In almost all cases, commodity funds are set up to stabilize and diversify resource revenues stemming from exports. This helps to avoid the nasty effects of Dutch disease and facilitates long-term fiscal stability. Recently, India flipped this idea on its head by proposing a SWF that would try to manage and stabilize resource imports.
Specifically, India wanted a SWF to better compete with China for the world’s resources — China spent upwards of $32 billion on a variety of resource investments last year, while India only managed $2.1 billion.
However, while it was a very interesting idea, India’s overtly strategic SWF may not materialize. News out today suggests that India may forego the SWF and put the onus directly on state-run companies for resource acquisitions:
“Oil & Natural Gas Corp., India’s biggest explorer, and Indian Oil Corp. are set to get approval from the government to spend five times more on acquisitions, giving them greater freedom to compete with China for assets.”
This is probably wise. An Indian SWF with an articulated mandate to ‘compete with China for strategic investments in resources’ probably wouldn’t go over too well within the international community. That is pretty much the exact type of behavior that inspired all the concern about SWFs in 2007…