Are International Reserves 'Boon' to Economy-An Analysis of Composition of Broad Money in Indian Economy in the Post Liberalization Period

International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 78 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 Are International Reserves ‘Boon’ to Economy-An Analysis of Composition of Broad Money in Indian Economy in the Post Liberalization Period Dr Jiji Vijayan Assistant Professor, Department of Economics, All Saints’ College, Trivandrum ABSTRACT The Post Liberalisation Period in the Indian Economy is characterised by a rise in Capital Flows and the prudential management of the Trilemma Policy Variables of Financial Liberalisation, Exchange rates and Money Supply. The rise in International Reserves is a testimony to the active intervention by the Monetary Authority to manage the Exchange Rate in the event of Capital inflows, which has implications on the domestic money supply. The Composition of Broad Money in the Indian Economy in the post-liberalisation period is changing in favour of Net Foreign Exchange Assets, which have implications for money supply and exchange rate management. Key words: Trilemma, Money Supply, International Reserves, Reserve Money 1.1 Introduction In the post-liberalisation era, the Indian Economy experiences a significant rise in Capital Flows. The exchange market pressures are associated with increased net capital account flows in the post-liberalisation period. Capital Inflows exert significant exchange market pressures in the economy that are resisted by changes in the exchange rates and an increase in foreign exchange reserves. The significant resistance offered by the Indian Economy to exchange market pressures is testified by the huge accumulation of International Reserves in the post-liberalisation period. The monetary implication of capital inflows, resistance to exchange market pressures and a rise in International Reserves is evidenced by the changing composition of Reserve Money. To prevent capital inflows from affecting the monetary base, active sterilised intervention through open market operations is pursued in the Indian Economy. Despite the fact that there are high sterilisation efforts to neutralise the impact of Capital Inflows on Reserve Money, the rise in International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 79 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 international reserves is transmitted to Broad Money Supply. The sterilisation efforts by raising reserve requirements of the banking sector had generally been ineffective in preventing capital flows from affecting Broad Money Supply. 1.2 Methodology and Data Source The present paper examines the Growth of International Reserves, Reserve money and change in the composition of Reserve Money in India. Secondary Time Series data taken from the various issues of Handbook of Statistics on Indian Economy, published annually by the Reserve Bank of India, Data Database on Indian Economy by RBI are the sources of data. Monthly data from June 1993 to June 2018 on Foreign Exchange Reserves, Reserve Money, Net Foreign Exchange Assets and Net Domestic Assets are used for the trend and composition analysis of the present study. 1.3 International Reserves in India An increase in International Reserves is experienced when the monetary authority accumulates International Reserves in an effort to arrest the appreciating tendency of the domestic currency in the event of Capital Inflows. This is done by purchasing foreign exchange for the domestic currency. A fall in International Reserves occurs when the monetary authority runs down International Reserves to arrest the depreciating tendency of the domestic currency in the event of Capital Outflow, by selling foreign exchange for the domestic currency. From Table 1.1, it can be seen that