Framework Recommendations and a Story-board

Introduction and background:

2016 and 2017 are landmark years for India for various reasons. One such reason has the capacity to swiftly catapult India onto the global top round-table. The timing couldn’t be better. Yet, instead of pushing for it, India’s pursuit is diffident.

In 2015, after a decade long debate among various industry bodies like the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and the Confederation of Indian Industry (CII), experts of the field and economists, India finally incorporated this institution. On 28 February 2015, in the Finance Minister’s budget speech (Para 47), the establishment of this institution was announced. On 28 July 2015, the Union Cabinet approved it. But it failed to germinate well and was put on the back-burner until 2016.

On 17 November 2016, under the leadership of honourable Prime Minister Narendra Modi, the Ministry of Finance paid what can be called the “application money” for the operationalisation of India’s first Sovereign Wealth Fund, the National Investment and Infrastructure Fund (NIIF).

What is a Sovereign Wealth Fund (SWF)? It is an investment fund: owned and operated by a sovereign government. Normally, an SWF follows two channels of international investments: oil and non-commodities.

Is NIIF the first Indian SWF? Yes, it is the first. It may be argued ONGC Videsh has been in the forefront investing in the global oil industry for a long time, and qualifies as SWF but it is held by ONGC, not the government, and hence, in the truest sense, it is not an SWF.

Where will NIIF invest? As a fund of funds, it is expected to manage and administer a wide range of funds globally including venture capital funds, real estate funds, alternative investment Funds (AIFs), offshore funds, investment trusts, infrastructure debt funds, and more. There has been much discussion on this question, with numerous suggestions, such as ASSOCHAM maintaining in 2011 that it should be used for global strategic acquisitions in oil and gas, coal, and infrastructure and the Ministry of Fertilizers proposing in 2012 that it could be leveraged to acquire mineral assets like potash to boost India’s fertiliser production. No doubt, some economists have also questioned the viability of an Indian SWF with the country’s erstwhile rising fiscal deficit, inflation and unemployment.

After the Union Cabinet approved the establishment of the NIIF, the Ministry of Economic Affairs completed the formalities for setting it up. They primarily included:

  1. Registration of the NIIF Trust Deed with incorporation of the National Investment and Infrastructure Fund Trustee Ltd;
  2. Registration of the NIIF as a Category II AIF and its incorporation.

A Category II AIF is defined under the Securities and Exchange Board of India’s (SEBI) AIF Regulations 2012 as: “Those AIFs for which no specific incentives or concessions are given by the government or any other Regulator; which shall not undertake leverage other than to meet day-to-day operational requirements as permitted in these Regulations; and which shall include Private Equity Funds, Debt Funds, Fund of Funds and such other funds that are not classified as category I or III. These funds shall be close ended, shall not engage in leverage and have no other investment restrictions.”

In 2016 and 2017, the socio-politico-economic conditions are just right for the NIIF to break the gossamer threads of its cocoon and take its maiden confident flight. This report starts with a five-point recommendation for the NIIF and attempts to build a storyboard providing the optimistic directions NIIF’s investments. These directions will thrive on a cohesive framework of operational elements which can and must come together for its success.

Chapter 2

  1. Recommendations: First, NIIF should be 100 percent held by the Government of India. It shouldn’t solicit equity participation from strategic partners such as other sovereign wealth funds or multilateral/bilateral institutions, pension funds, or domestic public sector enterprises.

    Reasons:

    1. Management control of the wealth fund is extremely important. Equity participation by non-Indian sovereign entities will render NIIF’s sovereignty useless and will dilute speed, necessary confidentiality, and quality of decision making.
    2. NIIF can be used to invest strategically in global companies to provide immense intelligence:–geospatial intelligence, cyber intelligence and technical intelligence, alongside human intelligence, signals intelligence and measurement and signature intelligence to boost national security. Equity participation from non-Indian sovereign entities will paralyse this valuable option.
  2. For portfolio integrity and stability, as well as to withstand market volatility and rigidity, and to diversify risk,
    the mantra of NIIF investment governance must encapsulate five ‘M’s :
    1. Machine-intelligence
    2. Money
    3. Mining, Materials and Manufacturing
    4. Military
    5. Medicine

    Reasons:

    1. NIIF’s asset-allocation portfolio must balance long-term strategic and short-term high-returns investments.

      Machine-intelligence: Pioneering research worldwide is underway in machine-learning, mixed-realty, mission-critical systems, artificial intelligence, 3D printing, mobility, geographic information systems, etc. Magic Leap, Hyperloop, 5G, etc. are good examples for long-term investments.

