Ramanathan in New Delhi on Friday. A Telegraph picture

New Delhi, Oct. 10: The government today set up a committee to assess the cash needs of the economy.

The announcement was made by finance minister P. Chidambaram soon after the Reserve Bank of India (RBI) cut the cash reserve ratio by another 100 basis points to release an extra Rs 40,000 crore in the market.

Chidambaram said, “We have identified that the main problem is liquidity. The RBI was advised to take appropriate steps in this regard.”

Banks and industry chambers have been complaining about the shortage of cash.

“I think we should be clear that the government has said the fundamentals of the economy are strong,” finance secretary Arun Ramanathan told reporters after Chidambaram’s announcement.

Ramanathan will head the panel, which will have Bank of India chief T. S. Narayanaswamy, UTI chairman U. K. Sinha, L&T chief financial officer M. Deosthalee and Sidbi chief R. M. Malla, among others.

The government has issued several statements this week assuring investors that the economy will largely remain unscathed by the financial crisis in the US and Europe.

The government said the growth of the economy depended more on domestic demand rather than exports. Analysts feel that a fall in exports, which account for just 10 per cent of the country’s gross domestic product, will not have any significant impact on the real economy.

“It is important that credit continues to flow to all sectors of the economy. In consultation with the RBI and other regulatory authorities, the government will address liquidity and other concerns affecting the economy,” Chidambaram said.

The minister, who cancelled his trip to Washington for the IMF-World Bank meet and a G20 meeting on the global crisis, said, “I have requested the group to begin work immediately and submit an interim report within a week.”

Chidambaram said the group was set up following representations from various quarters.