Macro Economics Assignment-I

Submitted To :
Dr. Pinky Desai
Submitted By:
Anu Mary Tom-20135009
Arpita Christian-20135011
Lakshman Shastri-20135031
Mahesh Patel-20135033
Mruganda Shah-20135038
Lakshman Shastri-20135031

Question 1: History of Devaluation of Indian Rupee & its

Impacts
The Indian rupee, which was on par with the American currency at the time
of Independence in 1947, has depreciated by a little more than 65 times in the past
66 years. At the time of independence, there were no foreign borrowings on India's
balance sheet. After independence, India had chosen to adopt a fixed exchange
rate currency regime. The rupee was pegged at 4.79 against a dollar between 1948
and 1966.
Two consecutive wars, one with China in 1962 and another one with Pakistan in 1965;
resulted in a huge deficit on India's budget, forcing the government to devalue the
currency to 7.57 against the dollar. The rupee's link with the British currency was broken
in 1971 and it was linked directly to the US dollar. In 1975, value of the Indian rupee was
pegged at 8.39 against a dollar. In 1985, it was further devalued to 12 against a dollar.
In 1991, India faced a serious balance of payment crisis and was forced to
sharply devalue its currency. The country was in the grip of high inflation, low growth
rate and the foreign reserves were not even worth to meet three weeks of imports.
Under these situations, our currency was devalued to 7.90 against a dollar. So far two
major rupee devaluations occurred in 1966 and the early 90s and the present one. The
reasons for these devaluations are CAD, Fiscal deficit, soaring inflation, insufficient
foreign exchange reserves, decontrol and liberalization. It was mostly at around Rs.45
against a dollar. It touched a high of Rs.39 in 2007. The Indian currency has gradually
depreciated since the global 2008 economic crisis. Today (24-03-2014) the dollar value is
Rs. 60.69
Reasons for devaluation of Indian Rupee:
Current Account Deficits (CAD): Deficit in the current account (more imports and
fewer exports) is not good for a country, because the country needs to buy more foreign
currency to fulfill its need. A country needs to manage its deficit within control;
otherwise it will lead to an economic problem. More demand for the foreign currency
would reduce the value of that countrys currency.
Government Deficit is high: The government finances are in a bad shape and the
combined central and state government deficit has stubbornly stayed around 10 per cent
of GDP. Due to high deficit, investors lost faith in our economy.
Inflation: As a general rule, a country with a consistently high inflation rate exhibits
a falling currency value, as its purchasing power decreases relative to other currencies or
vice versa.
High Interest Rates: At present in India, high interest rates are prevailing. High interest
rates are not conducive for foreign investors to invest as their costs of production goes
up.
Slow Growth Rate: At slow growth rate (4.8%), Foreign Institutional Investors (FIIs)
wont dare to invest.