      Money: Real estate funds and other growing international funds can provide short-term high returns investment options.

      Mining, Materials and Manufacturing: Global investments in these segments are paramount to bridge India’s current deficiency (and in some cases, scarcity) and high dependency on imports. But these are heavy-duty strategic investments with risky profitability from constant global price fluctuations impacting revenue, cash-flows, and asset values. (Sometimes, because of shifting and evolving political scenarios, investment in these segments needs a surgeon’s dexterity, a mountain-climber’s determination and a yogi’s patience.

      Military: Cutting-edge innovation in our military preparedness needs a strategic push.

      Medicine: Life-saving drugs, DNA printing, research in biochemistry and pharmaceuticals can provide calculated returns and also boost internal national healthcare.

    2. Currently, the governance structure of NIIF comprises economists, finance professionals, and bureaucrats. Limiting the governing team to experts in just one industry segment – finance – and planning for investments only in funds/ trusts/ venture capital/ real estate, amounts to leaving a lot of potential investment areas unexplored, thus under-exploiting the immense power of such a strategic investment vehicle.

  3. NIIF can’t function optimally in isolation. It needs to work in tandem with five other
    important schemes: a) the Make in India project, b) the Digital India project, c) the Skill India project, d) the Sagarmala project, and e) the National Mineral Exploration Policy (NMEP). A core team from all these initiatives should be brought to the round-table of the NIIF on a consistent and regular basis to make these overall macroeconomic and industry levers act as essential gears for smooth and informed decision making at NIIF. These five schemes have to operate like the five elements of life: Make in India like fire (Agni) to create finished products, NMEP to leverage the earth (Prithvi) for resources, Sagaramala like water (Jala) to help the flow, Skill India to bring in the air (Vayu) of productivity and innovation, and finally Digital India to function as the all-pervasive ether (Akasha) aiding growth.

  4. NIIF should recruit and incubate, either on a paid or pro bono basis, a crack team of prominent Pravasi- Bharatiyas and Bharatiyas (NRIs and locals) in the five ‘M’s mentioned earlier to provide on-ground intelligence on breakthrough innovation across industry, the health of potential non-military investments, and to liaison/lobby with the right people and agencies for successful investments.

  5. For an externally focussed NIIF to be successful, India needs specialists to harness and streamline all activities, and incubate talent, cater to latent and urgent needs of industries to help increase exports, decrease imports, and innovate quickly. A couple of examples:
    1. For immediate and urgent focus on mining and mineral extraction, mining engineers active in the field are required. But, the current UPSC examinations do not draw in mining engineers either in the Indian Engineering Services (engineers are taken only from the Civil, Mechanical, Electrical, and Electronics & Telecommunications disciplines) or in the Combined Geo-scientist and Geologist services. In effect, the government loses the expertise of mining engineers.
    2. Innovation incubation needs to be activated on a war-footing. There is a National Innovation Foundation whose primary objective is scouting for, spawning and sustaining grassroots innovations. For most of these inventions, a potential patent application can be filed. India is lagging on global Innovation indices in all areas. More patents will boost the innovation indices.

      The following figure is an attempt to pictorially represent the recommendations mentioned above:

Figure 0.0: Recommendations for the NIIF Framework

Chapter 3

The Storyboard

An SWF’s primary objective is to garner returns greater than the accumulation of monetary mass in the form of Total Reserves of central banks. It is neither desirable to channel the surplus of Total Reserves towards internal consumption nor is it prudent to defensively hold too much of Total Reserves to stem fluctuations in the parameters of the internal economy. To achieve this, the interplay of various macro-economic factors, local challenges, and geo-strategic political factors, have to be taken into account. Moreover, since the nature of SWF investments is strategic (sometimes linked to national security), a fine balance between levels of transparency, accountability, effectiveness, and regulatory rigour needs to be built into the operational structure.

