'Invest forex reserves overseas to end Re rate woes'

HYDERABAD: Continuing worries over the surging rupee has triggered the IT industry to recommend policy initiatives such as the creation of a sovereign wealth fund (SWF) to manage forex inflows.

Satyam founder and chairman Ramalinga Raju on Wednesday made out a case for the centre to set up a special body that would invest overseas to balance out the inflow and outflow of dollars.

He, however, did not elaborate on the proposal. Analysts said the government could consider the setting up of a SWF that can invest foreign currency reserves overseas and earn a higher return.

Currently, the average returns on forex reserves deployed overseas works out to just over 3%. There have been demands to create an investment authority to invest part of these reserves to buy stocks overseas and earn a higher return.

Currently, there are over 20 countries that have set up SWFs, with total assets estimated at around $2-3 trillion. Over half of these assets are with countries that export oil and gas. The world’s largest SWF is the $650 billion Abu Dhabi Investment Authority which manages the surplus revenues of the government of Abu Dhabi, the world’s sixth-largest oil exporter.

China, for instance, announced in May this year that it would invest $3 billion of its reserves in New York-based private equity firm Blackstone to issue shares.

The debate over the setting of SWF has become pertinent in India, with mounting forex reserves and the problem of the surging rupee. The rupee has appreciated by around 12-13% vis-a-vis the dollar, impacting the bottom line of IT and ITeS companies.

Although RBI recently gave a greater leeway for IT companies to hedge their foreign currency exposure, IT companies have been lobbying for more policy initiatives by the centre to tackle the surging rupee.

The continuous and rather rapid weakening of dollar has impacted the IT industry. “Without the government intervention, the country will lose out on opportunities and other countries will take advantage of it,” said Ramalinga Raju at Infocom 2007 in Hyderabad on Wednesday.

According to him, the IT industry is also concerned over the infrastructure issues and human resource development. “Though some state governments have taken pro-active steps to address these issues, it is not sufficient. It has to be taken up at the national level,” he said.

The Indian IT industry has grown from $100 million in 1991 to touch $100 billion in 2010. With the growing level of services to be delivered on virtual platform, the IT industry can grow to a trillion dollar in 2020, he said.