Two sets of facts and opinions are being widely reported and debated today: one emphasising the feel-good factor, and the other abysmal poverty levels. Some of these facts can be synthesised to illustrate how India's growing global financial assets could, if used innovatively, lead to a virtuous cycle of investment in underinvested areas such as irrigation, agriculture, social security and health services, reducing poverty for vast numbers, while simultaneously prodding growth rates, and become mutually reinforcing.

India's acknowledged foreign exchange reserves are now close to $105 billion, and growing. As of now, RBI data shows that the average returns on those reserves is an annual 2 per cent. Given that the rupee is appreciating against the dollar at a higher rate than this, there are no effective rupee earnings on the reserves. A good proposal, then, would be to redeploy some of the money-say, $20 billion, less than a fifth of the reserves-from low-paying foreign (mainly US) securities, to investments in India's infrastructure development.

That could be done via the mechanism of a special purpose vehicle (SPV), with subsidiaries to direct investment towards specific projects prioritised on the basis of the country's needs that private participation and budgetary allocations are proving inadequate in meeting. For example, irrigation, primary education, rural roads and healthcare.

The SPV and its subsidiaries would be enabled to make a mix of equity and debt investments in infrastructure projects at zero-interest-equivalent to the current returns on India's reserves. With such low-cost financing, output costs would be considerably lower and more manageable than in many current projects (the Dabhol Power Project had prohibitive costs). Uneconomic costs deter demand.

Together with investments in ports, power and highways, resource mobilisation of such magnitude could drive up and sustain growth rates in a multitude of sectors through the multiplier effect, even as the infrastructural constraints on India's competitiveness are eased.

Let us take another restructuring suggestion from the corporate world. The market capitalisation of just the public sector oil companies is about Rs 227,830 crore. By a rough guess, the overall market value of the government's holding in the public sector-as well as departmental undertakings capable of corporatisation such as the Railways-could broadly be a three to four multiple of the oil psus' market cap. Meanwhile, government debt to the banking sector is estimated at close to Rs 600,000 crore, even as credit diversion to the in-deficit government continues as a result of the 'risk aversion' of banks that inclines them to government securities instead of commercial lending.

Now, policy guidelines have been issued to encourage banks to increase exposure to equity. Public sector equity divestment is on, too. What's needed now is a jump in scale. For instance, if the government were to sell Rs 100,000 crore of its PSU equity holdings to the banks and retire its debt to them, and banks in turn lend Rs 100,000 crore to retail investors for acquisition of PSU equity, a structural debt-equity swap would take place. The shareholding would shift from the government's hands to the public's hand. The banks' lending would move from the government to retail investors; Rs 100,000 crore translates into Rs 1 lakh each over 10 million income tax assessees.

Fiscal prudence through such debt reduction would produce interest savings that could be used for poverty alleviation. Another corporate suggestion: perhaps the government budget should start reporting both assets and liabilities.

To conclude, if incremental fiscal changes in India have made such a difference already, what might be the result of some dynamic policy intervention?

Sanjiwan Sahni is a Delhi-based management and economic consultant