International Reserves fluctuated during the period of study. This is the result of the RBI buying and selling of foreign exchange to stabilise the Exchange Rate. The ratio of IR to GDPFC also fluctuated over the years of the study period. As the International Reserves and the Foreign Currency Assets of RBI rise or fall, it has implications on the composition of Reserve Money and Money Supply, which necessitates Sterilised Intervention on the part of the Monetary Authority. Table 1.1 Quarterly International Reserves in rupees billion and International Reserves to GDP values for India from 1990 Q2 to 2017 Q2 International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 80 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 YEAR QUARTER GDPFC International reserves IR/GDP 1990 Q2 13478.89 55.28 0.004101 1990 Q3 13527.24 54.52 0.00403 1990 Q4 13575.73 36.79 0.00271 1991 Q1 13623.93 47.76 0.003506 1991 Q2 13671.71 27.4 0.002004 1991 Q3 13855.35 38.76 0.002797 1991 Q4 14038.19 76.48 0.005448 1992 Q1 14221.75 119.79 0.008423 1992 Q2 14405.03 151.71 0.010532 1992 Q3 14610.03 161.59 0.01106 1992 Q4 14814.41 136.98 0.009246 1993 Q1 15018.98 159.74 0.010636 1993 Q2 15223.43 212.4 0.013952 1993 Q3 15466.84 229.22 0.01482 1993 Q4 15709.92 274.85 0.017495 1994 Q1 15953.47 408.38 0.025598 1994 Q2 16196.94 492.32 0.030396 1994 Q3 16492.52 565.84 0.034309 1994 Q4 16787.42 614.87 0.036627 1995 Q1 17081.9 634.97 0.037172 1995 Q2 17377.4 631.41 0.036335 1995 Q3 17723.59 626.07 0.035324 1995 Q4 18070.25 613.22 0.033935 1996 Q1 18416.5 581.29 0.031564 1996 Q2 18763.19 603.28 0.032152 1996 Q3 18965.31 648.73 0.034206 1996 Q4 19166.43 698 0.036418 1997 Q1 19368.56 741.33 0.038275 1997 Q2 19570.31 861.84 0.044038 1997 Q3 19897.37 940.97 0.047291 1997 Q4 20224.25 946.47 0.046799 1998 Q1 20551.43 974.82 0.047433 1998 Q2 20878.27 1042.11 0.049914 1998 Q3 21296.53 1066.46 0.050077 1998 Q4 21713.41 1139.28 0.052469 1999 Q1 22131.81 1200.86 0.054259 1999 Q2 22549.42 1301.63 0.057723 1999 Q3 22783.41 1330.81 0.058411 1999 Q4 23017.56 1359.78 0.059076 2000 Q1 23251.1 1451.34 0.06242 2000 Q2 23484.81 1523.61 0.064876 2000 Q3 23800.78 1500.74 0.063054 2000 Q4 24117.63 1648.03 0.068333 2001 Q1 24433.67 1812.88 0.074196 2001 Q2 24749.62 1888.92 0.076321 2001 Q3 24989.9 1981.77 0.079303 2001 Q4 25229.14 2107.81 0.083547 2002 Q1 25469.17 2361.1 0.092704 2002 Q2 25709.35 2637.58 0.102592 2002 Q3 26221.63 2856.43 0.108934 2002 Q4 26733.03 3116.06 0.116562 2003 Q1 27245.89 3382.8 0.124158 2003 Q2 27757.49 3647.3 0.131399 2003 Q3 28246.8 3888.8 0.137672 2003 Q4 28736.3 4291.67 0.149347 2004 Q1 29225.39 4704.89 0.160986 2004 Q2 29714.64 5212.59 0.175422 International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 81 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 2004 Q3 30418.59 5305.73 0.174424 2004 Q4 31122.28 5456.35 0.17532 2005 Q1 31827.03 5732.81 0.180124 2005 Q2 32530.73 5899.88 0.181363 2005 Q3 33308.56 6050.82 0.18166 2005 Q4 34086.78 6179.43 0.181285 2006 Q1 34865.1 6171.98 0.177025 2006 Q2 35643.64 7149.14 0.200573 2006 Q3 36474.32 7365.41 0.201934 2006 Q4 37304.93 7446.88 0.199622 2007 Q1 38135.24 8123.98 0.213031 2007 Q2 38966.36 8253.53 0.211812 2007 Q3 39621.1 9183.58 0.231785 2007 Q4 40276.8 10380.55 0.25773 2008 Q1 40931.42 11603.51 0.283487 2008 Q2 41586.76 12781.84 0.307354 2008 Q3 42480.34 12728.43 0.299631 2008 Q4 43374.07 11994.99 0.276547 2009 Q1 44266.76 12084.55 0.272994 2009 Q2 45160.71 12116.79 0.268304 2009 Q3 46166.46 12901.71 0.279461 2009 Q4 47173.48 12591.42 0.266917 2010 Q1 48179.06 12005.16 0.249178 2010 Q2 49185.33 11776.02 0.239421 2010 Q3 50008.07 12309.99 0.24616 2010 Q4 50830.27 12355.19 0.243068 2011 Q1 51652.78 12650.64 0.244917 2011 Q2 52475.3 12934.23 0.246482 2011 Q3 53186.26 13441.39 0.252723 2011 Q4 53897.11 14374.9 0.26671 2012 Q1 54608.33 13332.17 0.244142 2012 Q2 55319.02 