RBI opposes $20 bn wealth fund from forex reserves

New Delhi: The Reserve Bank of India (RBI) has opposed the creation of a $20 billion sovereign wealth fund, for acquisition of energy assets overseas, out of foreign exchange reserves and wants the government to create the corpus for it from the Budget.

_Firspost_ had earlier said that India, with big current account deficits and no real export surpluses worth speaking about, cannot create a sovereign wealth fund.

A Group of Ministers headed by Finance Minister Pranab Mukherjee today deliberated on the possible ways of creating a fund on the lines of ones that exit in countries like China.

[caption id=“attachment_107218” align=“alignleft” width=“380” caption=“The Oil Ministry wants the government to start a fund using part of the reserves. The fund was proposed to help state-run companies compete with their overseas counterparts for energy assets abroad. Reuters”]  [/caption]

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“Various things were discussed but no view has emerged,” Oil Minister S Jaipal Reddy said after the 75 minute meeting. Sources privy to the deliberations said RBI was against using nation’s forex reserves for setting up the fund. So, the Planning Commission has been asked to work out surplus that may be generated after accounting for all Plan and non-Plan expenditure.

“What they are talking is $ 1-2 billion corpus which is hardly the size…for acquisitions of oil and gas fields or coal and other mineral mines,” a source said.

“We decided we will take a look at it after the (12th Five Year) Plan approach paper is approved,” Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Asked if RBI agreed for sharing a part of the over $300 billion forex reserves, he said: “Those are some of the issues. I mean one view is that it could be done through use of forex reserve. There are some operational problems there. The other view is that if you do it out of budgetary resources.”

He added, “…obviously if you use budgetary resources then you are taking from other use of plan fund. That’s what we have to look at.”

Reddy said PSU oil firms can compete for overseas energy assets if their finances are protected. State fuel retailers are projected to lose Rs 1,22,000 crore this fiscal on selling diesel, domestic LPG and kerosene at rates below cost.

“We need to get our companies strengthened through proper pricing policy,” he said.

India has been outpaced by China in the quest to acquire oil blocks and coal fields. Chinese firms have announced about $46.6 billion worth of energy acquisitions overseas since January 2010, compared with $8.3 billion by Indians.

The Oil Ministry wants the government to start a fund using part of the reserves. The fund was proposed to help state-run companies compete with their overseas counterparts for energy assets abroad.

“Everybody can create fund for $10 billion. That’s not a problem. How big a fund is depends on what resources you want to put into it,” Ahluwalia said.

He added, “The key point is that we have all agreed that generally the idea, that we should move in this direction, is a sensible idea, but the actual funding, how it is to be done etc, all this we will decide after we have some approval on scale of 12th plan.”

PTI