Post Independence economic history: Money growth

Post Independence India has seen a steady growth of money supply averaging around 17% CAGR.
This has been primarily been driven by the loose monetary policies of RBI as seen by the close correlation between M3 and M0 which is the reserve money.

In the graph shown the growth rates of the reserve money(M0) and broad money(M3) have been plotted. 

As we can see both the growth rates show close correlation. There are some years in which growth rate of one exceeds that of the other. I will analyze the charts in the key time periods in Indian history

1. 1951-1970: This the Nehruvian era which had the big five year plans. Here the M3 growth on an average was a few basis points higher than the M0 growth. Newly independent India and the five year plans led to massive capital investments in almost every sector of the economy. Since India was under the Bretton Woods system where all currencies were pegged to the dollar and dollar to gold, increasing money growth led to higher inflation leading to first of the rupee devaluations.
2. 1970-1990: These are the two lost decades in recent Indian history. Economic stagnation started which was worsened with nationalization of banks and other industries. Public sector spending zoomed. Marginal income tax rates reached high 90s. This was socialism at its peak. The government deficits were increasingly being financed by the reserve bank leading to the high M0 growth. This was a period marked by high inflation, low growth and a dramatic increase in the number of poor. Incidentally it was the beginning of the "dynasty" and consequent deterioration of Indian institutions. 
3. 1990-2010: As the Bretton Woods system envisaged a fixed exchange rate, India with its high inflation was particularly susceptible to foriegn exchange crises. Triggered by the first gulf war and the fall of the Soviet Union, the biggest economic crisis to hit modern India took its toll. Under IMF diktat, India was to be liberalized. But some of the biggest reforms got implemented only from 1994-95 onwards. This led to the excess growth of M3 which was the result of financial liberalization and higher investment opportunities. However with the election of the UPA loose monetary policies were unleashed on to the Indian economy. The massive increase in reserve money took place alongside the great credit bubbles in USA and Europe. This unleashed a flood of cheap money which went into capital investment, housing and excess government spending. After the global financial crisis, the money growth has been slowly coming down in a period of excess liquidity causing high inflation.

Going forward, the RBI should embrace a tighter monetary policy and reduce the reserve money growth to under 10%. The GDP growth will reduce at first but will pickup later. Companies whose only advantage was access to capital will suffer and some of them will go bankrupt but those who remain will grow through producivity improvements. The government which is finding thousand reasons to spend will be constrained by the heavy interest burden prompting disinvestment and reforms. But the monetary history of India suggests that RBI is soft on inflation and it will probably continue to be so in the future. Expect a depreciating rupee and 9% inflation going forward.