Energy Security & Sovereign Wealth Funds - Empirical Evidence for Indian Strategy

Supply side equation of the energy security has emerged as one of pre-requisite for the sustainable economic growth of the country. This is especially true for energy deficient country like India, an emerging economy with close to 82% dependence on the imports for one of the vital energy constituent – Crude Oil, the 2nd most dominant source of primary energy in country's energy basket with 30% share and with projected share of 29% by 2032. While numbers of options are being executed by India to improve supply side equity oil contribution in country crude basket, the performance of Indian NOCs has been lackluster on the front of equity oil with contribution of only 6.756 MMTPA in 2010-11. Some of the key reasons we analyzed includes the stiff competition being faced by Indian NOCs from other energy deficient nations like China and the inability of Indian NOCs to pay premium for these assets owing to restricted financial autonomy. To overcome these constraints, we present the rationale of establishing an Indian Sovereign Wealth Fund. Firstly, through cross-country comparison of energy security strategies of India and China and secondly reconfirmed the reserve adequacy of India and re-established that India with current forex reserves of close to $ 297 Billion meets the reserve adequacy requirement on traditional matrices and is in position utilize these ‘excess' reserves to create a dedicated Sovereign Wealth Fund which while ensuring the oil security through overseas asset acquisition will also undertake investments for earning above average risk adjusted return for ‘excess reserves'