14548.52 0.262993 2012 Q3 56156.12 14485.69 0.257954 2012 Q4 56993.4 14566.23 0.255577 2013 Q1 57830.23 14342.07 0.248003 2013 Q2 58667.93 15061.67 0.256727 2013 Q3 59716.84 16209.2 0.271434 2013 Q4 60766.83 16602.13 0.27321 2014 Q1 61815.91 16962.6 0.274405 2014 Q2 62865.49 17511.1 0.278549 2014 Q3 64145.38 18080.93 0.281874 2014 Q4 65426.68 18558.03 0.283646 2015 Q1 66706.92 19636.3 0.294367 2015 Q2 67986.93 21175.93 0.311471 2015 Q3 69190.92 21720.43 0.31392 2015 Q4 70395.46 21970.23 0.312097 2016 Q1 71599.86 22418.5 0.313108 2016 Q2 72804.57 22855.07 0.313924 2016 Q3 73983.36 23087.7 0.312066 2016 Q4 75162.31 23171.5 0.308286 2017 Q1 76341.32 22986.6 0.301103 2017 Q2 77520.23 23196.37 0.29923 Slope 218.44 0.0034 Intercept -4824.8 -0.0368 Source: Author’s Calculation International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 82 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 Figure 1.1Trend Line of International Reserves/GDPFC from 1990 Q2 to 2017 Q2 Figure 1.1 represents the trend line of the ratio of international reserves to GDP. The International Reserves to GDP ratio has a positive linear trend with a slope coefficient of 0.0034 for the period 1990 Q2 to 2017 Q2 1.4 Reserve Money in India Reserve money is an important variable determining the Money Supply in the economy. The money supply is determined by Reserve Money and Money Multiplier. Money Supply is Money Multiplier times High Powered Money. The sources of the Reserve Money are Net Domestic Assets, and Net Foreign Exchange Assets of the Reserve Bank of India.Net Domestic Assets of the Reserve Bank of India are the sum of Net RBI Credit to Government, RBI’s Claims on Commercial and Cooperative Banks, RBI’s credit to Commercial sector and Government’s currency liabilities to the public. Finally, the Net Non-Monetary liabilities of the RBI are subtracted to arrive at the Net Domestic Assets (NDA) of the RBI. The NDA of RBI = Net RBI credit to Government RBI’s claims on Commercial and Cooperative Banks RBI credit to Commercial Sector Government’s Currency Liabilities to the Public –Net Non-Monetary Liabilities of RBI. The components of Reserve Money / Monetary Base are the sum of Currency in Circulation, Other Deposits with the RBI and Bankers' Deposits with the International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 83 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 RBI. The Narrow Money includes the currency with the public, other deposits with the RBI, and demand deposits. The Broad Money (M3) is the sum of Time Deposits and Narrow Money. Table 1.2 presents the Quarterly and Yearwise mean values of Reserve Money in rupees billion in the Indian Economy from 1991 Q2 to 2018 Q3. The year-wise mean value of Reserve Money steadily increased over the years of the study period. The mean value of reserve money for the entire period of study is rupees 8088.61 billion. The CAGR is 12.86, but the AGR fluctuated for the study period. There is a significant rise in the monetary base in the post-liberalisation period in the Indian Economy. Table 1.2 Quarterly and Yearwise mean values of Reserve Money in rupees billion from 1991 Q2 to 2018 Q3 Reserve Money M0 Year Quarters Total AGR 1 2 3 4 1991 . 905.00 895.00 952.00 917.00 15.05 1992 1011.00 1079.00 1060.00 1071.00 1055.00 12.80 1993 1099.00 1185.00 1222.00 1255.00 1190.00 22.52 1994 1346.00 1445.00 1492.00 1549.00 1458.00 18.72 1995 1640.00 1762.00 1764.00 1759.00 1731.00 8.78 1996 1845.00 1933.00 1854.00 1902.00 1883.00 7.22 1997 1893.00 2060.00 2037.00 2085.00 2019.00 12.13 1998 2177.00 2244.00 2241.00 2393.00 2264.00 13.83 1999 2507.00 2602.00 2550.00 2646.00 2577.00 7.14 2000 2694.00 2778.00 2714.00 2859.00 2761.00 11.05 2001 2956.00 3110.00 3054.00 3145.00 3066.00 7.08 2002 2971.00 3372.00 3380.00 3407.00 3283.00 14.56 2003 3562.00 3850.00 3734.00 3896.00 