measurement of. mony supply in India
Answers
Answer:
Instead, the Reserve Bank of India has developed four alternative measures of money supply in India. These four alternative measures of money supply are labelled M1, M2, M3 and M4. The RBI will collect data and calculate and publish figures of all the four measures.
Easy.
Since the end of March, 2020 currency held by the public increased by 8.2%.
M3 money supply (refer explanation below) increased by 6.7% in the first five months of 2020 compared with the same period last year. This is the highest growth in seven years.
Currency in circulation, which measures money with the public and in banks, has also surged.
However, the savings and current account deposits decreased by 8%. Gross capital formation also fell by 7% in the March, 2020 quarter.
Reason:
The recent increase reflects higher cash withdrawals by depositors to meet needs during the lockdown period and also to safeguard themselves against salary cuts or job losses.
Impact:
A rise in money supply usually is seen as a leading indicator of growth in consumption and business investments, but due to Covid-19 pandemic, the rise this time is unlikely to bolster either.
People have curtailed their discretionary spending as they’re not sure of their permanent income.
Lenders too are unwilling to take risks as slowing discretionary spending slows demand for manufactured and industrial goods.
Money Supply:
The total stock of money in circulation among the public at a particular point of time is called money supply.
It needs to be noted that total stock of money is different from total supply of money.
Supply of money is only that part of total stock of money which is held by the public at a particular point of time.
The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.
RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
M1 = CU + DD
M2 = M1 + Savings deposits with Post Office savings banks
M3 = M1 + Net time deposits of commercial banks
M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates).