Which one of the following is NOT used by the Reserve Bank of India as an instrument of credit control or monetary policy in India?

Introduction / Context:
Credit control instruments are tools used by a central bank, such as the Reserve Bank of India, to regulate the volume and cost of credit in the economy. Objective questions often list several terms, some of which are genuine monetary policy instruments and some of which are distractors. This question asks you to identify the option that is not recognised as a standard instrument of credit control in India.

Given Data / Assumptions:
- The context is monetary policy and credit control by the Reserve Bank of India.
- The options include rationing of credit, direct action, open market operations and variable cost reserve ratios.
- You need to choose the item that does not correctly name a recognised instrument used by the central bank.

Concept / Approach:
Broadly, the Reserve Bank of India uses quantitative and qualitative instruments. Quantitative tools include bank rate, open market operations, cash reserve ratio and statutory liquidity ratio. Qualitative tools include selective credit control, moral suasion, direct action and rationing of credit. The phrase variable cost reserve ratios does not match the standard terminology. The correct term in Indian monetary policy is variable cash reserve ratio or simply cash reserve ratio, which refers to the proportion of deposits that banks must keep with the RBI. Therefore the option that mentions variable cost reserve ratios is factually incorrect as a policy instrument name.

Step-by-Step Solution:
Step 1: Analyse option A, rationing of credit. This is a qualitative method where the central bank limits the total amount of credit that commercial banks can extend or specifies priority sectors. It is recognised as an instrument of credit control.Step 2: Analyse option B, direct action against banks. Direct action includes penalties, restrictions or directives applied to specific banks that do not comply with monetary policy guidelines. This is again a known qualitative tool of credit control.Step 3: Analyse option C, open market operations. These are outright purchases and sales of government securities by the central bank in the open market to influence liquidity and interest rates. They are core quantitative instruments of monetary policy.Step 4: Analyse option D, variable cost reserve ratios. This phrase is not used in standard monetary policy language. The central bank does not talk about cost reserve ratios; instead it changes the cash reserve ratio or statutory liquidity ratio. The incorrect use of the word cost instead of cash shows that this option does not describe a genuine instrument.

Verification / Alternative check:
You can cross check by listing the usual RBI instruments: bank rate, repo rate, reverse repo rate, open market operations, cash reserve ratio, statutory liquidity ratio, marginal standing facility, moral suasion, direct action and credit rationing. None of these is called a cost reserve ratio. Therefore variable cost reserve ratios cannot be an official credit control instrument, confirming that option D is the correct answer to mark as not used.

Why Other Options Are Wrong:
Option A is wrong as an answer because rationing of credit is a textbook example of qualitative credit control. Option B is wrong because direct action is mentioned in many RBI guidelines as a measure taken when banks do not follow instructions. Option C is wrong because open market operations are universally recognised central bank tools.

Common Pitfalls:
Students sometimes skim the options quickly and notice only the words variable and reserve ratio, thinking immediately of the well known cash reserve ratio. This leads them to assume that option D must also be a correct instrument. Careful reading shows that the term cost reserve ratios is unfamiliar and incorrect. In exams, distracting options often mimic real terms with a small but important error, so always read the entire phrase before deciding.

Final Answer:
The expression that does not represent an instrument of credit control used by the RBI is Variable cost reserve ratios.