Cash management of central and state governments

Abstract

The phenomenon of government cash management in India is nascent and undeveloped. This paper explores the various cash management instruments available to the governments, their pros, cons and evolution, in the light of building cash surplus across majority of state governments. The study finds that the reason for accumulation of large cash surpluses is not the absence of alternative investment options but the tendency of states to accumulate beyond their requirement. Also, the national deadweight loss inflicted by the current cash management tools is highlighted. The paper suggests that the solution to the problem of cash management lies in addressing the precautionary concerns of state governments, which would help build the foundation of a cost-effective, low risk and efficient cash management practice in the country.