Money Supply India

Money supply grows by 8.4% YoY the highest since April due to low base effect.

Published fortnightly by the Reserve Bank of India (RBI) and updated by IMA by the last fortnight of every month. Updated till November 27th, 2017. (Updated on December 6th, 2017)

Recent Data Trend

The total money supply in India, as measured by M3 was Rs 131.9 trillion by the end of November 27th, 2017. The 8.4% year on year(YoY) growth in M3 is the highest growth rate in the current financial year. The significant increase in the money supply is basically a temporary phenomenon. The sudden shortage of liquidity with the banks and public in November 2016 has caused a low base year effect and that has driven the growth high up in November 2017.

The currency with the public which witnessed a significant drop in November 2016, has now increased by 73.1% from the level observed in November 2016 to reach Rs 15.8 trillion in November 2017.

Growth in demand deposits with the bank, decelerated by 3.3% YoY to reach Rs 12.3 trillion. The time deposits with banks, which cannot be withdrawn before a stipulated time period, was Rs. 103.6 trillion by end November 2017. The deposits in the banks have significantly increased in the November-December 2016 period due to the steady inflow of cash from the public to the banking system.

By the sources of the money supply, bank credit to government fell for the first time since April 2015 by 0.8% YoY. On the other hand, the bank credit to commercial sector increased by 9% YoY, which is the highest in the current fiscal year but still below the recent peak of 11.7% YoY in September 2016. Even though the credit to commercial sector increased, the sub sector-wise breakdown shows that the credit growth happened mostly in the services sector and personal loans while credit to the industry sector continued to contract since October 2016.

A year after the demonetization policy adopted by the government the banks are still facing excess liquidity in their system with the RBI tightening its stance on liquidity the help of tools such as OMO and government securities. With the currency with the public now almost equivalent to the pre demonetization level, the cash-intensive sectors are now able to operate smoothly. For example, the construction sector which is primarily a cash-intensive sector has recovered from a contraction of 3.67% YoY in January-March 2017 to a growth of 2.64% YoY in the July-September 2017 quarter.

Brief Overview
In India, the measures and definition of money stock have continuously evolved since independence (1947). The First Working Group 1961 (FWG) of RBI for the first time threw some light on the concept of money supply in India emphasizing the role of money as a liquid asset and a medium of exchange.

Later on, in 1977 the Second Working Group (SWG) of RBI developed four measures of money stock M1, M2, M3, and M4. However, with the advent of new financial institutions, the Third Working Group (TWG) felt the need for a broader measure of money supply and redefined financial institutions to include banking sector, insurance corporations, mutual funds, non-banking financial companies (NBFCs) accepting deposits from the public and development financial institutions (DFIs). Consequently, TWG broadened the scope of the measure of the money stock. For more information on the evolution of methodology of the compilation of money stock measures, please visit this link.

March 2006 witnessed an unprecedented growth in demand deposits with banks (42% YoY) and a substantial growth in money supply (21.1% YoY). The growth in deposits, credit and money supply went beyond the RBI's projections signaling a caution. This forced the then RBI governor Y. Venugopal Reddy to increase the reverse repo and the repo rate to 6% and 7%, respectively.

RBI compiles and publishes data on M1, M2, M3, and the M4 measure of money supply fortnightly and uses M3 as the official measure of money supply.

For more information please visit the official government website.

Next Release Date: December 6th, 2017