To build a storyboard around the objectives of this report, five primary factors need to be considered:

  1. Total Reserves
  2. Gross Domestic Product
  3. Current Account Balance, Imports/ Exports
  4. Mining
  5. Manufacturing

The first three are macro-economic levers, the last two are industry levers.

MACRO-ECONOMIC LEVERS:

  1. Total Reserves: Total Reserves include holdings of monetary gold, special drawing rights, reserves of International Monetary Fund (IMF) members held by the IMF, and holdings of foreign exchange under the control of monetary authorities. All non-gold items are clubbed under Foreign Exchange (FX):Thus:

Total Reserves = Total Gold reserves + Total FX reserves

In 2016, only 22 countries in the world had Total Reserves in excess of $100 billion.

Figure 1: Top 22 countries with Total Reserves > USD 100 Bn in 2016, (India is highlighted in saffron and the numbers which show considerable deviation are highlighted in yellow.)

  1. The US leads the world in gold reserves as a percentage of total reserves, at a whopping 74 percent, followed by Germany (68 percent), Italy (67 percent), and France (62 percent).
  2. At the next level are Russia (15 percent) and Turkey (13 percent)
  3. All others, including India, hold gold in single-digit percentages to their Total Reserves.
  4. Algeria, a country which does not figure prominently in world politics, is, however, part of the Top 22 in Total Reserves.
  5. Even though China holds the largest Total Reserves, its gold as a percentage of Total Reserves is merely 2 percent. This is interesting for the following reasons:
    1. When pegged as percentage to Total Reserves, 2 percent appears a small number. But, the actual amount of gold reserves of China and other 21 countries presents a different picture:

    Figure 2: Top 10 countries with gold Reserves in 2016

    1. China holds just 1,843 tonnes of gold in reserves. On a different note, China has the world’s largest consumer demand for gold (approximately 990 metric tonnes) followed by India (approximately 850 metric tonnes in 2016); the US is a distant third with approximately 195 metric tonnes. That China is able to cater to its domestic demand while also maintaining/increasing its gold reserves is commendable.
    2. There is a lot of discussion in the global gold mining industry on how China (through its sovereign wealth funds) keeps bidding for gold mines in countries rich in gold deposits. But, given the complications of the gold mining industry (discussed later in this report), even by 2049, China is unlikely to match USA’s 8,133 tonnes of gold reserves.
  1. Gross Domestic Product (GDP) is one of the primary indicators of the health of a country’s economy. Simply put, GDP is the monetary value of all the finished goods and services produced within a country in a specific time period (normally a year). Finished goods result from agriculture and industry. The table below gives the total GDP (in $trillion) for the same 22 countries listed earlier, ranks them in terms of GDP and splits their GDP into the three main segments: agriculture, industry, and services.

Figure 3: GDP of the 22 countries in 2016 with ranks and percentage share in Agriculture, Industry, and Services

  1. The EU has been intentionally dropped from this list because sovereign countries are being compared and not conglomerates.
  2. Before analysing further, it is important to know the average percentage contribution of each segment to the global GDP:
    1. World agriculture contributes around 6.6 percent of world GDP
    2. World industry contributes around 30.9 percent of world GDP
    3. World services contributes around 62.6 percent of the world GDP
  3. With the 22 countries listed above, the average for each segment hovers around the same percentages:
    1. Agriculture contributes around 4.6 percent of GDP
    2. World industry contributes around 29.7 percent of GDP
    3. World services contributes around 65.7 percent of GDP
  4. India’s agriculture contribution of 16.5 percent to her GDP is the highest among the 22.A close second is Indonesia. To cater to India’s agricultural needs, fertilisers, insecticides, etc., comprise a major portion of India’s imports. This point is discussed further in the later sections covering Exports and Imports. The contribution of industry and services to GDP in India are 29.1 percent and 54.4 percent respectively and is close to the global average.
  5. As expected, in 2016, China led the GDP table at $21.27 trillion with the US a close second. Though India has the third highest GDP, the difference is size with China and the US is wide. With India’s 2016 population projected at 1.3 billion versus 1.4 billion of China and 0.3 billion of the US, there is immense scope for India’s GDP to leap-frog close to that of China and the US. A comparative table of the top 10 of 22 countries as per their Total Reserves versus segment contribution to GDP is as follows:

Figure 4: GDP of 10 of 22 countries leading in Total Reserves in 2016 and percentage share in Agriculture, Industry, and Services

  1. Let’s extrapolate the Figure 2 shown above to show the comparative GDP segments:


    Figure 5: Extrapolating Figure 2 above to show percentage share in Agriculture, Industry, and Services of the top 10 countries with highest gold reserves.

    1. 8 of top 10 countries in Figure 5, have percentage of services >50%. Only India and China are sub-50% in services. China is aggressively increasing its share of services bucket: China services sector has started growing at around 7-9% y-o-y as per recent reports. In comparison, India’s services sector grows at around 8-10% y-o-y as per recent reports. To reiterate, there is tremendous scope of growth in India in the services sector.
    2. China makes up in industry bucket which it loses in agriculture.
    3. Except for India and China, percentage of agriculture in the GDP of the other eight countries falls below world average. Prima facie, in most cases, it seems to be sufficient to feed their local population but they also depend on imports from India and China. Dominance on agriculture also makes sure China and India are ranked 1 and 2 (on an average) respectively in world production and exports of agricultural produce which also boosts their GDP. A glimpse of India’s dominance in agriculture is as follows:

      Figure 6: India’s world ranking in a sample of most traded items from agriculture

  2. Current Account Balance

    ‘Current account balance’ is the difference between a nation’s savings and its investments. A positive current account balance indicates that a country can lend money or invest, and a negative one means the country needs to borrow. If Current Account Balance is represented as a percentage of GDP, a positive percentage shows a healthy economy. If a country is exporting more with good profits and importing less, the percentage hovers in the positive. Technically, one of the definitions is the percentage of sum of the balance of trade (goods and services exports less imports), net income from abroad, and net current transfers. Since Balance of Trade mechanism does not capture, exhaustively, all visible and invisible trade at a given point of time or frame of reference, sometimes a dead band of ± 1-5% is chosen. This report uses a ±5% threshold dead-band since certain numbers are taken on approximation. The following figure shows the Current Account Balance as a percentage of GDP for 2016 for the same 22 top countries.

    Figure 7: Current Account Balance as % of GDP along with imports and exports

  3. Singapore leads with 19.30 percent. This becomes more noteworthy if one refers to Figure 3 showing the shares of agriculture, industry, and services: Singapore has 0 percent from agriculture, and thus its entire surplus comes from industry and services.
  4. The worst hit, meanwhile, is Algeria with a negative 15.06 percent.
  5. Crossing the positive threshold dead-band of +5% are Thailand, Switzerland, Germany, and South Korea, with 9.65 percent, 9.24 percent, 8.63 percent, and 7.24 percent, respectively.
  6. Saudi Arabia and the UK cross the negative threshold of -5% with -6.63 percent and 5.93 percent, respectively.
  7. Saudi Arabia: By 2017,
    bolstered by innovations involving automation including the use of wireless seismological testing, big-data analysis and rig-analytics, the US is close to claiming the crown of global production leader from Saudi Arabia. With the nuclear deal in process between the US and Iran, Saudi Arabia is expected to lose its dominance in oil exports. With a decrease in its global market share, a prudent decision for Saudi Arabia could have been to slow down oil production. But, in 2016, it increased output to hedge the flattening oil prices with Total Reserves. The gamble has backfired, and the slump and stagnation of oil prices eroded the country’s Total Reserves and pushed it further notches down in global oil exports.
  8. For the UK, the impact of BREXIT has the potential to further increase the distance negatively from -5% threshold of Current Account Balance. It is a gamble on which world is still divided.
  9. India, at -1.42 percent, is not far from striking a balance in its Current Account Balance. This places India in an enviable position where decisions can be and must be taken to maintain its pace of economic growth. India’s imports outweigh exports by a meagre $0.13 trillion (130 billion). This amount is considerably small for India to bridge. In 2016, for example, tourism alone contributed more than $200 billion. As thing are, Indian tourism covers only 25-30 percent of the entire potential tourist circuits which can be monetised with holistic and focused investments and projects along the mode of public-private partnerships (PPP).

