India has realized that SWFs can play an important role in financing its growing economy and has begun to draw attention to Oman, Kuwait and Qatar, the countries with the largest assets of the SWF. India and Oman recently concluded a MoR with a seed capital of $ 100 million which increased to approximately $ 1.5 billion over the next two years. Key sectors such as infrastructure, telecommunications, health, tourism and utilities are expected to benefit from this funding. Currently, a large foreign exchange reserve fund is invested in OECD government bonds and other low-yield deposits.
The Indian government announced at a recent meeting with the Gulf states that it needs about $ 500 billion in investment over the next decade to fund its growing infrastructure needs. This also provides an opportunity for rich and affluent Gulf states looking for better investment routes outside developed countries that are still in recession after the mortgage crisis.
Part of the industry experts, however, believe that, given that India’s reserves do not arise from the export of goods, unlike stockpiles of rich stocks, establishing your own SWF is not a good idea. Since the current account deficit is still around 2% of GDP, it makes more sense to keep as many reserves as possible towards long-term investment through SWFs. While the reserves of Middle Eastern countries originate from oil and commodity exports, India’s reserves originate from foreign investment, foreign commercial loans, and other term loans.
The opening of Islamic banking will allow India to attract a huge amount of SWFs that are diverted to China and other emerging Asian economies. Singapore nurtures Islamic banking to take advantage of its position as a leading financial center.