Till 1967-68, the R.B.I, used to publish only a single measure of money supply. From 1967-68 the R.B.I. started publishing additionally a broader measure of money supply, called aggregate mon­etary resources, (A.M.R.). It was explained as M plus the time deposits of banks held by the public.

R.B.I. has been publishing data on four alternative measures of money supply in place of the earlier two. The new measures are represented by M,, M2, M3, and M4. The earlier two measures were represented by M and AMR. The respective empiri­cal definitions of these measures have been discussed below;

1. Initial Empirical Measure of Money Supply:

In the beginning, as per the recommendations of the working group constituted in 1961, till 1967-68, R.B.I, used to publish only a single measure 01 money supply known as M. Its components were as follows:


(i) C = Currency held by the public (notes and coins). This does not include currency held by the banks.

(ii) DD = Net demand deposits of banks. This includes only demand deposits of commercial and co-operative banks. As discussed earlier, this does not include inter banks’ demand deposits.

(iii) OD = other deposits of the R.B.I. This does not include the deposits by the government (the central and state governments) and co-operative banks. It only includes the deposits by quasi-government institutions (like the IDBI, foreign central banks and governments, IMF and World Bank, etc).

These (other deposits by the R.B.I.) constitute a very small proportion (less than 1%) of the total money supply and hence these are generally ignored while discussing main trends of growth of money supply.


Therefore, in the form of an equation;

M – C + DD + OD

2. Measures of Money Supply since 1967-68:

Since 1967-68, the R.B.I., besides M started publishing another measure of money supply known as Aggregate Monetary Resources (AMR) under which i broad measure of money supply was provided. AMR includes M (narrow measure of money supply) plus time deposits of the public with the banks.


In the form of an equation.

AMR – M + Time deposits

3. Measure of Money Supply prevalent since 1977:

Since April 1977, in place of two mea­sures—M and AMR, four measures are published namely M1, M2, M3, and M4. Their components are as follows:


(a) M1 – it consists of :

(i) C = currency held by the public.

(ii) DD = Net demand deposits of banks, and

(iii) OD – Other deposits of the R.B.I.


M1 = C + D + OD

M1 is the revised measure of M — the R.B.I.’s old measure of money supply. M( includes demand :;posits of other co-operative banks also whereas M includes the demand deposits of state co-operative

‘Units’ only.

(b) M1 — it consists of —


(i) M1, nd

(ii) SD — Savings deposits with post office savings banks

M2 = M2 + SD

(c) M3—it consists of—

(i) M1, and

(ii) TD—Time deposits of commercial and co-operative banks.

M3 = M3 + TD

(d) M1 — it consists of —

(i) M3, and

(ii) TOP—Total deposits with the post office savings organisations (excluding Na Saving Certificates)

M4 = M + TDP

It is evident from the above description that, at present information relating to four empirics measures of money supply is published in India.

All these four measures are in the descending order of liquidity. M1 is the most liquid measure of money supply, after that comes. M2 and later on M3 and M4 come in the end. Mt and M3 are the most commonly used and widely prevalent measures. M1 and M3, are the alternative measures of earlier prevalent measures M and AMR.

However, due to some changes in their coverage, they are not perfectly comparable.

M3 is the most appropriate measure of money supply. Theoretically speaking it is not liquid as M, because it includes time deposits. But time deposits for all practical purposes are as liquid are M1 and because of that it is the most usable aggregate.