Dollar is in Demand: Exchange Rate is nothing but the price of a currency (like price
of a commodity) in the International Market. If the demand for the dollar is higher than
its supply, the rupee should depreciate. If it is the other way round, it should
appreciate. Risk Aversion on part of Currency Investors, which has caused the Demand
for the US Dollar to go up world over.
Fall of Stock Markets: FIIs turning Net-Sellers and withdrawing funds from the Indian
Market. Thus, leading to fall of Indian Stock Markets and leading to further devaluation
of Indian rupee.
The global uncertainty: The global uncertainty and various economies crisis (Euro and
recent Syria) has forced the investors, large banks and financial institutions to search for
safe haven and they have now started selling Euros and buying dollars. Thus, the dollar
has appreciated against all major currencies including rupee.
Stimulus Withdrawal to the US Economy: Federal Reserve minutes hinted that
the United States was on course to begin tapering stimulus due to the U.S. economy
strengthening reaching some important signposts such as a fall in the unemployment rate.
Declining Foreign Investments: Due to less or weak demand for rupee foreign
investments are decreasing thus leading to further depreciation.
Political Uncertainty and Scams: Weak central government, series of scams and slow
economic reforms are not attracting and gaining the confidence of foreign investors.
Rating Agencies and Foreign Investors: Rating agency - Better Business Bureau
(founded in 1912, a non- profit organization focused on advancing market place trust)
downgraded India's rating i.e. not favourable for investment. Another rating agency
Standard & Poor's also put India's rating at negative. Foreign investors take these ratings
seriously and a drying up of inflows will further weakened the rupee.
Domestic Investors: It has also become more expensive for both the Government and
corporate to borrow overseas; they have to offer higher interest rates to compensate for
the perceived higher risk. Corporate are already reeling from a high interest rate regime
in India. Even prime borrowers-leading corporate like Tatas and Reliance have to pay an
interest rate of around 14-15 per cent.
Lacking Political Will: In India Political will is lacking for concrete economic policies.
The Government needs to look inward to end its policy paralysis.
Weak Economic Fundamentals: The weak economy and no signs of quick fix solutions
are weighing on the rupee. The UPA government is unlikely to deliver far reaching
reforms to generate heavy capital inflows.
Impact of Rupee Depreciation on the Indian Economy:
Negative Impacts:
Inflation graph and Fiscal deficit to scale up: Currently, India is suffering from a two
digit inflationary (CPI: 10.70%) pressure. A depreciating rupee would only add fuel to

this. It would lead to high inflation, as India imports around 70 per cent of its crude oil
requirement, government would have to pay more for it. Further, this higher import bill
will lead to rise in fiscal deficit for the government and will push up the inflation.
Increasing Current Account Deficit (CAD): A frail rupee will add fuel to the rising
import bill of the country and thereby increasing its current account deficit (CAD). A
widening CAD is bound to pose a threat to the growth of overall economy.
Imported goods: Buying imported stuff will become very costly affair. You will have to
shell out extra on imported goods.
Impact on Oil Imports: Oil imports consume the largest part of the FOREX reserves.
Oil and gold imports account for 35 per cent and 11 per cent of India's trade bill
respectively. Traders say there has been continuous demand for the dollars from oil
importers, the biggest buyers of dollars in the domestic currency market, pushing the
rupee lower.
Stock Markets and FIIs: Depreciation of rupee affects the money flow in the Indian
stock markets. FIIs start withdrawing their investments from the markets fearing loss of
value. In terms of portfolio stocks in oil and gas, infrastructure, fertilizer or tyre business,
will hit as the shares of these companies will fall when the rupee falls as they procure
their raw materials from abroad.
Impact on Companies Balance Sheet: Corporate India is a net borrower of dollars and
to that extent a depreciating rupee would impact its balance sheet adversely.
Impact on Companies foreign debt: Companies with foreign debt on their books would
also be impacted. With the rupee depreciating against the dollar, these companies would
need more rupees to repay their loans in dollars. This will increase their debt burden and
lower their profits. As a result, investors would stay away from companies with high
foreign debt.
NPA (Non-Performing Assets): Companies, which have borrowed in foreign exchange
through external commercial borrowings (ECBs) but not expected the foreign exchange
risks, will suffer enormously. Many banks will have to declare such loans as nonperforming assets. Consequently, they will lend less to the productive sectors.
Foreign Currency Debt: Foreign currency debt will increase, especially linked to dollar.
Prices of Cars, Electronic gadgets and home appliances will go up: The depreciating
rupee has pushed up the prices of electronic gadgets and home appliances. Car makers
who import 10 to 40 percent of the components are contemplating increasing prices.
Impact on Indian students and travellers abroad: Travelling abroad becomes more
expensive as travel cost could go up. Students studying abroad too have to pay more for
their studies.
Expectation of Taping of US Bond-Buying Programme: Strong demand for US dollars
from importers, banks, continuous capital outflows, widening current account deficit and

