India’s Overtly Political SWF

Ashby Monk

I think it’s fair to say that the international community has concluded that SWFs must swear off strategic investments that prioritize a country’s national or geopolitical interests over financial returns. After all, the International Working Group of SWFs and the Santiago Principles had as one of their “guiding purposes” to:

“…ensure SWFs invest on the basis of economic and financial risk and return-related considerations…”

In other words, if SWFs want to secure international legitimacy, they need to convince the world that their motives are entirely commercial and financial.

Clearly, Indian policymakers didn’t get the memo; Bloomberg has an article out today that quotes an Indian policymaker talking about how he’d like to use the country’s planned SWF:

“[India] may use a proposed sovereign fund to buy mines overseas that could produce the equivalent of 8 percent of domestic output in 2017…It is critical also because we are competing with China for energy assets.”

It should be noted that this is not a one-off pronouncement by a rogue policymaker in the coal ministry. Rather, this is one of a series of comments — such as these by the country’s oil ministry — that suggest that India’s primary focus for its planned SWF is in fact political and strategic. In a way, India seems to be turning the notion of a “commodity fund” on its head; instead of using a SWF to stabilize commodity revenues, India wants a SWF to secure commodities.

Anyway, it seems that Indians view this politicized SWF as a way to compete with China for the world’s natural resources. (And it should be noted that China has been very creative in using its foreign exchange reserves to secure resources.) Still, in the case of China, the CIC seems to understand that it must (at the very least) present the outward appearance of a commercially oriented SWF (no matter its real motivations). Otherwise, the investment receiving countries might be inclined to constrain the fund’s access to their markets.

For example, CIC’s Lou Jiwei has gone to great lengths to convince the world that his SWF is not carrying out China’s national strategy or attempting to secure strategic resources. He has said: “What national strategy? Our strategy is long-term risk-adjusted returns…” and he has argued “…I don’t care about how many tons of oil to ship home, I care about whether stocks are worth more money…”

While we could debate at length the veracity of Jiwei’s claims, the point is that the CIC at least tries to appear non-political, which is what the West wants from the world’s SWFs. It seems India could learn something from China, lest their planned SWF fall prey to a protectionist backlash from investment receiving countries.

6 Responses to “India’s Overtly Political SWF”


  1. 1 Andrew Rozanov July 7, 2010 at 7:16 pm

    Ashby,

    You know we agree on many things, but I will play the devil’s advocate on this one: what is wrong with a country trying to secure a stable supply of commodities if they can afford to pay up for it in the open market? This is not even political in nature – certainly not anywhere near as political as, say, using access to one’s market, OFAC-style, to get political leverage…

    And of all the countries possibly involved – India?!

    • 2 Ashby Monk July 7, 2010 at 7:38 pm

      You raise a really interesting point, Andrew. If we take a step back and think beyond the GAPP, Santiago Principles, and IWG, I think it’s totally reasonable to revisit the issue of whether these types of strategic investments should be feared by the West. As you say, if done in an open and transparent manner, what’s the problem? I think you argued in one of your papers for the Vision series that such politically motivated investments could actually add considerable depth to the market – i.e. some people are willing to buy when no others will due to political considerations (e.g. SWFs’ interest in BP). Anyway, you’re right to raise such issues.

      I guess my point in the post today was to say that the SWFs themselves had come up with a “best practice” that specifically rejects these types of investments, recognizing that policymakers in the EU and US would likely respond to non-commercial investing by SWFs with new protectionist regulations. And if any future Indian SWF wants to avoid such protectionism, it should probably “play by the rules” laid out by its predecessors like the CIC. Anyway, lots to think about…

  2. 3 Andrew Rozanov July 7, 2010 at 8:09 pm

    Ashby, I take your point – but I think the very narrow and rigid interpretation of the Santiago Principles, as per your message, is precisely why soverign funds might feel a bit disadvantaged… After all, who polices OFAC and other non-economically motivated policy actions of developed countries? I think Sven did a superb job of putting together an index of compliance with GAPP, but in a somilar vein, who’s got a similarly objective and rules-based evaluation of OECD economies in terms of open investment regimes or non-political motivation of regulations? (Sven, something for you to consider going forward perhaps? I.e. Index of compliance with OECD principles?)


  1. 1 Very Different Countries, Same Constraint « Oxford SWF Project Trackback on July 21, 2010 at 11:33 am
  2. 2 Poking Holes in India’s SWF Plans « Oxford SWF Project Trackback on August 4, 2010 at 10:50 am
  3. 3 Japan Wants A SWF « Oxford SWF Project Trackback on October 6, 2010 at 11:06 pm

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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