Question

Answer in detail.

Explain Regulation of consumer credit as a qualitative measure of the Central Bank of India.

Answer 1

Consumer credit refers to the credit that is used by consumers to buy consumer durable goods such as laptops, mobiles, cars etc. An increase in the amount of this credit will lead to an increase in the demand for such goods. With production of the goods remaining unchanged, this increase in demand will result in shortage of goods. Similarly, a decrease in the amount of this credit will result in decrease in the demand for goods, causing supplies to remain unsold. Thus, the Central Bank's measure of regulation of consumer credit is used to regulate the amount of consumer credit that can be granted to ensure that the production or inventories are not affected. This is done by increasing or decreasing the amount of down payment or by changing the amount of instalments. Thus, if the Central Bank wants to restrict consumer credit, it can do so by either increasing the down payment or by raising the EMI (equated monthly instalments). Similarly, if the central bank wants to encourage the buyers, it can do so by either decreasing the down payment or by lowering the EMI.