchasing forex from the RBI. The forex, then, may be invested by the sovereign entity in assets that offered better returns.
Finance ministry officials have also questioned the need to increase returns from these assets, especially when India had a current account deficit and a large fiscal deficit.
Besides, Reddy had pointed out that it was difficult to find out the amount of "excess" for ex reserves. The government has, however, used reserves to finance purchase of equipment and assets overseas by Indian infrastructure companies. The funds are routed through a special purpose vehicle of the India Infrastructure Finance Company Ltd.