"If power used to flow from the barrel of a gun, in an increasingly inter-dependent economic world, hard and soft power derive from a war-chest of foreign exchange reserves. China's abundant reserves have highlighted this fact," said the survey for 2014-15 tabled in Parliament today.
"China, in its own heterodox and multiple ways, is assuming the roles of both an International Monetary Fund and a World Bank as a result of its reserves," it added.
Since acquisition of reserves "is not costless", the survey said there is also a need to undertake a cost-benefit analysis.
Touching upon the link between foreign exchange reserves and geo-political influence, the report said that China has de-facto become one of the lenders of last resort to governments experiencing financial troubles.
According to the survey, reserves provide a cushion against shocks, creating economic and financial resilience. They also create geo-political influence.
"The question for India, as a rising economic and political power, is whether it too should consider a substantial addition to its reserves, preferably its own reserves acquired though running cumulative current account surpluses, possibly targeting a level of USD 750 billion - USD 1 trillion over the long run," it said.
"The acquisition of reserves is not costless because it requires a policy of mercantilism and consequential distortion of financial and exchange markets. But there is a cost-benefit analysis that needs to be undertaken," the survey said.
Noting that today China has de-facto become one of the lenders of last resort to governments experiencing financial troubles, the report said the country has also become one of the bigger providers of development assistance.