dollar's strength against other currencies amid expectation that the Federal Reserve will
soon taper its bond-buying programme may lead to further depreciation of rupee.
Burden on Subsidies: Burden on subsidies will further go up, for e.g. subsidy on crude
oil, LPG and fertilizers.
Impact on Common man: Depreciation of rupee will also trigger a chain reaction that
would result in a higher burden on the common man in all walks of life. For e.g. Increase
in transportation charges due to hike in fuel prices will lead to hike in the prices of
several consumer commodities.
Positive Impacts:
Cheerful news for Exporters: When a currency depreciates, the exporters make more
profit because they get more of the local currency for every unit of foreign currency
though the quantity of trade remains unchanged.
Overseas Indians: Money saved is money earned. Depreciation of rupee is certainly
good news for the overseas Indians. Those working abroad can gain more on remitting
money to their homeland.
IT sector: The depreciating rupee would be positive for the Indian IT sector which
generates more than 85% of their $70 billion revenue from the overseas markets.
But, exporters gain only in the short term and after that overseas buyers seek price
adjustment.

Question 2: The monetary policy of RBI In different

Phases
Monetary policy is the process by which monetary authority of a country, generally a
central bank controls the supply of money in the economy by exercising its control over
interest rates in order to maintain price stability and achieve high economic growth. In
India, the central monetary authority is the Reserve Bank of India (RBI). is so designed
as to maintain the price stability in the economy
The first and most important part of the monetary policy framework in a country is the
task mandated to the monetary authorities. In a democracy, this task is typically specified
in the central bank act. It is interesting to note that despite overwhelming changes in the
financial sector in India, the mandate to the monetary authorities in India mentioned in
the Reserve Bank of India Act 1934 has remained unchanged.
Early monetary policy was geared to support planned expenditures and government
deficits. During an agricultural shock monetary policy would initially support increased
drought relief then tighten just as the lagged demand effects of an agricultural slowdown

were hitting industry. Administered oil and food prices were normally raised with a lag
after monetary lightening brought inflation rates down. Macro policy was thus procyclical, but pervasive controls limited volatility.
Monetary Policy Procedures
Policy
Objectives

1950s to End 1980s

1) Stability

Early 1990s to 1998-99

1) Inflation

1998-99 to Present
1) Inflation

2) Development

2) Credit supply for

2) Growth

Intermediate

Priority sector

growth
Monetary targeting with

Multiple indicator

target

credit

annual growth in broad

approach(namely

targeting

money (M3) as

money, capital,

intermediate

currency, external

target

etc.) as
intermediate target

Operating

Direct

Gradual Interest rates

Direct (CRR,

Procedure

Instruments(Interest

deregulations CMR,

SLR)and indirect

(Instruments)

rates regulations,

DIRECT

instruments

selective credit

INSTRUMENTS(selectiv

(REPO operations

control, SLR ,

e credit control

under LAF and

CRR)

,SLR,CRR)

OMOS)

1970 to 1990:
Since independence, the Keynesian school of thought prevailed for the next 2 decades or
so. At the onset of the decade of 1970, gradual phasing out of Keynesian economic model
began and Indian government and its economists started drifting towards the Friedman
school of thought. The Reserve Bank of India started policy of monetary targeting. The
reasons for this were the failure of the earlier Keynesian model. Also, internationally, in
several economies of the world, it was becoming evident that long-run sustained inflation
and excessive money growth were closely associated. This was bolstered by econometric
proof of the stability of the demand for money and the persuasive argument that a central
bank could exercise sufficient control over money through its monopoly over currency
and reserves. In India, systematic evidence was turned in on stability in money demand
and the money multiplier, and a predictable chain of causation running from changes in
money supply to prices and output.
1970s also saw major events in the political spectrum. The then prime minister Indira
Gandhi announced nationalization of several private banks. The role of public sector