    Imports and Exports

    In light of the above, this report also mapped imports’ categories, volumes, and values. The following figure shows the top five countries and their share in India’s imports in percentage terms:

    Figure 8: Top five countries from where India imports

    The next chart filters the top 10 items of import for each country.

    Figure 9: Top 10 items and values of each of top 5 countries from where India imports

    HS Code stands for Harmonized System (HS) of Coding used by Indian Trade Clarification (ITC). It was adopted in India for import-export operations.

  10. There are a total of 24 items heads which account for the highest imports. This implies India is importing the same items from multiple countries and in high quantities.
  11. Contrary to the popular belief, India imports precious metals more than non-renewable sources of energy.
  12. The third and fourth most imported items are electrical machinery and equipment, TV/ AV electronics, instrumentation, Nuclear Reactors, Boilers, machinery, AC/DC motors, Generators, electronics, instrumentation.
  13. Apart from nuclear reactors (data-points are difficult to obtain), India can develop internal expertise and eco-system to manufacture the electrical, electronic, and instrumentation-based products in India. This will reduce its imports of these items drastically.
  14. Fertilisers, insecticides, pesticides, and associated items are the seventh and thirteenth most imported items. India has the highest share of agriculture as a percentage of GDP among the top 22 countries as discussed using Figures 4 and 5 above. It is a pertinent point as India imports large volumes and value of fertilisers, insecticides, pesticides, and associated items to cater to its dependence on agriculture. If India were to decrease its dependence on agriculture or, alternatively, start domestically manufacturing fertilisers, insecticides, pesticides, and associated items, its reliance on imports of these items will decrease drastically.
  15. The ninth and twelfth most imported items are iron and steel products, despite the fact that India has the world’s 5th largest deposits of iron in the world. India is importing the most from China and UAE. The domestic mines are yet to be harnessed to their optimum capacity. This can reduce imports further.

    Figure 10: Top 5 countries with largest Iron ore reserves

  16. The 17th and 18th most imported commodities are copper, nickel & associated products, and aluminium & associated products. The world’s largest reserves are in Chile (~220 Mn tonnes), Australia (~90 Mn tonnes), Peru (~80 Mn tonnes), Mexico (~45 Mn tonnes), and the US (~30 Mn tonnes). Yet, India imports the most copper from Saudi Arabia and UAE. These discrepancies need immediate attention and must be streamlined quickly if India needs to reduce imports.

Considering the exports, the following figure provides a glimpse of the top six geographies:

Figure 11: Top 5 geographies of Indian exports

The following figure provides the top 15 commodities exported by India:

Figure 12: Top 15 product categories of Indian exports and their share of total

In exports, too, there is a huge potential to improvise and India must streamline and optimise to increase profitability.

Why should India reduce imports and increase exports? Reduction in imports leads to an increase in exports in percentage terms, which further improves Current Account Balance as % of GDP, giving the country a surplus. This excess money can be invested in profitable projects, giving the country good returns that will further boost the Current Account Balance as % of GDP. This is an upward spiral.

  1. Mining

In comparison to current global mining productivity, India lags severely in the production of the essential minerals. However, with the MMDR Act, 2015, Coal Mines Act (2015), and National Mineral Exploration Policy (NMEP), signs of improvement are becoming visible. Currently, India produces around 88 minerals: 4 fuel-related minerals; 10 metallic minerals; 50 non-metallic minerals; and 24 minor minerals.

As of 31 March 2016, the country had 1,878 reporting mines — excluding mining areas for minor minerals, crude petroleum, natural gas, and atomic minerals. (Source: EY- 2016). Apart from these mines, prima facie geological surveys have revealed rich resources of minerals across the length and breadth of India. As of now, however, the speed, reliability and precision at which probable mines are being assessed, surveyed, explored, and exploited with optimised operationalisation leaves a lot to be desired.

