Chidambaram wants states to spend more to ease cash crunch

Finance Minister P Chidambaram said state governments currently have a cash balance of over Rs 50,000 crore with the Reserve Bank of India. The finance minister also said the government expects huge advance tax collections in March.

"There will be huge advance tax outflow in March," Chidambaram told reporters when asked why the government had privately placed Rs 10,000 crore with the central bank earlier this week.

The government on Monday privately placed Rs 10,000 crore with the RBI in view of the tight liquidity situation.

The government also said there would be no further gilt issuance in the remaining period of 2005-06 (April-March).

Companies are due to pay the fourth installment of advance tax in March "" 25 per cent of their total tax liability for the year. They had paid Rs 28,000 crore as advance tax in March last year.

"The states are also sitting on over Rs 50,000 crore of cash balance. They should spend," Chidambaram said, explaining why the liquidity in the system was under pressure.

Minister of State for Finance Pawan Kumar Bansal had on Tuesday said the surplus cash balance of the government had had an adverse impact on liquidity.