The Hindu Business Line : Sovereign Investing

Your editorial on sovereign investment (Business Line, April 25, 2008) is timely and thought-provoking. The provocation to go in for a sovereign wealth fund may perhaps be because of the accumulation of forex resources and continued inflows of foreign exchange to the country.

But the fact remains that the build-up of forex reserves and the inflows do not reflect real savings or earnings and can go out of the country anytime as the country’s current account continues to be in deficit and the flows are, by and large, in the form of debt or investments which can be taken back at the will and pleasure of the investors, influenced more by market sentiments than the strong fundamentals of the economy.

What the economy needs now is to attract foreign funds to build up the essential infrastructure as strong foundation for the growing economy and, at the same time, to ensure that the inflows do not result in inflationary pressures and exchange rate instability. This can be very well achieved by creating a fund styled Infrastructure Development Foreign Exchange Fund, making it attractive for investors from abroad or exporters or forex-earners in India or abroad, to subscribe to such a fund without involving rupee exchange.

Creation of such a fund would in the long run help to stabilise exchange rate fluctuations, build-up infrastructure involving expenditure in foreign exchange and reduce the cost at present incurred by Reserve Bank of India and the Government to maintain both monetary and exchange rate stability.

The fund suggested can be made attractive from the investment angle and the cost to maintain the same can be well recovered in terms of several benefits that can directly or indirectly accrue to the economy through operations of the fund. The idea may appear to be unorthodox, but will prove beneficial in the long term to the economy and the people.

T. V. Gopalakrishnan e-mail

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