Two primary challenges exist: first of which is the availability of data, exploration, and discovery of mines. Only eight to nine percent of approximately one million square kilometres of potential mineral-rich territory has been assessed and may have been explored. Although this presents an optimistic view of huge potential availability, the speed needs a boost. A sample graphic from E&Y- 2016 report distilled from BMI presents a dismal picture.


Figure 13: Potential to convert mineral resources to Total Reserves

The National Mineral Exploration policy (MNEP) is trying to speed things up but it needs a rigorous push. The Geological Survey of India (GSI), with its baseline geoscience data generation, has identified an area of nearly 0.57 million sq. km. of Obvious Geological Potential (OGP) to be explored on high priority. Within the OGP, favourable areas for various mineral commodities have been demarcated.

  1. Gold (1,02,890 sq km)
  2. Diamond & precious stones (3,00,000 sq km)
  3. Base metals (1,81,150 sq km)
  4. Platinum Group Elements (PGE) (8,130 sq km)
  5. Iron ore (5,135 sq km)
  6. Manganese (4,600 sq km)
  7. Chromite (2,690 sq km)
  8. Molybdenum (6,000 sq km)
  9. Coal & Lignite (60,215 sq km)
  10. Tin &tungsten (1,300 sq km)
  11. Bauxite (32,520 sq km)

(Note: PGE group elements are the six platinum group of elements: Ruthenium, Rhodium, Palladium, Osmium, Iridium and Platinum.)

With a balance between PPP/ FDI models, this process can be catalysed.

The second challenge relates to mining operationalisation. Once the assessment and exploration of the mineral resources are finished, the more difficult phase of operationalisation of the mines for exploitation begins. Productivity is the primary factor to be considered in this phase. Productivity is measured in various ways, including unit cost, output per employee, and output per unit capital equipment. Close monitoring of effective utilisation of people, materials, and money to obtain maximum production of commodities under given conditions helps improve productivity. While this may sound simple, it is not so.

Meadows et al. (1992), as cited in Müller and Frimmel (2010), mentioned that in mining, the relationship between ore grade and energy consumption in mineral processing is exponential. This means that the lower the ore grade, the greater the consumption of energy, reagents, water, and other consumables per unit of mineral produced. The orebodies in underground mines are narrow and further characterised by geological discontinuities, preventing the application of mechanisation and automation. If a mine can go to a greater depth owing to a lower geothermal gradient compared to other parts of the world, temperatures can go up significantly necessitating the extensive use of ventilation and refrigeration to cool the working environment. At depths, the cost of ventilation and cost of rock support necessary to stabilize the working environment add to cost. Also affecting productivity is seismicity. Further, if the mines have narrow reefs, mechanisation becomes difficult and the mine depends on skilled labour-intensive outputs. This increases costs further. ‘Skilled’ labour becomes a difficult proposition most of the time because of low literacy rates, leading to low skill-base, and in turn resulting in barriers to effective training and communication.

To stem these problems, India needs to create a two-pronged strategy. The first component is to Build and foster technical competence of the next-generation visionary mining leaders by creating mining engineering institutes and innovation incubation centres. At present, in comparison to the world, although India has a good number of institutes offering Mining Engineering comparable to those of the top 22 countries, the corresponding assimilation into the industry is sub-optimal. It needs to be explored whether this is because of lack of lucrative offers from the industry segment or more appealing jobs in other segments like IT or banking.

Figure 14: Comparison of institutes in top 22 offering Mining Engineering

Second, to create a critical mass of skilled and educated labour, under ‘Skill India’ initiative and through partnerships with universities like Centurion University of Technology and Management (CUTM), dedicated batches of skilled labour need to be rolled out in regular intervals. CUTM University, for example, assimilates under-graduate candidates into ITI and/or industry skills training for recruitment of candidates (with eventual progression to engineering and management) in various industries like automobiles, heavy electricals, labour-intensive industries like cloth-mills, hospitality industry, paramedics and allied trauma-care, among others. With unemployment numbers currently hovering at 4.5 percent, and considering 50 percent potential working population, there is a whopping number of some 29.25 million people waiting in the side-lines for training and assimilation into industry.

