At present, India’s reserves are in the region of $309 billion. During 2007-08, these grew by a hefty $110.5 billion. The Reserve Bank of India’s forex assets alone went up by $100 billion during the year. There has been no dearth of advice to the RBI and the government on the deployment of reserves, even earlier when these were not as large and when not many had anticipated a sustained growth.
The crux of the matter is that the RBI, like many other central banks, has been investing the bulk of the reserves in safe and liquid instruments such as U.S. government treasury bills. However, these yield very little by way of return.
High up in the list of eligible avenues is the launch of a sovereign wealth fund (SWF), which will manage a portion of the reserves and act as a kind of portfolio manager. Many countries have such funds. The oil rich West Asian countries have used this route to invest their petro dollars. Some funds such as Abu Dhabi’s are huge. Saudi Arabia launched one recently. Outside the oil exporting countries, the experiences of Singapore and China with their sovereign wealth funds, are seen to be more relevant under India’s circumstances.