Excess Cash in the economy

In my last blog I referred to an innovative measure of financial stability for emerging economies developed by Dawnay Day AV Analytics, “Excess Cash in the Economy”.

The chart below shows the behavior of this measure for India.

There are a few interesting takeaways from this chart. India built up excess cash at great speed during the early part of current global crisis which started in the Summer of 2007. As the ripple effects of this crisis started hitting Indian Shores in the later part of 2008, India drew down the excess cash to insulate the economy from the external shock. The most important point is that India has nearly four times excess cash now, as compared to March 2003, the bottom of previous stock market cycle.

Obviously the excess cash can be used over a period of time to offer protection to the economy for coming quarters.