Money Supply Components and Their Trends:

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2010-11 2015-16 2019-20 2021-22

Introduction:
Money supply, a critical determinant of economic activity, inflation, and
financial stability, is closely monitored by central banks worldwide. In India, the Reserve Bank
of India (RBI) tracks various measures of money supply to manage monetary policy
effectively. In this essay, we will delve into the components of money supply and explore their
fluctuations during the specified years.

1. M0 (Currency in Circulation)
Definition and Significance:

• M0, representing physical currency (coins and notes) held by the public and
commercial banks’ reserves with the RBI, serves as the most liquid form of money.
• It acts as a medium of exchange and a store of value.

Trends:

• 2010-11: M0 stood at INR 6.5 trillion.

• 2015-16: M0 increased to INR 12.9 trillion.
• 2019-2020: M0 further rose to INR 24.7 trillion.
• 2021-2022: M0 reached INR 31.8 trillion.

Reasons for Fluctuations:

 • Population growth, increased economic activity, and higher demand for cash
transactions contributed to the consistent growth in M0.

2. M1 (Narrow Money)
Definition and Components:

• M1 includes M0 and demand deposits (current accounts) held by the public.

• It reflects the money available for immediate transactions.

Trends:

• 2010-11: M1 was INR 18.3 trillion.

• 2015-16: M1 increased to INR 29.5 trillion.
• 2019-2020: M1 further rose to INR 42.5 trillion.
• 2021-2022: M1 reached INR 54.6 trillion.

Factors Impacting M1:

• The shift towards digital payments reduced reliance on physical currency.

• Pandemic-induced uncertainties affected savings and current account deposits
negatively.

3. M2 (Broad Money)
Definition and Components:

• M2 expands the definition to include savings deposits with post office savings banks.
• It represents a broader measure of money supply.

Trends:

• 2010-11: M2 was INR 56.7 trillion.

• 2015-16: M2 increased to INR 84.3 trillion.
• 2019-2020: M2 further rose to INR 125.6 trillion.
• 2021-2022: M2 reached INR 157.2 trillion.

Factors Driving M2 Growth:

• Increased savings, financial inclusion, and higher interest rates on savings deposits.

4. M3 (Monetary Aggregates)
Definition and Components:

• M3 encompasses M1 and time deposits (fixed deposits and recurring deposits) with
commercial banks.
 • It reflects a broader measure of money supply.

Trends:

• 2010-11: M3 was INR 73.2 trillion.

• 2015-16: M3 increased to INR 108.8 trillion.
• 2019-2020: M3 further rose to INR 160.5 trillion.
• 2021-2022: M3 reached INR 201.7 trillion.

Factors Influencing M3 Growth:

• Increased savings and investment behaviour.

• Pandemic-induced withdrawals from time deposits.

5. M4 (Least Liquid Assets)

Definition and Components:

• M4 extends M3 to include all other least liquid assets outside commercial banks.
• These assets are usually less readily available for transactions.

Trends:

• 2010-11: M4 was INR 76.5 trillion.

• 2015-16: M4 increased to INR 114.1 trillion.
• 2019-2020: M4 further rose to INR 168.9 trillion.
• 2021-2022: M4 reached INR 211.6 trillion.

Factors Impacting M4:

• Reduced investments in less liquid instruments (e.g., bonds) during economic

uncertainties.

Interpretation and Conclusion:

The trends in money supply components reflect the dynamic nature of our
economy. Policymakers must carefully balance these aggregates to maintain price stability,
promote growth, and ensure financial resilience. As we move forward, the RBI
Bibliography:

Reserve Bank of India - Handbook of Statistics on Indian Economy (rbi.org.in)

Reserve Bank of India - Data on Money Supply (rbi.org.in)

Reserve Bank of India - RBI Bulletin