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Unit-16 Money Supply: Definition and Importance of Money

16.3 Monetary Aggregates and Money Supply Measures in India Notes

Whereas there is the question is of the history of money supply measures in India, only one supply
measure M of money was being used by RBI till 1967-1968. M was including people demand deposits
and currencies. M was traditionally called as narrow money supply measure. From 1967-1968 till 1977
A.D., a detailed money supply measure was used that was called as ‘Aggregate Monetary Resources
- AMR’. In AMR, currency, demand deposits, and term deposits were included. In 1977 A.D., Reserve
Bank of India had propounded four new measures of money supply; these are M , M , M and M .
3
2
4
1
The detailed description is as following:
M = Currency of public + Demand Deposit of Banks + Other Deposits of RBI
1
M = Currency of public + Demand Deposit of Banks + Other Deposits of RBI + Deposits in Saving
2
Plans of Post Office
M = Currency of public + Demand Deposit of Banks + Other Deposits of RBI + Term Deposits of
3
Banks
M = Currency of public + Demand Deposit of Banks + Other Deposits of RBI + Term Deposits of
4
Banks + Total Deposit of Post Office (Except NSC)
 You please note it
In narrow mean money supply measure is not equal to M of new series of M 1977, though the
1
component of these sets is same. M includes the money deposits of all the central, state and primary
1
cooperative banks while M only includes the term deposits of state cooperative banks.
M of new series includes the term deposits of all cooperative banks while Aggregate Monetary
3
Resources (AMR) dose not includes the term deposits of any cooperative banks.
In 1998 A.D., the Executive Committee of RBI advised two new measures as NM and NM . Beside
3
2
this committee also advised for three liquidity measures as L , L and L . These three are called as
2
1
3
Monetary and Liquidity Aggregates. The detailed explanations of these measures are as following:
1. NM = Currency of public + Demand Deposit + Other Deposits of RBI + Short Term
2
Deposits
2. NM = NM + Long term Deposits + Short Term Fund of Financial Institutions
3 2
3. L = NM + Deposits of Post Offices
1
2
4. L = Term Monetary Receipts + Certificate of Deposits + Term Deposits
2
5. L = L + Social Deposits of Non-Banking Financial Institutions.
3 2
 Other Deposits
It shows the deposited amount in RBI besides the Government and Commercial Banks. The Demand
Deposits of International Organizations, Foreign Central banks, Foreign Government and Financial
Organizations etc. are included in it. M of new series includes the term deposits of all cooperative
3
banks.

Task Express your views about money supply.

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