India has hinted at the possible creation of a sovereign wealth fund as it seeks to reap greater returns from its burgeoning foreign exchange reserves.

Yaga Venugopal Reddy, the Governor of the Reserve Bank of India, suggested in a speech in Washington that the management of the country's $300 billion in foreign reserves is constrained by the central bank's mandate, which calls for "safety and liquidity", and that the viability of a new fund is being considered.

He said: "Part of the reserves, which may be considered in excess of usual requirements, [may] be managed with the primary objective of earning higher returns."

The IMF estimates that sovereign fund assets could grow from between $2 trillion (£1 trillion) and $3 trillion presently, to as much as $10 trillion within five years. Twenty new funds have been created since 2000 and countries including Japan and Brazil are expected to launch new vehicles soon.

It is thought that Indian policymakers are discussing diverting $5 billion to a new fund that would focus on energy assets.

The result would be a minnow in sovereign wealth terms, but could still prove controversial as India, despite amassing the third largest pool of foreign reserves in Asia, is still battling stubbornly high fiscal and current-account deficits.

Those territories traditionally associated with sovereign funds, such as the Abu Dhabi Investment Authority, which controls an estimated $875 billion and the Norway Government Pension Fund, with $380 billion, run large state surpluses on the back of oil and gas reserves.

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