For the people manning the existing monetary policy regime, a Sovereign Wealth Fund is attractive because it alleviates one criticism: the cost of holding gigantic reserves. It helps RBI to delay RBI reform; to perpetuate the monetary policy regime of a pegged exchange rate for a wee bit longer. While this perspective is convenient for RBI, it ignores the difficulties of actually running a Sovereign Wealth Fund in India.
In Economic Times today, there is a story:
The government on Thursday wished the country's top mobile operator Bharti Airtel success in its pursuit to acquire South African telecom company MTN, while assuring other private companies of extending a helping hand in overseas buyouts.
Making it clear that there is no need to involve the government when private companies pursue deals among themselves, Minister of State for IT and Telecom Jyotiraditya Scindia said, "If the need arises and the companies ask for help, then the government can consider helping companies".
Scindia was replying to query if the government would back Bharti's move to acquire South African operator MTN, which has operations in 20 countries.
Earlier, the government had provided support to India- born businessmen L N Mittal during his company's takeover of Luxembourg-based steel maker Arcelor. The Indian government had lobbied with French authorities during the takeover.
This made me quite concerned. If an Indian SWF existed, would this mean that the Indian State would support overseas takeover attempts by Indian firms? How would the State pick which firms should be supported and which should not? Is there a possibility that there could be a variety of murky deals that are worked out in smoke filled rooms where politicians ask for a quid pro quo? And, is this all not a huge distraction for the incredibly overstretched Indian State from the core business of delivering public goods? A Sovereign Wealth Fund might be convenient for RBI but it is a bad idea when juxtaposed against the low standards of governance in India.
While on the subject of Sovereign Wealth Funds, see this.