In the backdrop of huge capital inflows into the country, industry body PHD Chamber on Monday suggested that the government should create a $ 35 billion Sovereign Wealth Fund (SWF) from the $ 293 billion foreign reserves.

"The government should seriously evaluate the option of creating a Sovereign Welfare Fund in line with that existing in countries like China, Saudi Arabia, United Arab Emirates, Singapore," PHD Chamber said in a release.

To be on a safe side, the option should be exercised to set aside around 12 per cent of $ 293 billion reserves or $ 35 billion to form a corpus of SWF, the chamber said in a release in New Delhi on Monday. SWFs are state-owned funds investing in stocks, bonds, property and various other financial instruments.

The SWF proceeds could be used to explore non-traditional investment avenues that would provide optimum returns, the chamber said. Such funds assume significance at a time when there are signs of recession in the US and the fallout of the sub-prime crisis, the body added.

The body also pointed out that funding through SWF would be done in foreign currency and hence the economy would get the opportunity to improve the returns without triggering inflationary pressures due to sterilisation.