Which of the following control credit for a particular goods or industry ?

Question

Accepted Answer

The correct option is 4:

Selective Credit Control (SCC) is a qualitative method of credit control used by a central bank (like the RBI in India) to regulate the flow of credit to specific sectors or for specific purposes within the economy. Unlike quantitative tools, which affect the total volume of credit, SCC differentiates between sectors to either encourage lending to priority areas or discourage/restrict lending for speculative or undesirable activities, such as certain goods or industries. By doing so, the central bank can strategically manage the allocation of financial resources to ensure stability and targeted growth without affecting overall liquidity across the entire system.

The incorrect option is 1:

Bank Rate is a quantitative monetary policy tool that affects the overall cost of credit across the economy. It is the interest rate at which the central bank lends money to commercial banks without collateral. Changes in the bank rate influence the general lending rates of commercial banks, thereby affecting the total volume of credit, not targeting specific goods or industries.

The incorrect option is 2:

Margin Money, although related to lending and sometimes categorized as a selective control tool, primarily works by setting the difference between the market value of the security and the maximum amount a bank can lend against it. While changes in margin money can affect credit for certain transactions (like buying shares or commodities), "Selective Credit Control" is the broader umbrella term encompassing policy actions taken to control credit to a *particular goods or industry*, making it the superior answer in this context.

The incorrect option is 3:

Open Market Operations (OMO) is a quantitative tool where the central bank buys or sells government securities in the open market. This action is used to manage the overall liquidity in the banking system, affecting the total volume of credit available in the economy, rather than directing credit toward or away from specific goods or industries.