India has realized that SWFs can play an important role in financing its growing economy and has started drawing attention of Oman, Kuwait and Qatar, countries holding largest SWF assets. India and Oman recently entered into MoU with $100 million of seed capital increasing to approximately $1.5 billion over the next two years. Core sectors like infrastructure, telecom, health, tourism and utility are expected to benefit from this funding. At present, large pool of foreign exchange reserves have been invested in low yielding OECD government securities bonds and other low yield deposits.
Indian Government had announced in its recent meeting with Gulf nations that it needs around $500 billion investment over the next decade to fund their growing infrastructure requirements. This also presents an opportunity for rich and wealthy Gulf nations that are hunting for better investment avenues beyond developed countries which are still under recession post Subprime mortgage crisis.
A section of industry experts however opine that since India’s reserves are not derived by commodity exports, unlike cash rich Gulf nations, establishing its own SWF is not a good idea. With its current account deficit still running around 2% of its GDP, it makes more sense to hold as much reserve as possible as against long term investing through SWFs. While reserves of Middle East countries come from oil and commodity exports, India’s reserves are derived from FDIs, External Commercial Borrowings and other term credits.
Opening up to Islamic banking will enable India in attracting huge amount of SWFs which are being diverted to China and other emerging Asian economies. Singapore is cultivating Islamic Banking so as to leverage its position as a leading financial centre.
that was really well written and informative!
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