The Department of Economic Affairs seeks to create long term resource security for the nation with setting up of India Overseas Investment Corporation (INOIC). In a concept note prepared by the department it stated that the corporation will be a development finance institution with the specific mandate to provide equity and debt to Indian public sector utilities for acquiring international assets.
The note mentions that setting up an entity like the INOIC will accelerate infrastructure development and economic growth and to ensure energy security in the form of ready access to natural resources such as oil and gas and coal. With limited domestic natural resources, India has no alternative but to look for such assets overseas. So far, India has acquired in full or in part, a few oil and gas assets in Russia, Africa, coal and fertilizers in Asia, Australia, Middle East and North Africa through PSUs and private sector companies without an overarching strategic plan.
The DoEA has conceived INOIC as a Non-Operative Holding Company under the administrative control of the Department. It will provide finance for investing/acquiring strategic assets overseas to select PSUs. Acquisition of strategic assets will reduce the exposure of Indian producers to the commodity price volatility in the international market for oil, urea and other critical raw materials.
It is also proposed that the foreign exchange required by INOIC would be acquired from RBI through outright purchase on spot basis or medium term currency swap. The usual arguments of high CAD and fiscal deficit, large external debt, high forex reserves largely composed of borrowings, and absence of high commodity export earnings that proffered against India setting up an sovereign welfare fund, will not be applicable to INOIC. INOIC will use the PSU surpluses to acquire foreign exchange from RBI at market-related rates for purchasing the overseas assets.
INOIC will extend long term loans to PSUs whose overseas investment proposals are approved. Then loans will be denominated in US Dollars or other convertible currency as appropriate. INOIC will purchase the required US Dollars from RBI either outright on Spot basis or by way of medium or long term currency swap, using the rupee funds generated through issue of bonds. The PSU concerned will use these funds to invest in the overseas companies that own the assets.
The note further mentions that the government, through finance ministry and INOIC, can ensure coordination amongst different PSUs, seek to enforce uniform standards in selection and investment as well as recognition of national interest in such decisions without being constrained by company-specific issues and attributes or the administrative Ministry’s perspective. INOIC represents a single-window clearance and financing framework that would be faster and more responsive than the existing system.
In the note, DoEA asserts that the proposed mechanism is consistent with legal requirements, RBI’s regulations, ensures integrity of foreign exchange reserves and is fiscally prudent. The note is currently under circulation to the different stakeholders for their comments.