banks thus became dominant in the Indian economy. Also, it instilled confidence amongst
the Indian common citizen. This move subsequently increased savings in the country and
monetary flow path in the Indian economy saw a drastic change.
Until the early 1980s, the Indian economy was virtually a closed one. Prices of a
significant number of commodities were administered in India at that time. To sustain
these prices at a steady level, government subsidies were often necessary and this was
one of the factors that led to a chronic budget deficit. These deficits were either financed
through ad hoc treasury bills or through indirect borrowings, mostly from nationalised
banks. The first led to more or less automatic monetisation. Net RBI credit to the
government was the dominant factor behind reserve money expansion and the
consequent expansion in money supply. To control the money supply, the RBI had to
increase the cash reserve ratio (CRR) from time to time.
So far as the market borrowing is concerned, to facilitate the process, interest rates were
administered and were kept at an artificially low level. The entire structure of interest
rates was complicated and had multiple layers.
The late 1980s saw a major financial crisis in India known as the balance of payments
crisis.
1990-2001:
The balance of payments crisis in late 1980s and in 1990 completely shook the Indian
economy. International political events such as the Unification of Germany, collapse of
the Soviet Union and fall of Soviet model of economics, eventually led to major
economic reforms in India. India finally opened its doors for the world. Year 1991 saw
major economic reforms in India and the economy was globalized, liberalized and
privatized. With India finally allowing private enterprises to thrive and allow foreign
companies to invest heavily and ending the license raj, Indias monetary policy too saw
enormous change.
One of the first important financial reforms that India introduced after the balance of
payments crisis in 1990-91 was to change to a market-determined exchange rate system
and to introduce current account convertibility in a phased manner. This change was one
of the striking successes of the early years of economic reforms. A significant
development in this area with far-reaching implications was the reactivation of the Bank
Rate, which was linked to all other interest rates, including the Reserve Banks refinance
rate. A significant development in this area with far-reaching implications was the
reactivation of the Bank Rate, which was linked to all other interest rates, including the
Reserve Banks refinance rate.
The decade also saw the onset of multi-indicator approach used by the RBI towards
monetary policy.
2001-Present:
In the late 90s and beginning of 2001, the government of India under the leadership of
Atal Behari Vajpayee pushed for several economic reforms which propelled the GDP rate
to more than 7 percent per annum consistently. The Indian economy from 2004 to 2008
saw growth rates exceeding 8 percent per annum.
The RBI once again undertook the task of creating a corridor for the short-term money
market rate in a phased manner, finally enabling to carry out liquidity management in
India through open market operations (OMO) and reverse repo/repo operations. The

second major change was in the evolution of policy coordination, culminating in the
Fiscal Responsibility and Budget Management Legislation. The objective of the
legislation was to impose fiscal discipline on government spending and ensure a
transparent and accountable fiscal system. The third major change was in clearer
demarcation of stabilisation policies from structural policies. Earlier, major monetary
policy announcements in India used to take place twice a year. As stabilisation of
financial markets often needed quick and immediate action, it was repeatedly articulated
by the RBI management that necessary policies for that purpose would be taken
immediately and certainly not after a long wait of six months. This, however, did not
apply to policies that had long-run structural implications. Both the government of India
and the RBI jointly attempted to implement the International Financial Standards and
Codes.

Question 3: Convertibility of Indian Rupee

INTRODUCTORY:

The Foreign Exchange Regulation Act 1947 was publicized in 1947 with object of
regulating certain dealings in foreign exchange and the import and export of currency and
bullion. The basic control was directed towards dealings in Foreign exchange and
payments which directly affect foreign exchange resources. The exchange control
consisted of restricting purchase and sale of foreign exchange by general public and
payments involving non-residents. Restrictions were also imposed on the import and
export of Indian currency, foreign currency and bullion. An official exchange rate was
fixed by the Reserve Bank of India for the conversion of Indian currency into foreign
exchange. All transactions in foreign exchange were governed by this official rate of
exchange.
By virtue of these controls exercised by the Reserve Bank of India, all foreign exchange
earned and received by any person in India were required to be sold to authorized dealers
so that all foreign exchange earned or received can be converted and utilized only
according to the priorities fixed by the Government.
These controls were necessary at a time when India was still an undeveloped country
exporting only agricultural products and raw materials like Iron ore, manganese ore, mica
etc., and importing almost all the required consumer goods. However, with four decades
of such controlled and regimented system, India has been able to reverse the pattern of
trade to a considerable extent.
Instead of exporting merely agricultural products etc., and importing consumables, we
are now in a position to export sophisticated electronic gadgets and import mainly capital
equipments and intermediate products for our Industrial development. To move economy
further in this direction some relaxation in the controls exercised on foreign exchange
was found imperative and this has been brought about by what is termed as "Liberalized
Exchange Rate Management System", (LERMS for short), introduced with effect from
1.3.1992.
LERMS:

Under the LERMS, Exporters of goods and services and those who are recipients of
remittances from abroad could sell the bulk of their foreign exchange receipts at market
determined rates. Similarly, those who need to import goods and services or undertake
travel abroad could buy foreign exchange to meet such needs, at market determined rates
from the authorized dealers, subject to their transactions being eligible under the
liberalized exchange control system. However, in respect of certain specified priority
imports and transactions, provisions were made in the scheme for making available
foreign exchange at the official rate by the Reserve Bank of India.
By this scheme, partial convertibility of the rupee was introduced. 40% of the foreign
exchange received on current account receipts, whether through export of goods or
services alone needed to be converted at the official rate, while take remaining 60% was
convertible at market determined rates. The imports of materials other than petroleum, oil
products, fertilizers, defense and life saving drugs and equipment always had to be
effected against market determined rates. All receipts of foreign exchange were required
to be surrendered to authorized dealers as was the practice hitherto. The rate of exchange
for the transactions was to be the free market rate quoted by authorized dealers except for
40% of the proceeds which would be based on the official rate fixed by the Reserve Bank
of India. The authorized dealers were required to surrender 40% of their purchases of
foreign exchange to the RBI at official rate. The remaining 60% could be retained by
them for sale in free market for all permissible transactions. The Exporters were also
given a choice to retain a maximum of 15% of the export earnings in foreign exchange
itself, which could be utilized by them for their own personal needs.
FULL CONVERTIBILITY:
Although the Minister of Finance had indicated during his presentation of the 1992-93
Budget that full convertibility of the rupee would be introduced in a span of 3 or 4 years,
full convertibility was announced much earlier and in fact it is the highlight of the 199394 Budget.
There is, however, a subtle difference in the full convertibility of the rupee introduced in
India and the concept of full convertibility prevailing in developed countries like the
U.K., U.S.A. etc. In developed countries, full convertibility means that their currency is
freely convertible anywhere in the world. Their home currency can be converted into
foreign currency without any restriction. One does not have to disclose even the purpose
of such conversion. For instance, U.S. Dollars can be changed into Sterling Pounds in
New York, Japanese Yen could be exchanged to Deutsche Marks in Frankfurt, Australian
Dollars can be converted into Canadian Dollars in Adelaide etc., and the exchange rate is
controlled by the position of supply and demand in the market. The full convertibility
announced in the Union Budget of 1993-94, however, allows convertibility only in the
current account, which means the amount received by way of sale proceeds of exports,
paid for imports and the remittance by NRIs etc., alone are convertible at market
determined rates.
In the last year's Budget, a dual exchange rate was announced i.e., 60% at market rates
and 40% at the official rate. In the current Budget, the dual exchange rate has become a
unified exchange rate which is a 100% conversion of foreign exchange at market rate.
This is described as Full Convertibility. This does not mean that one can get any amount
of foreign exchange at market rate for meeting any of one's needs. The Reserve Bank of