3761.00 14.46 2004 4148.00 4304.00 4259.00 4510.00 4305.00 15.38 2005 4722.00 4959.00 4998.00 5191.00 4967.00 18.02 2006 5490.00 5901.00 5928.00 6130.00 5862.00 25.76 2007 6733.00 7256.00 7598.00 7901.00 7372.00 22.46 2008 8723.00 9106.00 9521.00 8763.00 9028.00 5.60 2009 9167.00 9557.00 9442.00 9969.00 9534.00 21.44 2010 10892.00 11525.00 11737.00 12158.00 11578.00 22.15 2011 13012.00 14541.00 14482.00 14539.00 14143.00 9.76 2012 14992.00 15541.00 15525.00 16033.00 15523.00 2.60 2013 16607.00 15541.00 15525.00 16033.00 15927.00 7.27 2014 16607.00 17123.00 17102.00 17509.00 17085.00 11.55 2015 18417.00 18995.00 19049.00 19770.00 19058.00 7.41 International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 84 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 2016 20833.00 21603.00 21746.00 17699.00 20470.00 -4.13 2017 16577.00 19705.00 20632.00 21584.00 19625.00 22.49 2018 23140.00 24696.00 24766.00 24039.00 15.05 Mean 8088.61 CAGR 12.86 Slope 206.57 Intercept -3451.3 t value 28.196 sig 0.000 Source: Authors’ Calculation Figure 1.2 Trend Line of Reserve Money from 1991 Q2 to 2018 Q2 Figure 1.2 represents the trend growth of reserve money in the post-liberalisation period from 1991 Q2 to 2018 Q2. The reserve money experienced a positive trend growth with a slope of 206.57. The reserve money grew at a uniform rate of 206.57% over the quarters for the study period. The significance of the t-value implies that reserve money experienced a significant positive trend growth in the post-liberalisation period. There is a significant trend in the growth of reserve money in the post-liberalisation period. International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 85 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 1.5 Net Domestic Assets of the RBI Table 1.3 presents the quarterly and year-wise Net Domestic Assets of RBI in rupees billion.NDA is a source of Reserve Money. From 2003, the Net Domestic Assets of the RBI experienced negative values, implying a falling NDA of the RBI. The year 2003 is significant in terms of Net Capital Account Flows into the Indian Economy. It was from 2003 onwards that the effect of liberalisation measures in terms of accelerated capital flows into the economy was perceptible. The monetary authority might have tried to neutralise the impact of increased capital inflows on the monetary base by running down NDA. The falling NDA in the face of capital inflows implies sterilised intervention by the monetary authority through open market operations. The mean value of NDA is rupees -785.826 billion, and the CAGR is -205.554. The AGR of NDA fluctuated for the study period. Table 1.3 Quarterly and Yearwise mean values of Net Domestic Assets of RBI in rupees billion from 1991 Q2 to 2018 Q3 Net Domestic Assets of RBI Year Quarter Total AGR 1 2 3 4 1991 838.53 822.70 836.55 815.12 1992 847.13 891.77 863.94 902.85 876.42 7.52 1993 923.34 946.83 964.23 956.69 947.77 8.14 1994 916.24 880.15 851.58 855.71 875.92 -7.58 1995 931.12 1033.07 1043.26 1010.82 1004.57 14.69 1996 1101.68 1180.12 1052.94 1054.90 1097.41 9.24 1997 1007.18 1066.10 966.36 1008.32 1011.99 -7.78 1998 1070.63 1083.22 1052.75 1136.27 1085.72 7.29 1999 1181.08 1182.91 1110.60 1169.48 1161.02 6.94 2000 1116.36 1127.07 1086.74 1119.21 1112.35 -4.19 2001 1016.21 1091.91 947.60 898.96 988.67 -11.12 2002 759.88 613.73 412.35 171.77 489.43 -50.50 2003 0.84 103.95 -236.30 -501.07 -158.15 -132.31 2004 -667.42 -1027.20 -1168.53 -1085.55 -987.18 524.20 2005 -1110.21 -1086.36 -1104.55 -1250.81 -1137.98 15.28 2006 -883.46 -1449.59 -1679.28 -1562.42 -1393.69 22.47 2007 -1548.29 -1184.04 -1775.86 -2725.98 -1808.54 29.77 2008 -3123.54 -4043.13 -3656.04 -3592.65 -3603.84 99.27 2009 -3350.09 -2951.59 -3682.70 -3026.28 -3252.66 -9.74 2010 -1653.30 -861.52 -1214.29 -846.31 -1143.86 -64.83 