Why in News?
India is contemplating creating a Bharat Sovereign Wealth Fund (BSWF) or The Bharat Fund (TBF) to tap a reservoir of national wealth that lies dormant in India’s economy.
What is a Sovereign Wealth Fund (SWF)?
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About: SWFs are government-owned funds created from state surpluses, often from a variety of sources like natural resources, trade surpluses, or budget excesses.
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SWFs help governments generate wealth through strategic investments, ensuring financial stability and economic growth.
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Characteristics: Santiago Principles 2008 defines SWFs as having 3 key characteristics:
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It is owned by the general government, which includes both central government and sub-national governments.
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It Includes investments in foreign financial assets.
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They invest for financial objectives.
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These key elements exclude public pension funds, owned by policyholders, and central bank reserve assets, which are not invested.
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Types:
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Stabilization Funds: Absorb shocks from volatile revenues, ensuring fiscal consistency.
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Future Generation Funds: Invest surpluses for long-term wealth, benefiting future generations.
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Public Benefit Pension Reserve Funds: Fund pension systems to meet long-term obligations.
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Reserve Investment Funds: Manage and grow foreign exchange reserves, stabilizing currency.
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Strategic Development SWFs: Invest in key sectors for national development.
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Foreign Currency Reserve Assets: Maintain currency stability and manage global trade power.
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Examples: Norway Government Pension Fund Global (USD 1.7 trillion, world’s largest SWF), China Investment Corporation (USD 1.35 trillion), Abu Dhabi Investment Authority (USD 993 billion) etc.
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SWFs in India:
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2007-08: The SWF idea in India gained traction in 2007-08 due to a surge in capital inflows (exceeding USD 108 billion in a year) but lost momentum after the Global Financial Crisis 2008.
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2010-11: The Planning Commission revived the SWF proposal in 2010-11, suggesting a USD 10 billion fund funded by foreign exchange reserves, PSUs, or budget allocations.
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2015: NIIF was set up that remains India’s main structured investment fund.