The sum of which of the following constitutes Broad Money in India?

Correct Option

Broad Money, denoted as M3, represents a comprehensive measure of the money supply in an economy. In India, as per the Reserve Bank of India's (RBI) classification, M3 includes the following components:

• Currency with the public: This comprises notes and coins held by individuals and businesses outside the banking system.
• Demand deposits with banks: These are deposits that can be withdrawn on demand, such as savings and current account deposits held with commercial and cooperative banks.
• Time deposits with banks: These include fixed deposits (FDs) and recurring deposits (RDs) held with commercial and cooperative banks, which have a fixed maturity period.
• Other deposits with RBI: These consist of deposits held by financial institutions (e.g., NABARD, EXIM Bank), foreign central banks, and international financial institutions (e.g., IMF, World Bank) with the Reserve Bank of India. They specifically exclude deposits of the Government of India and commercial banks with the RBI.

The sum of these four components provides a measure of the total monetary resources available in the economy, encompassing both highly liquid and less liquid forms of money.

Incorrect Options

Option (a): This option, which includes only currency with the public and demand deposits with banks, represents Narrow Money (M1). M1 is a more liquid measure of money supply and does not incorporate time deposits or other deposits with RBI, which are integral to Broad Money (M3).

Option (b): This option is incomplete. While it correctly includes currency with the public, demand deposits, and time deposits, it omits 'other deposits with RBI'. All four listed components are necessary to constitute Broad Money (M3).

Option (d): This option is incorrect because it excludes time deposits with banks. Time deposits are a substantial and crucial component of Broad Money (M3), representing a significant portion of the economy's near-liquid financial assets. Their exclusion renders the measure incomplete for M3.