What are the measures of Money supply in India : In India, the Reserve Bank of India (RBI) calculates and monitors the money supply using different measures that capture various forms of money in circulation and their liquidity.
The measures of money supply in India are categorized into four broad categories known as “M1,” “M2,” “M3,” and “M4.” Each category includes different components of money supply, representing varying degrees of liquidity.
Here are the measures of money supply in India:
M1 (Narrow Money): M1 represents the most liquid form of money supply, including currency notes and coins in circulation and demand deposits with banks. It includes the following components:
- Currency with the public: Notes and coins held by individuals and businesses.
- Demand deposits: Funds held in checking accounts that can be withdrawn on demand.
M2 (M1 + Savings Deposits): M2 includes all the components of M1 and adds savings deposits to the mix. Savings deposits are bank accounts that offer interest but have certain limitations on the number of withdrawals allowed per month.
M3 (M2 + Time Deposits): M3 encompasses M2 and further includes time deposits, which are deposits that are held for a specified period and earn a higher interest rate than savings deposits. These deposits have maturity periods ranging from a few months to several years.
M4 (M3 + Total Deposits with Post Office Savings): M4 is the broadest measure of money supply and includes all the components of M3 as well as total deposits with post office savings. Post office savings accounts are popular among people in rural areas and those with limited access to formal banking.
It’s important to note that as you move from M1 to M4, the components included become less liquid and more interest-bearing. In other words, the measures progress from the most immediately spendable forms of money to those that involve varying degrees of time commitment and yield.