Trends in Monetary Aggregates in 2010-11
During the year 2010-11, the growth rates of Reserve money (M0) and narrow money (M1) have been higher as compared to the preceding year while Broad money (M3) growth has been lower. The moderation in growth of broad money is largely on account of the deceleration in growth of deposits, both demand and time (up to 3 December 2010).
This is shown in the following chart:
This is shown in the following chart:
What does it mean?
We know that Reserve bank of India calculates the 4 concepts of Money supply in India. They are called Money Stock Measures. They are as follows:
- M0 : This is the Currency notes and coins in circulation, plus banks’ deposits with the RBI
- M1: This is Currency with the public as mentioned above + Demand Deposits of the public . It is called Narrow Money.
- M2 : This is Narrow Money i.e. M1 + Post office Savings Deposits.
- M3 : M3 is Narrow Money i.e. M1 + Aggregate Deposits of the Public which is made up of Demand Deposits and Time Deposits.
- M4 : M4 refers to M3 and Post Office Deposits
Narrow Money (M1) and Broad Money (M3) are relevant. The M2 and M4 are irrelevant because of almost no changes in the Post Office deposits. The RBI in all its policy documents, monthly Bulletins and other documents shows these aggregates.
- Survey notes that during 2010-11, on a financial-year basis, M0 expanded by 8.4 per cent (up to 10 December 2010), compared to an increase of 1.6 per cent during the corresponding period of the preceding year.
- Net RBI credit to the Central Government also increased by Rs. 70,856 crore during the financial year so far (up to 10 December 2010).
- Why so? The survey notes that this was mainly on account of increase in repo operations under the LAF and open market purchases of the Bank, partly offset by increase in the cash balances of the Central Government.
- Narrow money (M1) increased by 18.6 per cent in 2009-10 as compared to an expansion of 9.0 per cent during 2008-09. During 2010-11, M1 growth has generally been higher than in 2009-10.
- Broad money (M3) supply increased by 16.8 per cent during 2009-10 which was lower than the 17.0 per cent indicative growth envisaged in the Annual Policy Statement of the Reserve Bank for 2009-10.
List of Topics : Economic Survey 2010-11