  1. Manufacturing

Once the ores have been exploited, downstream manufacturing of the ores increases the value by boosting the gross margin of economic value-added finished products. With the honourable Prime Minister putting his weight behind the “Make in India” campaign, things are bound to look up. The following are certain immediate steps taken in this direction:

  1. Tax-free infrastructure bonds for projects in rail, road and other sectors.
  2. Opening up industry sectors to Foreign Direct Investment (FDI) in a planned manner.
  3. Setting up 100 smart cities, building 50 million houses, and connecting them with a fantastic network of highways and roads.
  4. Modernising the railway network with latest IT innovation and redeveloping stations and new railway corridors.
  5. Generating 175 GW of renewable energy for transmission and distribution networks, bridges, national highways, and metro rail networks.
  6. Setting up solar-power zones across designated areas of the country and boosting “International Solar Alliance” initiative globally while catapulting India to the forefront of power-generation through renewable sources of energy.

According to projections from the government’s Investment and Technology Promotion Division, Ministry of External Affairs, India’s manufacturing sector can grow by $ 1 trillion by 2025. Further, there is potential for the sector to create upto 90 million domestic jobs by 2025. (PwC- FICCI report February 2016). This will help significantly improve the percentage of industry contribution to India’s GDP (as discussed above in Figures 3, 4, and 5).

‘Digital India’ is one of the fastest moving initiatives in the world. Forming one of its pillars is the Aadhaar identity platform. With every citizen carrying a unique identity or Aadhaar number validated with the largest biometrics-based identification system in the world, Aadhaar forms the bedrock for easy rolling out of multiple policies for social and financial inclusion, public sector delivery reforms, managing fiscal budgets, increase convenience and promote hassle-free people-centric governance. Its uniqueness, scalability, and robustness help flag the false positives, false negatives, and eliminate duplicate or fake identities. It can be and is being used as a primary identifier to roll out several government welfare schemes and programmes for effective service delivery with much-needed transparency and effectiveness. More than 50 different pan-India schemes touching the lives of all segments of Indian society have been integrated into this brilliant machinery. This can form a fantastic foundation to track production, exports, and imports to increase surplus and identify and reduce leakages in imports.

Sagarmala Development Company (SDC), as part of the efforts to promote port-led development and industrialisation in India, has been incorporated under the Companies Act, 2013. SDC’s vision is to reduce logistics costs of bulk commodities and domestic cargo by locating future industrial capacity, developing discrete manufacturing locations near India’s coastline, optimising time & material cost involved in EXIM container movement transactions, and aiding the transport of domestic cargo through a multi-modal mix of internal highways and waterways in India. The Ministry of Shipping’s Sagarmala review report on Port led industrialisation provides a detailed view of the vision and envisaged timelines for its implementation. If we are able to harness India’s 7,500-km long coastline, 14,500 km of potentially navigable waterways, and strategic location on key international maritime trade routes, it will add a mega-boost to exports and streamline imports.

These initiatives can provide the much needed immediate boost to apply concerted efforts towards catapulting NIIF, India’s first sovereign wealth fund, to heights previously unknown. In terms of the Global Competitiveness Index, India has been steadily climbing too, from a 2015 rank 55 to 2016 rank 39.

Figure 15: India’s Global Competitiveness rank in 2016

Moreover, there are international events which similarly signal a move in the right direction, including the following:

  1. China’s CIC’s Chairman and CEO, Mr. Ding Xuedong, has resigned to join closer quarters of President Mr. Xi Jinping. The aggression with which CIC was scouting opportunities has subsided for the time being.
  2. Saudi Arabia, that once was smooth-sailing on oil exports, and its sovereign wealth funds have weakened. That Saudi Arabia has started opening exports with Egypt turns a new lead in diplomatic relations with the Gulf.
  3. Brazil from the BRICS group is going through one of the worst market plunges of recent times and is looking for investments.
  4. The mining industry in South Africa has already slowed down and unless investments are made, South Africa will be forced to mothball most of its mines. That will weaken the economy further, as minerals are a major component of South Africa’s exports.
  5. The primary sovereign funds as mentioned in the following figure are all going slow owing to international developments like BREXIT, the Turkey-Netherlands stand-off, Russia’s boycott of G8, and the US/ European countries aggressively looking at protectionist policies.

