While responding to the question on India’s growth story at the World Economic Forum in January, RBI Governor Shaktikanta Das gave a positive response, predicting 7 per cent growth in the current fiscal. He called it an “opportune time” for global investors, citing strong macroeconomic and financial sector stability and structural reforms in the taxation and banking systems of the country.

Despite growing uncertainties in the global investment environment, India has been a favourable investment destination among emerging market economies. Evidently, one could see a rapid surge in State-owned Investments (SoIs) in the form of Sovereign Wealth Funds (SWFs) which quadrupled from $3.7 billion in 2021 to $17.12 billion by the end of 2023. The government’s ambitious approach towards SWFs could be another factor for such a rise.

Regulatory Framework

SWFs are special investment vehicles owned by the government of a country for investing in different assets including financial assets of other countries. These funds are funded by government surpluses like revenues from natural resources, forex reserves, proceeds from divestment, privatisation, etc., to expand the country’s excess reserve pool through long-term investments.

The Indian regulatory framework does not define SWFs as a distinct category of investments and considers them as any other foreign investment under: (1) Foreign Direct Investment (FDI); (2) Foreign Portfolio Investment (FPI); or (3) Foreign Venture Capital Investments (FVCI).

SWFs have the flexibility to invest in foreign financial assets directly with passive ownership or through private equity or venture capital funds where there is direct ownership of the assets. SWFs are mandated to be registered with SEBI as per their mode of investment and regulations like FEMA, FPI/FVCI are thus applicable. Nevertheless, SWFs in the infrastructure sector are 100 per cent tax exempted.

SWFs, owing to greater secrecy and their tendency to invest in the unlisted companies, are hard to track; data on their investment activities aren’t publicly available. Sectoral preferences of SWFs worldwide have been real estate, infrastructure, finance and energy sectors.

According to the Global SWF Report 2024, real estate, infrastructure and renewable energy sectors in India have been hotspots in terms of investments. With growing R&D in the renewable energy sector and India’s climate commitments, the country is planning to triple its generation capacity to up to 500 GW by 2030, which requires enhanced financing. Thus, the sector is currently an attractive investment opportunity. The report reveals that major SWFs like ADIA and GIC QIA have invested heavily in some of the emerging green industries in the country. Health infrastructure has also been a top contender in this race.

These sectors, it appears, will continue to be attractive because of India’s climate commitments, aggressive real estate development and burgeoning infrastructure. It would also be interesting to see the future trends in the technology sector, especially in GenAI-based start-ups that are disrupting the Indian market and are drawing the focus of investors.

Economic partnerships with SWF-rich countries could also be a significant next step. India’s Comprehensive Economic Partnership Agreement with the UAE, the recently concluded Trade and Economic Partnership Agreement with European Free Trade Association countries, and upcoming trade agreement with the EU might nudge more SWFs to invest in India. Building trade partnerships will not only enhance such state-owned investments but also instil more confidence, where the two governments could, through a coordinated and cooperative approach, address the issue of secrecy around these investment vehicles.

The writers are Directors at Centre for Competition Law and Economics