Sovereign Wealth Funds (SWFs), government-owned investment funds, are of
growing importance in international finance. They are a vehicle to manage
foreign exchange reserves and wealth which have been accumulating in the
emerging world, particularly in the BRICs. However, while China and Russia set
up SWFs over the last decade, India and Brazil still lack such funds. In
analysing thoroughly the Indian case, this paper seeks to contribute to recent
literature on the determinants of SWFs with two main findings: First, it
confirms conventional economic theory which shows the requirement of excessive
foreign reserves for the set-up of SWFs. Second, it suggests that political
systems matter, as demonstrated by the lively debate in India on whether that
country should have such a fund. In this way, influential societal actors, in
particular the central bank and regulating agencies as well as business
associations, have dominated the public discourse and successfully lobbied the
government to waive initial plans in support of an alternative wealth
management scheme