1. Money supply in India is regulated by the Reserve Bank of India through monetary policy to achieve objectives like price stability, full employment, and economic growth. 2. There is no single measure of money supply - it is measured using aggregates M1, M2, M3, and M4 which include currency in circulation and various types of bank deposits. 3. The growth in money supply must be higher than the growth in real national income to accommodate demand for money from income growth and a shrinking non-monetized sector of the economy.

1. Money Supply in India

2. Monetary policy refer to steps taken by RBI to regulate cost and supply of money in order to achieve certain socio Economic objective like price stabilization full employment, exchange regulation and increased economic growth

3. There is no unique measure to money aggregate Money Supply M : M 1 + M 2 + M 3 + M 4

4. M 1 It consist of Currency notes and coins with public ( excluding cash in hand of all banks) Demand deposit ( excluding inter bank deposit) Deposit held with RBI ( excluding IMF,PF, guarantee fund & adhoc liabilities N A R R O W M O N E Y

5. M 2 M 1 PLUS Saving deposit with post office saving bank

6. M 3 M 1 PLUS Time deposit of commercial bank & cooperative bank ( excluding inter bank deposit) It includes net bank credit to government +bank credit to commercial sector + net foreign exchange assets + government currency liability to the public B R O A D M O N E Y

7. M 4 M 3 PLUS Total deposit with post office organization

9. The growth in money supply must be higher then the growth in the real national Income This stems for two reasons As income grows ,the demand for money as one of the component of saving tends to increase An increase in money supply is also necessitated by gradual reduction of the non-mentioned sector of the economy. In our country, the rate of increase in money supply has been far excess of the rate of growth in real national income

10. Money stock measure ( Rs crores) 15,23,100 2,80,510 M 4 25,970 14,680 Total post office deposit 14,97,130 2,65,830 M 3 10,75,930 1,72,940 Time deposit with banks 4,26,240 97,100 M2 5,040 4,210 Post office saving bank deposit 4,21,200 92,890 M 1 2001-02 1990-91

11. Money Market MM is “ Centre for dealings, mainly of a short term character, in monetary assets; it meets the short term requirement of the borrowers and provides liquidity or cash to the lenders. It is a place where short term surplus investible funds at the disposal of the financial and other institution and individual are bid by borrowers, again comprising institutions and individual and also by government

12. Function of Money Market It provides various kind of credit instrument to augment the money supply It helps to minimise the gluts and stringencies in money market due to seasonal variations in the flow of and demand of funds It helps in quick transfer of funds

13. Operation in Money Market Call (overnight) money Notice money Commercial Bills Treasury Bills Certificate of Deposit Commercial Paper

14. Features of Investment methods in Money Market Sh. Com. Banks,coop. Banks, MF etc Easy Unsecured 2-14 days 0.50 Notice Money Sh. Com. Banks,coop. Banks, MF etc Easy Unsecured 1 day 1 Call Money Open to all Moderate Unsecured 90-180 days 0.25 Commercial Papers Open to all Moderate Secured 46-365 days 0.25 Certificate of deposit (CD) Sh. Com. Banks,coop. Banks, MF etc Reasonable Secured 1-90 days 0.50 Commercial bills Open to all Easy Secured 1-182 days 0.25 182 days treasury bill Participant Liquidity Secured /Unsecured Period Minimum Amount per transaction MM instruments

15. Call/Notice Money All categories of bank and financial institution are allowed to participate in call/notice market. The fund are lent for one day or from Saturday to Monday or for a period up to 14 days. Both the borrower and lender have current account with the RBI. It is also used by banks to maintain CRR/SLR level to avoid punitive measure by the RBI

16. Commercial Bills One ways the bank extend credit to their customer is by discounting their commercial bills. Such credit bill finance is repayable on maturity of the bill. The eligibility criteria prescribed by RBI for rediscounting a bill stipulates interalia that the bill should fall within 90 days from date of discounting. The bill discounting rate is dictated by the market force & there is less volatility in interest rate in this then call market.

17. 182 Days Treasury Bills This is a short term government debt securities introduced in November 1986. The treasury bill is issued on auction by RBI. It is issued at a discount and on maturity the face value is paid to the holder. Every fortnight ,RBI invites bids for sale of 182 days treasury bills

18. Certificate of Deposit RBI introduced CD in 1989. CD is a front ended negotiable instrument, issued at a discount and face value is payable at maturity by the issuing bank. The CD are short-term deposit instrument for a period ranging from three month to one year. The discount rate for the issue of CD are market driven.

19. Commercial Paper The RBI introduced a scheme of CP in January 1990. CP is a short term negotiable money market Instrument and is issued by companies in the form of a usance promissory note, redeemable at par to the holder on maturity. The period of CP is 15 days to 365 days from date of issue and is issued at a discount.

20. Role of DFHI Established in 1988,it was established by RBI jointly with PSU banks and all-India Financial Institution to deal in short term monery market instruments. DFHI has branches in Delhi, Calcutta, Chennai, Ahemdabad and Bangalore. DFHI also provides ‘ repos ’ facility ( buy-back and sell-back) to banks, selected financial institution and PSU’s upto a period of 14 days at predetermined interest rate.