India will permit sale of foreign exchange currency to anyone only for those purposes
which are stipulated by the Govt. of India. It does not permit conversion of one's savings
in the country for investment in foreign countries, as could be done by the citizens of
developed countries like the U.K. or U.S.A. For instance, if a citizen resident in India
wishes to undertake a foreign travel, the exchange for such travel can be had only as per
the norms prescribed by the Govt. under the Foreign Travel Scheme. Full convertibility
of the Rupee we have adopted for our country is tied up with exchange controls and
restriction envisaged by the provisions of the F.E.R. Act 1973as amended. Full
convertibility has been introduced only as a measure of reforms to revitalize the economy
of our country and to bring it onto the path of liberalization. The New Economic Policy
ushered in by out Govt. is with a view to take India forward from a control riddeninward-looking economy into a market - friendly, forward-looking progressive and
dynamic economy. Full convertibility of the rupee, lower Customs and Central Excise
duties, relaxation of Import / Export restrictions, streamlining of procedural rules
governing taxations, streamlining of procedural rules governing taxation laws etc., have
opened out our economy with a view to expansion and globalization of our trading
activities. These are measures taken to move India forward in her March towards
economic freedom.
ADVANTAGES:

Full convertibility will enable Exporters to get a higher price for the goods
exported. This is certainly a big incentive for increasing export.
Since the Importers have to pay more than the goods imported, there will be a
natural tendency to import less, confining the imports to absolutely necessary
items although the Export/Import Policy has been liberalized.
Malpractices like under-invoicing of exports may not arise as the rupee is fully
convertible and full value of exports is realized.
Indian rupee would become stable and the gap in the balance of trade reduced
considerably. A self balancing mechanism of import export trade will eventually
get established.

CONCLUSION:
The Govt. had however stated that if the value of the rupee depreciates to an
unreasonable level in the free market operations, the R.B.I. will intervene and control it.
This assurance certainly gives credence to the earnestness and sincerity with which the
full convertibility has been announced. What is important is that changes in the global
markets will automatically get reflected in the Indian markets on account of the full
convertibility. This is certainly a move in the right direction. Instead of remaining as an
insulated economy, India will surge forward as a free economy, unfettered and opened
out for the world markets.

Question 4:What is M1, M2. M3 & M4 In Indian economy?

MONEY SUPPLY IN INDIA
Money Supply also known as Money Stock Measures or Measures of Monetary
Aggregates shows the money supply in the market. RBI since 1970 has been computing
the money supply in the Indian Market. Money Supply can be used to compute inflation,
deflation and can also be used to determine monetary and fiscal policies.
M1
M1 also called narrow money equals the sum of currency in circulation with the public
(excluding cash in hand of all banks), demand deposits (excluding interbank deposits)
and deposits held with RBI (excluding IMF, PF, Guarantee Fund and Ad Hoc liabilities).
i.e
M1= Currency with the Public+ Demand Deposits with the Banking System+ Other
Deposits with the RBI
Currency in Circulation: includes notes in circulation, rupee coins and small coins.
Rupee coins and small coins in the balance sheet of the Reserve Bank of India include
ten-rupee coins issued since October 1969, two rupee-coins issued since November 1982
and five rupee coins issued since November 1985. Currency with the public is arrived at
after deducting cash with banks from total currency in circulation, as reported by RBI.
Demand Deposits with the Banking System: Demand deposits include all liabilities
which are payable on demand and they include current deposits, demand liabilities
portion of savings bank deposits, margins held against letters of credit/ guarantees,
balances in overdue fixed deposits, cash certificates and cumulative/ recurring deposits,
outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs),
unclaimed deposits, credit balances in the Cash Credit account and deposits held as
security for advances which are payable on demand. Money at Call and Short Notice
from outside the Banking System is shown against liability to others.
Other Deposits with the RBI: Other deposits with RBI comprise mainly: (i) deposits of
quasi-government and other financial institutions including primary dealers, (ii) balances
in the accounts of foreign Central banks and Governments, (iii) accounts of international
agencies such as the International Monetary Fund, etc.
M1 India 2014: Money Supply M1 in India increased to 20113.67 INR Billion in
February of 2014 from 19873.10 INR Billion in January of 2014. Money Supply M1 in
India is reported by the Reserve Bank Of India. Money Supply M1 in India averaged

3911.05 INR Billion from 1972 until 2014, reaching an all time high of 20113.67 INR
Billion in February of 2014 and a record low of 80.15 INR Billion in January of 1972.

