PM Narendra Modi expected to seek Moscow's help to set up sovereign fund

The Economic Times, 09.12.2014

NEW DELHI: India is likely to seek Russia's assistance to set up a sovereign wealth fund when Prime Minister Narendra Modi meets visiting Russian President Vladimir Putin on Thursday. New Delhi is aiming to set up a state-owned fund to channel investment to the country's cash-starved infrastructure sector, while Moscow has the expertise to run such funds.

Russia has two sovereign funds fuelled by its oil boom and a third, called Russian Direct Investment Fund (RDIF), which seeks to facilitate flow of overseas capital to the Russian economy by co-investing with foreign investors and through long-term partnerships.

Sources in a Russian business delegation, which is in Delhi coinciding with Putin's visit, told ET that India has approached RDIF to set up a fund here. "The matter is on the agenda of discussion when Modi meets Putin, and later again when both the Indian PM and the President meet Russian business honchos and their Indian counterparts," a source said.

He refused to divulge details of the agenda on the eve of the first Russia-India annual summit since the Modi government came to power. No details were available on the sovereign wealth fund the Modi government is considering as officials in the Indian government were unwilling to comment ahead of the summit.

One of the main focus areas of the Modi government is infrastructure, a sector that is key to overall economic growth but has been struggling for want of funds.

According to experts, India's poor infrastructure is shaving off as much as two percentage points from gross domestic product. A sovereign funds targetting the sector could help quicken development of roads, ports and other infrastructure.

The Indian government has been mulling for some time to set up a sovereign wealth fund. According to some people, this could be funded by floating domestic bonds.

That would allow India to structure the fund differently compared with conventional wealth funds in countries like Norway, Singapore, Malaysia, Kazakhstan, the UAE, Kuwait and Russia - since these are current-account-surplus economies, they don't have to raise money from the market.

Indo-Russian economic ties, which many say have much more potential than what they are now, will receive a fillip following Thursday's summit, sources said, pointing out that New Delhi has already made it clear that it will not be a party to economic sanctions against Russia over the Ukraine issue.

Russian Direct Investment Fund Chief Executive Kirill Dmitriev, in Delhi to sign two deals with infrastructure finance company IDFC and Tata Power, told ET that the fund has expertise to help India set up a similar structure and, can also involve in its international partners from China, Japan, South Korea, Italy, France and the Gulf countries in the process.

"These entities led by RDIF can share expertise with India in setting up the fund and how joint projects can be undertaken," Dmitriev added.

He will be one of the Russian chief executives who will interact with PM Modi as well as participate in the Indo-Russian joint CEOs' meeting.

RDIF is a $10 billion fund established by the Russian government in June 2011 to make equity investments in high-growth sectors of the Russian economy. RDIF's mandate is to co-invest alongside global investors and act as a catalyst for foreign investments.

Together with coinvestors, it has invested and committed more than $7 billion of investments within Russia, of which RDIF alone invested $1.3 billion. Russia's two other oil revenuefunded sovereign wealth funds have combined reserves of $177 billion.