Bharat is already being acknowledged globally as the 3rd most powerful country in the world. Projecting economic soft power is vitally complementary to India’s strategies of projecting soft and hard military power. The timing is fortuitous given the groundswell of support Bharat is receiving for its UNSC permanent seat.
Fiscally surplus countries (Singapore) or deeply resource-rich countries (Norway, UAE. KSA, Russia) have created Sovereign Wealth Funds (SWFs) and thus channel their surpluses in a focussed manner to create wealth for their future generation of citizens.
Bharat has vast hidden reserves or wealth in the equity values of its historical investments in PSEs and PSU Banks. This is our national wealth, and it is substantial – GoI stake in just 90 PSEs and PSU Banks amounts to US$ 550 bn (Rs 45 lakh crores).
Harnessing Bharat’s hidden reserves, creating the foundations of systematic projections of soft power, countering deep-state opposition: BSWF will be born from the vesting (transfer) of GoI’s stake in around 90 listed PSE and PSU Banks (Banks) of around US$ 550bn (Rs 45.5 lakh Crore). A unifying platform like BSWF / TBF will enable focussed strategic measures to increase the long-term value of these PSE and Banks, both individually and collectively, for the benefit of future generations of Bharat’s citizens. Besides its legacy portfolio of PSE & Banks, BSWF will invest in a wide range of new asset classes (private equity, venture capital, technology funds, etc.
As an emerging superpower Bharat will enact new roles especially, projection of soft power in a geo-political canvass – creating long term influence, funding advocacy, incubating ventures, investing in social & impact programs, channeling disaster relief funding, investing in uplifting of disadvantaged communities domestically, etc.
A BSWF Foundation (and a policy Think Tank) that will invest to further these objectives would accompany the setting up of the BSWF / TBF. Investments by a foundation are not only harder to criticise but also easier to defend. The BSWFF can be a subsidiary of the BSWF & long-term resource requirements will be met from parent BSWF balance sheet.
Bharat must be fully prepared for both global and domestic criticism, and indeed active opposition both from domestic and international deep state actors. Bharat is relatively a poor country, and our enemies will argue that we do not have luxury of dreaming up such ventures, especially when we are neither fiscally surplus nor generously endowed with vast petroleum reserves.
Underpinning long term wealth creation – control over PSEs and PSU Banks vs. long term sustainable wealth creation: Of the 1830 PSE / Banks under government control, around 400 are practically non-functional. Around 9 lac Cr of budgetary allocations annually are used to support various of these PSEs. On the other hand, GoIs stake in just 90 listed PSE and Banks account for a staggering wealth of US 550bn (or Rs 45 lakh Crore).
Fundamental to maximising long term wealth is to be able to further enhance the values of well performing PSE and systematically and boldly take steps to create JVs / privatise those that are a permanent drag on Bharat’s economy.
We can revisit the current system of governance and supervision at the BSWF / TBF portfolio companies and enable them, as well as BSWF / TBF, to operate as close to “private sector” mode as possible. (Freedom to recruit, pay and reward performance). BSWF should be kept out of the CAG and CVC.
GoI control is important and must continue – redefine the definition of a PSU from 51 per cent GoI stake to 40 per cent stake. But there are a variety of ways beyond the obvious, by which to exercise day to day control. Market optics are important.
Uniformity with the Private Sector as regards RBI ceilings on FPI investments in PSE & PSU Banks would contribute to continuing this positive sentiment.
Strong market sentiment for PSE and PSU Banks: Equity culture has spread to smaller towns of Bharat; for e.g., year to date new equity accounts opened in Bharat equal the entire population of Bangladesh and are twice the population of the UK. There needs to be a regular, predictable supply of PSE & PSU Bank stocks, to satiate Bharat citizen hunger for investment themes.
FIIs are underweight India & even a US$ 100 billion increase in FII flows will only bring them to neutral weight. Retail SIP investment flows are around 30-40,000 Crore per month and growing.
The market needs a steady supply of stock to absorb the fresh investment flows into the market. Per Economic Times, (dated Sept 17), Indian Mutual Fund houses had a cash stockpile of Rs 1.71 lakh crore and 1.86 lakh crore in July and Aug 2024.
Strategic disinvestment program: BSWF can create a divestment plan that is strategic and sustainable year on year – divest not the best performing stocks but a basket of stocks – comprising PSE & Bank stocks from across the spectrum of performance and value. Creating different baskets from time to time, can be explored with leading market experts.
Turning around chronically under-performing PSEs & harvesting wealth for BSWF cannot be easily achieved simply by relying on their existing Boards and Managements to create and execute sustainable corporate turnaround programs. Converting such companies into JV’s – with industrial or private equity partners, can create sustainable turnaround and wealth recovery / creating possibilities. Obviously, these JV partners would need a free hand to manage the company going forward. Such divestment must be genuine privatisation, not an exercise in asking another PSE to take over an ailing PSE.
Reducing fiscal deficit: US$ 11 bn+ (Rs 90,000 Cr+) each year, is just a 2 per cent(or less) divestment of BSWF’s initial (current) portfolio through this mechanism. We can have a starting reduction in target fiscal deficit from 4.9 per cent to 4.62 per cent of GDP (2024 budget).
We now have an opportunity to strategically coordinate the setting up of the BSWF near simultaneous to Bharat’s inclusion to the UNSC (all expectations that UNSC seat is not a matter of “if” but “when”). Soft economic power is an integral part of overall super-power status.
BSWF / TBF, with substance and scale, can be created by vesting the GoI stake in all / most PSE / Bank entities. Long term wealth maximisation will be under-pinned, if GoI uses this opportunity to reimagine and reinvent the prevailing governance and control regime for PSE and PSU Banks. The positive sentiment to investing in PSEs and PSU Banks can be sustained with various policy changes. Market capacity exists for a strategic long term divestment program, without GoI necessarily having to give up control.
Fiscal deficit of around Rs 90-100,000 Crore can be easily financed, year on year, by a twin thrust of value enhancement of PSE and Bank shares with a well thought out timely equity basket sell down program and privatising those PSE that are a permanent drag on the Bharat’s budget. The time to act is now and decisively so.