International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 86 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 2011 -305.54 37.32 -778.96 -1530.31 -644.37 -43.67 2012 -252.77 -917.07 -1196.59 -1187.11 -888.39 37.87 2013 -588.86 -516.77 -1393.80 -1547.36 -1011.70 13.88 2014 -1309.15 -1325.17 -1960.91 -2055.46 -1662.67 64.34 2015 -2131.16 -3047.46 -3869.42 -3372.73 -3105.19 86.76 2016 -2848.67 -2579.22 -2728.73 -6928.96 -3771.40 21.45 2017 -7716.66 -4645.13 -4848.83 -4357.84 -5392.11 42.97 2018 -3855.92 -3226.97 -3406.85 -3507.80 -34.95 Mean -785.826 CAGR -205.554 Slope -49.58 Intercept 1976.9 t value -14.865 sig 0.000 Source: Authors’ Calculation Figure 1.3 Trend Line of Net Domestic Assets of the RBI from 1991 Q2 to 2018 Q2 Figure 1.3 presents the trend line of the Net Domestic Assets of the RBI. The net domestic assets as a source of reserve money experienced a negative trend growth of -49.58 for the period 1991 Q2 to 2018 Q2. The significance of the t-value (0.000) implies that the negative trend growth is highly significant for the post-liberalisation period. International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 93 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 Money came from Net Foreign Exchange Assets of RBI. As the actual percentage contribution of Net Foreign Exchange Assets of the RBI as a source of Reserve Money rose over the years, there is a corresponding drop in the actual percentage contribution of the Net Domestic Assets as a source of Reserve Money. The rise in the actual contribution of Net Foreign Exchange Assets and fall in Net Domestic Assets is evident since 2003, the period from which the Indian Economy experienced accelerated capital flows. This implies that the rise in Foreign Exchange Reserves; as a result, capital flows were prevented from affecting the Monetary Base by a compensatory fall in Net Domestic Assets of the RBI. Over the years of the study period, the actual percentage contribution of NDA as a source of Reserve Money fell, as the actual contribution of NFA rose over the years from 1991. The actual contribution of NDA as a source of Reserve Money became negative from 2003. The actual contribution of NFA increased steadily over the years until 2010. It was 104.21 in 2003. But in 2010, it fell to 109.88 from 134.12 in 2009. In 2018 the actual percentage contribution of NFA as a source of Reserve Money was 114.55. The estimated percentage contribution of NDA as a source of reserve money in 1991 was 70.31, it fell steadily and became negative from 2008. But the estimated percentage contribution of NFA, which was only 29.69 in 1991, rose steadily over the years and was estimated to be 143.61 in 2018. To test whether the change in the source of Reserve Money in favour of NFA from NDA, the ratio of the estimated percentage contribution of NDA and NFA as sources of Reserve Money was calculated. The calculated ratio was tested by KS Test. But the level of significance of the KS test is greater than 0.05, and the null hypothesis that there is a significant compositional change in Monetary Base in favour of Net Foreign Exchange Assets from Net Domestic Assets is rejected. Table 1.7 Actual and Estimated Percentage Contribution of the sources of Reserve Money from 1991 to 2018 Year Reserve Money Net Domestic Assets of the RBI Net Foreign Exchange Assets of the RBI 4/6 Actual Estimated Actual Estimated 1 2 3 4 5 6 7 1991 100 90.72 70.31 9.28 29.69 2.37 1992 100 83.05 66.09 16.95 33.91 1.95 1993 100 79.62 61.87 20.38 38.13 1.62 1994 100 60.07 57.65 39.93 42.35 1.36 International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 94 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 1995 100 58.03 53.43 41.97 46.57 1.15 1996 100 58.27 49.21 41.73 50.79 0.97 1997 100 50.13 44.99 49.87 55.01 0.82 1998 100 47.96 40.78 52.04 59.23 0.69 1999 100 45.06 36.56 54.94 63.44 