Normally, growth in money supply is required to be at least as high as growth in nominal gross domestic product (GDP). The excess of money supply over nominal GDP growth is often referred to as excess liquidity.
Also see | Money supply growth lower than nominal GDP growth in 2010-11( PDF)
The chart shows how liquidity actually shrank in 2010-11, since money supply growth was below nominal GDP growth. Therefore, according to this criterion, contrary to what the critics of the Reserve Bank of India (RBI) have said, monetary policy during the last fiscal has been very tight, although it could be argued that the lack of government spending contributed to the tightness.
Graphic by Ahmed Raza Khan/Mint
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