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India needs to decide soon on whether to set up a sovereign wealth fund (SWF) — or not, Dr Kaushik Basu, Chief Economic Advisor to the Finance Ministry, said at an Assocham event here on Tuesday.
A SWF is a special purpose investment vehicle created by a Government with surplus foreign exchange to invest overseas. A few years ago, India had considered setting up a SWF, but the proposal was not pursued.
“We should not sit on this endlessly. I can't give you a final answer as to whether it is time to open a SWF, but it is certainly a time to take this seriously on board as something that India ought to look at,” said Dr Basu.
Many economy watchers feel that circumstances do not warrant a serious consideration of the setting up of SWF. “Sovereign wealth fund is not a viable option as far as India is concerned,” Dr K. Kanagasabathy, Director, EPW Research Foundation, told Business Line .
Dr Basu also made it clear that a SWF in India's case should not only be an investment vehicle for acquisition purposes but also one that would help meet the broader objective of making it (India) a global player.
The Finance Ministry official highlighted that the issue of SWFs could not have been discussed today if it were not for the major economic reforms embarked upon in 1991-93. From a level of forex reserves of about $5 billion in early nineties, India currently had a reserve position of $300 billion and was the seventh largest holder of forex reserves, he noted.
“You can see the power of interaction with the world. The question of sovereign wealth fund comes because we have done so well in the international arena,” Dr Basu said.
On economic growth for 2011-12, Dr Basu said that he is sticking to the GDP growth forecast of 9 +/- 0.25 per cent made in the Economic Survey. He expressed concern over the inflation situation and underscored the need to go back to the drawing board to chalk out fresh measures. For April, he saw the inflation at lower than 8 per cent.
He also released a study on SWFs by Assocham and private equity and venture capital association of India.
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