New Delhi [India], December 22 : As part of its budget demands, the Confederation of Indian Industry (CII) has proposed reforms in India's Priority Sector Lending (PSL) framework and has asked for more Development Finance Institutions (DFI), the industry body stated on Sunday.
The Priority Sector Lending (PSL) is a vital policy tool in India, aimed at ensuring that key sectors crucial to the nation's development receive adequate financial support.
Mandated by the Reserve Bank of India (RBI), PSL obligates banks to allocate a specified proportion of their loans to sectors such as agriculture, education, housing, and small industries. The framework ensures equitable credit distribution, contributing to the socio-economic growth of underserved areas.
Despite its massive success, the PSL framework requires regular recalibration to remain relevant. This recalibration is essential to ensure that the financial resources are optimally distributed, in harmony with our vision of Viksit Bharat 2047, CII said in its release.
For instance, while agriculture contributes 14 percent of the GDP today, its PSL allocation remains at 18 per cent, unchanged from when its GDP share exceeded 30 percent.
Similarly, sectors like infrastructure and innovative manufacturing lack adequate PSL focus despite their potential to drive economic growth, CII has pointed out.
India's economy has evolved rapidly over the past few decades, with employment focus shifting to newer sectors because of increased education levels in the society and higher disposable incomes.
In view of above, Chandrajit Banerjee said, "Sectors like agriculture have reduced contribution to GDP from 30 per cent in 1990s to about 14 per cent now. Hence, it is time that Priority Sector Lending (PSL) framework be reviewed every 3-4 years to align based on emerging priorities and PSL allocations should be in line with GDP contributions and sectoral growth potential. For instance, we could look at inclusion of Emerging and High-Impact Sectors, including digital infrastructure, green initiatives, healthcare, and innovative manufacturing."
CII has recommended expanding the scope of Priority Sector Lending (PSL) to include key sectors such as green initiatives, digital infrastructure, and healthcare. This includes funding for green energy projects, electric vehicles, and climate-resilient agriculture to support environmental sustainability.
The industry body has advocated for prioritising investments in digital technologies like artificial intelligence to boost technological growth. Additionally, it has asked for allocating funds towards healthcare innovation to enhance the sector's capabilities and ensure better access to healthcare solutions.
CII has further pointed out that besides the above sectors, Infrastructure and manufacturing are poised to make substantial contributions to India's economic growth.
The current Development Finance Institutions like SIDBI and NABFID have their roles cut out as they have earmarked sectors to finance. Therefore, CII has suggested setting up of a high level committee to look at the revision of Priority Sector Lending norms and also explore the need for any new DFIs to cater to some of the new and emerging sectors.
The CII recommendation is that of transition to Outcome-Based Metrics, where the focus needs to shift from absolute lending targets to measurable developmental outcomes, ensuring impact-driven credit distribution.