India should not set up a sovereign wealth fund: SEBI

New Delhi, May 4: Warning that capital flows can reverse, a SEBI study said India should not set up a Sovereign Wealth Fund (SWF) using the high foreign exchange reserves hovering around USD 250 billion.
"India's foreign exchange reserves are built on capital account inflows and hence it is subject to capital flight ... funding an SWF from capital account surplus is risky since the capital flows can reverse their direction any time," said a report prepared by officials of the Securities and Exchange Board of India (SEBI).

Arguing against setting up of a SWF by India, the report, appearing in SEBI's April bulletin, said in the absence of a proper management in place, "the SWFs could be misled to promote domestic political or foreign policy objectives which contradict with the guidelines of Santiago principles." The Santiago principles lay down the code of conduct for transparent and non-political functioning of the SWFs.

The study also raised concerns about "corruption or even underperformance" due to mismanagement of the SWF.

Meanwhile, while giving a clean chit to the SWFs, the report said the US should welcome such investments from foreign governments to defend the home economy, particularly amid the grim global outlook. PTI