0.58 2000 100 40.28 32.34 59.72 67.66 0.48 2001 100 32.24 28.12 67.76 71.88 0.39 2002 100 14.60 23.90 85.40 76.10 0.31 2003 100 -4.21 19.68 104.21 80.32 0.25 2004 100 -22.93 15.46 122.93 84.54 0.18 2005 100 -22.91 11.24 122.91 88.76 0.13 2006 100 -23.77 7.02 123.77 92.98 0.08 2007 100 -24.53 2.80 124.53 97.20 0.03 2008 100 -39.92 -1.42 139.92 101.42 -0.01 2009 100 -34.12 -5.63 134.12 105.63 -0.05 2010 100 -9.88 -9.85 109.88 109.85 -0.09 2011 100 -4.76 -14.07 104.76 114.07 -0.12 2012 100 -6.16 -18.29 106.16 118.29 -0.15 2013 100 -6.52 -22.51 106.52 122.51 -0.18 2014 100 -9.73 -26.73 109.73 126.73 -0.21 2015 100 -16.29 -30.95 116.29 130.95 -0.24 2016 100 -18.42 -35.17 118.42 135.17 -0.26 2017 100 -27.48 -39.39 127.48 139.39 -0.28 2018 100 -14.55 -43.61 114.55 143.61 -0.30 Kolmogorov Smirnov Test Test Statistic 0.162 Sig 0.057 Source: Authors’ Calculation International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 95 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 Figure 1.7 Estimated Percentage Contribution of the sources of Reserve Money from 1991 to 2018 From figure 1.7, it can be seen that the estimated percentage contribution of Net Domestic Assets as a source of Reserve Money fell during the study period, and the estimated percentage contribution of Net Foreign Exchange Assets rose during the study period. 1.10 Broad Money in India Table 1.8 presents the quarterly and yearwise mean values of Broad Money Stock from 1991 Q2 to 2018 Q2. The Compound Annual Growth rate of Broad Money is 15.44, with the mean value of rupees 43225.75 billion. The AGR fluctuated with the highest value recorded of 28.60 in 2011 and the lowest AGR recorded in 2013 with a value of 3.35. Table 1.8 Quarterly and Yearwise stock of Broad Money in rupees billion from 1991 Q2 to 2018 Q2 YEAR Quarters Total AGR 1 2 3 4 1991 2760.89 2816.92 2990.69 2856.17 1992 3127.62 3300.60 3381.62 3497.76 3326.90 16.48 1993 3589.54 3807.84 3882.28 4031.79 3827.86 15.06 1994 4240.02 4508.96 4658.15 4883.94 4572.77 19.46 International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 96 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 1995 5076.79 5290.44 5410.53 5595.45 5343.30 16.85 1996 5821.70 6133.47 6287.67 6478.14 6180.25 15.66 1997 6805.97 7163.03 7331.29 7615.70 7229.00 16.97 1998 7971.09 8457.73 8826.29 9193.10 8612.05 19.13 1999 9574.64 10030.67 10351.86 10759.64 10179.20 18.20 2000 11098.83 11643.37 11889.68 12496.30 11782.05 15.75 2001 12934.15 13681.48 13980.03 14368.40 13741.02 16.63 2002 14770.37 15856.23 16284.07 16714.70 15906.34 15.76 2003 17063.15 17858.44 18192.22 18786.85 17975.17 13.01 2004 19625.70 20591.83 20784.53 21258.68 20565.19 14.41 2005 22223.33 23359.69 24045.40 24917.83 23636.56 14.93 2006 26034.07 27694.46 28845.86 29746.63 28080.26 18.80 2007 31720.50 33365.04 35088.95 36670.24 34211.18 21.83 2008 39013.55 40801.35 42195.57 43969.23 41494.93 21.29 2009 46780.41 49373.33 50782.99 52196.19 49783.23 19.97 2010 54762.77 56876.10 58653.67 61320.77 57903.33 16.31 2011 63756.05 76277.29 78003.67 79811.07 74462.02 28.60 2012 82265.65 86237.18 87759.88 91367.96 86907.67 16.71 2013 93923.54 86237.18 87759.88 91367.96 89822.14 3.35 2014 93923.54 97426.42 98784.75 101655.88 97947.65 9.05 2015 104203.18 107870.42 109591.74 112422.96 108522.08 10.80 2016 115329.41 119000.63 121907.13 121673.59 119477.69 10.10 2017 123870.04 127046.86 129583.64 131571.02 128017.89 7.15 2018 136016.04 139898.09 . . 137957.07 7.76 Mean 43225.75 CAGR 15.44 Slope 1236.2 Intercept -25839 t value 25.648 sig 0.000 Source: Authors’ Calculation International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 97 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 Figure 1.8 Trend Line of Broad Money from 1991 Q2 to 2018 Q2 The tend line of the Broad Money (M3) is depicted in figure 1.8. The Broad Money experienced a significant positive trend growth with a slope coefficient of 1236.2. 