Delhi Delhi: The Confederation of Indian Industry (CII) has proposed reforms in India's Priority Sector Lending (PSL) framework as part of its Budget demands and sought more development finance institutions (DFIs), the industry body said on Sunday. Priority Sector Lending (PSL) is an important policy instrument in India, which aims to ensure that key sectors important for the development of the country receive adequate financial support. Mandated by the Reserve Bank of India (RBI), PSL obliges banks to allocate a specified proportion of their loans to sectors such as agriculture, education, housing and small industries. This framework ensures equitable credit distribution, which contributes to the socio-economic development of disadvantaged areas. Despite its great success, the PSL framework needs regular recalibration to remain relevant.
CII said in its release that this realignment is necessary to ensure that financial resources are optimally distributed in line with our vision of Developed India 2047. For example, today agriculture contributes 14 per cent to GDP, but its PSL allocation remains at 18 per cent, unchanged from when its GDP share was more than 30 per cent. Similarly, CII points out that areas such as infrastructure and innovative manufacturing lack adequate PSL focus despite their potential to drive economic growth. India's economy has grown rapidly over the past few decades, with the focus of employment shifting to new sectors due to increased education levels and higher disposable income in the society.
In view of the above, Chandrajit Banerjee said, “Sectors like agriculture have reduced their contribution to GDP from 30 per cent in the 1990s to about 14 per cent now. Therefore, it is time for the priority sectors to align based on the emerging priorities. The loan (PSL) framework should be reviewed every 3-4 years and the PSL allocation should be commensurate with GDP contribution and regional development potential. “Can consider including emerging and high-impact sectors including 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 prioritizing investment in digital technologies such as artificial intelligence to boost technological growth. Additionally, it has called for allocating funds for healthcare innovation to enhance the capabilities of the sector and ensure better access to healthcare solutions.
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