M2
M2 is the sum of M1 and savings in post office savings bank. It is a measure of money
supply that includes cash and checking deposits (M1) as well as near money. Near
money" in M2 includes savings deposits, money market mutual funds and other time
deposits, which are less liquid and not as suitable as exchange mediums but can be
quickly converted into cash or checking deposits.M2 is a broader money classification
than M1, because it includes assets that are highly liquid but not cash. A consumer or
business typically will not use savings deposits and other non M1 components of M2
when making purchases or paying bills, but it converts them to cash in a short time.
M1 and M2 are closely related, and economists like to include the more broadly defined
definition for M2 when discussing the money supply, because modern economies often
involve transfers between different account types. For example, a business may transfer
$10,000 from a money market account to its checking account. This transfer would
increase M1, which doesnt include money market funds, while keeping M2 stable, since
M2 contains money market accounts.
M2= Currency with the Public+ Demand Deposits with the Banking System+ Other
Deposits with the RBI + Savings in Post Office Savings
M2 India 2014: Money Supply M2 in India increased to 20164.07 INR Billion in
February of 2014 from 19923.53 INR Billion in January of 2014. Money Supply M2 in
India is reported by the Reserve Bank of India. Money Supply M2 in India averaged
7128.49 INR Billion from 1991 until 2014, reaching an all time high of 20164.07 INR
Billion in February of 2014 and a record low of 1127.49 INR Billion in November of
1991. India Money Supply M2 includes M1 plus short-term time deposits in banks.
M3
M3 or broad money is a measure of money supply that includes M2 as well as large time
deposits, institutional money market funds, short-term repurchase agreements and other
larger liquid assets. The M3 measurement includes assets that are less liquid than other
components of the money supply, and are more closely related to the finances of larger
financial institutions and corporations than to those of businesses and individuals. These
types of assets are referred to as near, near money.
M3= Currency with the Public+ Demand Deposits with the Banking System+ Other
Deposits with the RBI+ Time Deposits
Or

M3=Net Bank Credit to the Government+Bank Credit to the Commercial Sector+ Net
Foreign Exchange Assets of the Banking Sector+ Governments Currency Liabilities to
the Public- Net Non- Monetary Policies
Time Deposits: Are payable otherwise than on demand and they include fixed deposits,
cash certificates, cumulative and recurring deposits, time liabilities portion of savings
bank deposits, staff security deposits, margin money held against letters of credit if not
payable on demand, India Millennium Deposits and Gold Deposits.
Net Bank Credit to Government: RBIs net credit to Central and State Governments
and commercial and co-operative banks investments in Central and State Government
securities.
Bank Credit to Commercial Sector: RBIs and other banks credit to commercial
sector.
Other banks credit to commercial sector: Banks loans and advances to the
commercial sector (including scheduled commercial banks food credit) and banks
investments in other approved securities.
M3 India 2014: Money Supply M3 in India increased to 94554.04 INR Billion in March
of 2014 from 93489.32 INR Billion in February of 2014. Money Supply M3 in India is
reported by the Reserve Bank of India. Money Supply M3 in India averaged 15071.27
INR Billion from 1972 until 2014, reaching an all time high of 94554.04 INR Billion in
March of 2014 and a record low of 123.52 INR Billion in January of 1972. India Money
Supply M3 includes M2 plus long-term time deposits in banks.
M4
M4 is a Money Supply Aggregate used by few countries like UK, USA and India. M4 is
the sum total of all deposits with post office savings bank (excluding National Savings
Certificates) and M3.
i.e
M4=M3+All Deposits with Post Office Savings Bank- National Savings Certificate
Or
M4= Net Bank Credit to the Government+Bank Credit to the Commercial Sector+ Net
Foreign Exchange Assets of the Banking Sector+ Governments Currency Liabilities to
the Public- Net Non- Monetary Policies+ All Deposits with Post Office Savings BankNational Savings Certificate.