Writing in the Reserve Bank of India's monthly Bulletin, Governor Venugopal Reddy has suggested that India could follow Singapore's example and switch to investment mode once its foreign exchange reserves cross the country's external debt.
Among other things, this would mean focusing less on the safety of its money (the traditional RBI concern) and more on returns. The suggestion was overdue - because of the poor returns that India has got so far on its forex reserves, and because the reserves (at over $160 billion) are more than external debt ($125 billion) by a comfortable margin.
The reserves have trebled in the past four years, even as the level of debt has increased only marginally, so the way to handle these reserves has to change.
The question is how to switch to investment mode. Singapore does it through specially created investment arms (like Temasek) that function like any private sector asset management company.
Should India do the same, or is there a strategic angle also to keep in mind? Remember that ONGC Videsh is mulling the option of investing $3 billion to buy a 5 per cent stake in Rosneft, the Russian energy giant that is doing a public issue.
Investing in a global energy major is a good way to hedge the risks faced by an energy-deficient economy; its shares will fetch attractive prices whenever oil prices are high and, if need be, you could sell those high-priced shares to pay for an inflated oil import bill.
Equally, a strategic stake in an oil and gas major could help guarantee security of supplies when markets get tight - and this would be a more reliable bet than prospecting for oil in secondary and risky markets like Sudan.
If ONGC Videsh is willing to fork out $3 billion, it can in theory spend comparable sums to pick up a 10-20 per cent stake in almost any energy major, whether Exxon, BP or Chevron. And those would be surer bets than the controversial Rosneft in a Russian market, whose rules are less than fully understood.
The problems in going down this road are obvious. If the investment is to be done in a pure capital market operation, will the Reserve Bank of India (which holds all those reserves) be able to set up a professional and competitive operation that functions at arm's length from the central bank - since no one wants the RBI involved in controversies about poor investments, which will be an ever-present risk?
There is no reason why not; if the Unit Trust of India or the SBI Mutual Fund can hold its own in a competitive market, asset managers in the public sector should not by definition be deemed incapable of competing successfully.
If, on the other hand, the investment is routed through sector-specific operating companies like ONGC Videsh, control and governance issues arise - including the question of which ministry will control the decision-making and how that control will be exercised.
Even more important, how will the international company whose shares are being acquired view a significant Indian shareholding? If it is a sensitive sector like oil or aviation, will India be blocked the way a Chinese oil company was when it tried to buy Unocal last year?
It should be obvious that uninvited investments that look like national strategic play will be viewed with greater suspicion than pure market participation. At least in the initial stages, therefore, the objectives should be manifestly financial, not linked to tying up energy supply or gaining access to technology in a closed field, or some other non-financial goal.
These latter goals are better served by private players making acquisitions on the basis of their own commercial judgment - like the Tata purchase of the Daewoo truck unit a couple of years ago.
Another acceptable course of action would be to become partners with the global majors, as ONGC did by investing along with Shell in the Sakhalin gas field. Whatever the strategy adopted, this is going to be a new role for India - that of equity investor in global corporations.