2014
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

Macro Economics Assignment-I

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 country’s 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) won’t 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 Tata’s 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 non-performing 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 pro-cyclical, but pervasive controls limited volatility.

Monetary Policy Procedures Policy | 1950s to End 1980s | Early 1990s to 1998-99 | 1998-99 to Present | Objectives | 1) Stability 2) Development | 1) Inflation 2) Credit supply for growth | 1) Inflation 2) Growth | Intermediate target | Priority sector credit targeting | Monetary targeting with annual growth in broad money (M3) as intermediate target | Multiple indicator approach(namely money, capital, currency, external etc.) as intermediate target | Operating Procedure (Instruments) | Direct Instruments(Interest rates regulations, selective credit control, SLR , CRR) | Gradual Interest rates deregulations CMR, DIRECT INSTRUMENTS(selective credit control ,SLR,CRR) | Direct (CRR, SLR)and indirect instruments (REPO operations under LAF and 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 1980’s 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’, India’s 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 Bank’s 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 Bank’s 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 1993-94 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 ridden-inward-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 doesn’t 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+ Government’s 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: RBI’s 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: RBI’s and other bank’s 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+ Government’s Currency Liabilities to the Public- Net Non- Monetary Policies+ All Deposits with Post Office Savings Bank- National Savings Certificate.