Most countries in the world with natural resources have established a “Sovereign Wealth Fund.” A major portion of the wealth derived from royalties, auction revenues or any other such revenues derived from natural resources or sale of telecom spectrum is deposited in the Sovereign Wealth Fund.
Usually, the interest is used for diverse activities. Such countries do not merge the revenues from such sales, leases, rentals or auctions of natural resources or spectrum, etc with the annual budget. Public wants to be reassured that such wealth, which is generated from finite natural resources, is a permanent asset.
Even sales of equity or a sale of state-Owned companies is deposited in the Sovereign Wealth Fund. (SWF)
It was suggested that entre proceeds from the sale of telecom spectrum, which occur with some frequency, should be deposited in such a SWF in India. Sales of PSUs, and other natural resources should also be deposited in the SWF.
a. The public will know where the money has gone. The Public will also be reassured that the money is not being squandered by the government.
b. If the proceeds from sales, auction or leasing of natural resources is just added to the Budget, then the money does not become a recurring and sustainable asset. This is presently the case in India.
c. A SWF will also encourage prudent fiscal policies The Finance Minister will not be tempted to go for huge fiscal deficits or huge expenditures.
The government made a tactical mistake by not creating a SWF and depositing the huge revenues from sale of telecom spectrum and other assets. Instead, a huge inflationary spiral was created by the immediate spending of such proceeds. The public questions where the lakhs of crores has disappeared.
There would be greater transparency if such proceeds go into a Sovereign Wealth Fund. Alaska, with huge natural resources, has a SWF, issues an annual dividend to every domicile.
One-time wealth should not be treated as regular tax- revenue and added to the budget.