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Will a sovereign fund for energy work?
Wed, 9 Nov Pre-Open

The energy crisis in India has hardly escaped anybody's attention in recent times. In the race to be an economic super power, it will not be an exaggeration to state that the country that expects to grow by leaps and bounds has to be extremely secure in terms of its energy requirements.

The Government of India, while understanding the need, seems to be clueless about the way to ensure the same. A glaring example of this is the idea of setting up a sovereign wealth fund (SWF) with the aim of acquiring mineral and energy assets abroad.

Now the way this fund can be put up will be either by using the country's forex reserves or making provision in the budget itself. The issue is: for a country that is already struggling with an increasing fiscal deficit, the Government will not have enough cash in its kitty to serve the purpose. As far as the option of forex reserves is concerned, it's something that a country like China can afford to opt for (since it actually sits on surpluses earned by its export machine). India, on the other hand, does not have what one can call as 'free reserves' since they don't come from trade surplus. India infact is running a current account deficit. Hence, the money that the Government plans to divert for energy assets abroad will be borrowed reserves, the liabilities that need to be paid back.

But that's just one face of the problem. Another point that one needs to be pondered upon is that even if India manages to claim ownership of an energy asset abroad, it won't imply cheap energy supplies. This will be determined by the global market and whatever laws prevail in that country and hence fails to serve the purpose.

Hence, the solution lies in synchronizing domestic fuel prices with those prevailing in the market. Once the energy companies make money, they will have their own funds not only to invest in assets abroad, but develop them back home, which will ensure energy security in the true sense.

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