The Reddy report has distinguished itself by bringing out the difference between monetary and other financial aggregates. The latter is all about liquidity, which is of interest to business. The report highlights the significance of M2. It also broadens the definition of bank credit to include credit from the financial system. This is analytically significant for assessing the adequacy of money supply. So long as money supply growth results in an increase in liabilities of banks and other financial intermediaries, funds are available to organised business. But when part of the money supply expansion results in increases in liabilities outside the organised financial system (cash in hand being an obvious example), corporates may complain of inadequate liquidity. However, statistically capturing all other financial intermediaries may not be feasible.

The Reddy report talks of broadmoney, but leaves credit and debit cards out of its purview on the ground that they do not call for a redefinition of money stock ``although they may lead to a higher velocity of money''. The implicit policy suggestion here is that high powered money should be reduced. But in the private clearing system of credit and debit cards, only net amounts change hands; so velocity may actually go down! The Reddy report will need to be gone into carefully and its analytics debated.