The top 500 listed companies have enough cash on their books to double India's power generation capacity of 2,00,000 mw or build over 40,000 km of six-lane highways every year (compared with the current 800 km), but are refusing to invest because of slowing economic growth that has been aggravated by policy paralysis.Companies such as Reliance Industries, NMDC, Coal India and Infosys are holding on to twice as much cash compared with three years ago, according to an analysis by the ET Intelligence Group.The strong cash balance of these companies, and others such as Sterlite Industries, Steel Authority of India, Nalco and Oil India led to a growth of 26% in the total cash reported by companies in the BSE 500 for the three years ended March 31, 2012.At the end of last fiscal, India Inc was sitting on cash and cash equivalents - liquid investments that can easily be converted to cash - of over 9.3 lakh cror, or $166 billion.This was actually marginally lower than the record level of 9.8 lakh crore in FY11 - the fall of around 5% in FY12 reflecting mounting pressure on profits due to rising input costs, slowing demand, and higher interest costs.Efficient deployment of the existing cash pile will be crucial in determining future valuations.In a recent report, investment bank JPMorgan assigned lower valuation multiples to companies that have lots of cash but have not provided any guidance or indication on how they would be utilising the money.This is also reflected in the lower valuation being assigned by the stock markets to the cash held by companies. A notable example of this phenomenon is Piramal Enterprises.In 2010, Piramal Enterprises (then Piramal Healthcare) sold its pharmaceutical business to Abbott Laboratories for $3.7 billion, or 17,500 crore at the exchange rates prevailing then. This translated into a consideration of 750 per share.However, lack of clarity on where the promoters intended to deploy the money resulted in the stock price touching a low of 340 (on November 30, 2011), but subsequently rising to 520 by August 16, 2012, on the back of dividends, buybacks and investment announcements.The top five companies in BSE 500 held about 2.07 lakh crore, or 22.3%, of the total cash of these companies.The top five companies are RIL, Coal India, Sterlite Industries, Infosys and NMDC. The aggregate cash of BSE 500 companies has risen 26% in the last three years.RIL's cash and investments rose 53% in FY12 compared with a year ago at Rs 79,327 crore. The figure for Coal India was Rs 60,184.2 crore, a rise of 28% in FY12, while that for Infosys Rs 20,963 crore, 24% higher than a year ago.Some of these companies, particularly those in metals and mining, built up a mountain of cash during the commodity boom a few years ago. Many have been struggling to deploy the money inside India because of stricter norms on mining and difficulties in acquiring land.RIL's investments have been held up because of delay in approvals for its KG-D 6 project while Infosys has not been able to close a big-ticket acquisition.The growth in cash reserves is likely to continue despite the high payout ratios and buybacks unless companies make fresh investments in their existing business, start new ones or make acquisitions.Investors are worried as the return on equity (RoE) is sliding. The RoE for RIL, which had the highest cash reserves, was only 12.9% in FY12. Another concern is the high component of other income in the total profit before tax ."There is an upside limit on the return you can generate on the cash, which is directly correlated to interest rates. And in downward interest rate cycles, the return on this cash comes down, pulling down the company's overall return on capital," says Niket Shah of Edelweiss Securities.Aggregate other income, mainly interest income, for the top five companies, was 30% of profit before tax. With interest rates having peaked, these companies will have to deploy cash meaningfully to improve or sustain the return on capital.In a rising interest rate scenario, investors flock to companies where the downside risk is lower compared with peers in the same industry.In such a scenario, these companies enjoy better valuation multiples than peers that are relatively more leveraged. However, during an upswing, the overall return on capital gets dragged down due to idle cash.