The most liquid measure of money supply in India is M1.

M1 includes the most liquid forms of money, such as physical currency (coins and notes) held by the public and demand deposits with commercial banks. It represents the narrowest definition of money supply and is often used as a measure of transactional liquidity.

Here is a detailed explanation of the different measures of money supply in India:

1. M1: M1 includes currency held by the public (notes and coins) and demand deposits with commercial banks. It represents the most liquid form of money as it can be readily used for transactions.

2. M2: M2 includes M1 along with savings deposits with post office savings banks, savings deposits with scheduled commercial banks, and term deposits of less than one year. It represents a broader measure of money supply and includes funds that are less liquid compared to M1.

3. M3: M3 includes M1 and M2 along with time deposits of one year or more with scheduled commercial banks. It represents a broader measure of money supply than M2 and includes funds that are less readily available for immediate use.

4. M4: M4 includes M3 along with all deposits with post office savings banks (excluding National Savings Certificates). It represents the broadest measure of money supply and includes funds that are less liquid than M3.

The reason why M1 is considered the most liquid measure of money supply is because it includes physical currency and demand deposits, which can be easily used for transactions. M2, M3, and M4 include less liquid forms of money, such as savings and time deposits, which may have certain restrictions on withdrawals.

In summary, M1 is the most liquid measure of money supply in India as it includes physical currency and demand deposits. The other measures, such as M2, M3, and M4, include less liquid forms of money and represent broader measures of money supply.