India to Approach Sovereign Wealth Funds for Debt Investments

India will approach sovereign wealth funds to invest in government securities as it draws up a plan to counter outflows when the U.S. Federal Reserve starts tapering its stimulus.

The government plans to meet officials of sovereign wealth funds based in Australia and West Asia, the official, who asked not to be identified before a public announcement, told reporters. The investment will be sought in the underutilized portion of the $5 billion reserved for such investors.

Greater reliance on foreign capital and bigger borrowings have seen India suffer more than most of its peers from the volatility sparked by concern last month that the Fed will pare back its stimulus. The rupee sank to an all-time low in August after India’s current-account deficit grew to a record $88 billion in the fiscal year ended March 2013, threatening to push up inflation in a nation that imports 80 percent of its oil.

India’s financial market regulators must shield the economy from any adverse impact caused by a possible Fed tapering, Finance Minister Palaniappan Chidambaram said in a statement today. The Fed will probably wait until March to begin reducing its quantitative-easing program, according to a survey of economists conducted Oct. 17-18.

Foreign investors can now buy government bonds for as much as $30 billion, and nearly 80 percent lies underutilized in the segment reserved for sovereign wealth, insurance and pension funds.

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