    Figure 16: Sovereign Wealth Funds of top 22 countries (Dark grey implies there is no such fund or information is hidden on it)

Some of the 22 countries have more than one. The figure presents just one more such set for reference.

Figure 17: Second sovereign Wealth Funds of some countries in the Top 22.

Conclusion

The possibility to harness NIIF as one of India’s strategic engine of investment and growth is immense. The macro-economic levers comprising Total Reserves, Gross Domestic Product, Current Account Balance, and Imports/ Exports are streamlining well with the industry levers comprising manufacturing and mining. The storyboard presented in this paper clearly indicates a steady growth in future.

If India harmoniously aligns the five important initiatives comprising the Make in India project, the Digital India project, the Skill India project, the Sagarmala project, and the National Mineral Exploration Policy (NMEP) to the 5-M framework comprising Machine-intelligence, Money, Mining, materials and manufacturing, Military, and Medicine, it will provide a strong foundation to the NIIF.

If Government of India holds 100 percent of NIIF, engages rich expertise of Indians globally, and starts investing in long-term strategic and short-term high-returns investments, NIIF will prove to be one of the government’s best decisions in this decade and the next. India is poised for monumental growth and NIIF is one of the best engines to propel the country to the future.

References:

  1. Securities and Exchange Board of India (SEBI) Press Release, 2012, PR No. 62/2012, SEBI notifies SEBI (Alternative Investment Funds) Regulations 2012
    http://www.sebi.gov.in/cms/sebi_data/pdffiles/23767_t.pdf
  2. Ministry of Shipping, 16 December, 2016, Sagarmala review: Port led industrialization
    http://shipping.nic.in/showfile.php?lid=2407
  3. Javier Capapé Aguilar, 2009, Sovereign Funds: Why Are They Born? (Fondos Soberanos: Por Qué Nacen?), Madrid, Autonomous University Of Madrid.
  4. Ministry of Finance, Department of Economic Affairs, Investment Division, 20 August, 2015, Office Memorandum F/10/33/2014-Investment
    http://dea.gov.in/sites/default/files/NIIF24082015_0.pdf
  5. Ministry of Finance, Department of Economic Affairs, 2016, Background material for Economic Editor’s Conference (EEC)-2016
    http://pibphoto.nic.in/documents/rlink/2016/nov/p2016111004.pdf
  6. Ministry Of Mines, Mining & Mineral Statistics Division, November 2016, Vol. 48, No. 11, Monthly Statistics of Mineral Production
  7. Ministry Of Mines, 2016, National Mineral Exploration Policy, (Non-Fuel and Non-Coal Minerals), Base Paper For Discussion
    http://mines.nic.in/writereaddata/UploadFile/NMEPBasepaper.pdf
  8. World Intellectual Property Organization (WIPO), 2016, Who Filed The Most PCT Patent Applications In 2016? http://www.wipo.int/export/sites/www/ipstats/en/docs/infographic_pct_2016.pdf
  9. Bimal Tanna, Nilesh Narwekar Sangeeta Singh, Nisha Goel, Aseem Khanna, 2016. India Manufacturing Barometer, Winds of change
  10. Sovereign Wealth Fund Institute, 2016, Sovereign Wealth Fund Rankings http://www.swfinstitute.org/sovereign-wealth-fund-rankings/
  11. Neingo, P.N. and Tholana, T., March 2016, Trends in productivity in the South African gold mining industry, The Journal of The South African Institute of Mining and Metallurgy, Vol 116.
  12. Anjani K Agrawal, Amit Aggarwal, Pradeep Deepak, 2016, Indian Minerals Exploration – Play To Win, India, EY and Federation of Indian Mineral Industries.