1.11 Implications of changing composition of Reserve Money The influx of Capital Inflows necessitates intervention in the Foreign Exchange Market resulting in accretion of reserves. Foreign exchange market intervention by the accumulation of reserves may lead to sacrifice or trade-off of monetary autonomy for exchange rate stability leading to excessively loose monetary conditions, overheating, and financial system fragilities. To insulate the monetary system from the impact of foreign exchange market intervention and accumulation of reserves, Policy Makers often have to resort to Sterilized Intervention whereby the monetary impact of the intervention is neutralized through a variety of measures like open market operations, increasing bank reserve requirements or transferring government deposits from the banking system to the central bank. Sterilization is the monetary operation through which a rise in Net Foreign Assets of Central Bank is offset by a decrease in Net Domestic Assets to keep the monetary base constant. The money supply is Money Multiplier times High Powered Money/Monetary Base. The effectiveness of sterilization in curbing excessive inflow of capital to the domestic economy is questionable as the rise in interest rates associated with sterilized intervention may stimulate International Journal of Research (IJR) e-ISSN: 2348-6848 p-ISSN: 2348-795X Vol. 12 Issue 13 October 2025 Received: 12 October 2025 98 Revised: 25 October 2025 Accepted: 30 October 2025 Copyright  authors 2025 DOI: HTTPS://DOI.ORG/10.5281/ZENODO.17502344 further capital inflow perpetuating the problem. Sterilization is effective only if the capital inflow is transitory, not continuing. The economy has to bear the costs of sterilized intervention as well as the crowding-out effect. The Quasi Fiscal costs of Sterilisation involve the exchanging of high yielding domestic assets of Central Bank for low yielding reserves. Disintermediation is promoted if aggressive sterilization is implemented by increasing unremunerated bank reserve requirements. 1.12 Conclusion From the analysis, it can be concluded that in the post-liberalization era, the Indian Economy faces significant increase in foreign exchange reserves which are accumulated in an effort to withstand the Exchange Market Pressures. The Exchange Market Pressures are associated with increased net capital account flows in the post-liberalization period. The huge accumulation of International Reserves in the post-liberalization period is testimony to the significant resistance offered by the Indian Economy to Exchange Market Pressures. The monetary implication of capital inflows and resistance to exchange market pressures is evidenced by the changing composition of Reserve Money. To prevent capital inflows from affecting monetary base, active sterilized intervention through open market operations are pursued in the Indian Economy.Despite the fact that there are high sterilization efforts to neutralize the impact of Capital Inflows on Reserve Money, the rise in international reserves is transmitted to Broad Money Supply. The sterilization efforts by raising reserve requirements of the banking sector had generally been ineffective in preventing capital flows from affecting Broad Money Supply. Bibliography Aizenman, J. (2004). Financial opening and development: evidence and policy controversies. American Economic Review, 94(2), 65-70. Aizenman, J. (2008). Large hoarding of international reserves and the emerging global economic architecture. The Manchester School, 76(5), 487-503. Aizenman, J. (2011). The impossible trinity-from the policy trilemma to the policy quadrilemma Working Papers. UC Santa Cruz Economics Department. Aizenman, J. (2019). 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