New Delhi: India Inc on Sunday urged the government to implement industry-friendly reforms, proposing India's priority sector lending framework and advocating for the inclusion of emerging and high-impact sectors such as digital infrastructure, green initiatives, healthcare and innovative manufacturing. It has also called for setting up more development finance institutions (DFIs) to cater to new and emerging sectors as well.
“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,” said leading industry body Confederation of Indian Industry (CII).
The CII also said 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 here today.
Arguing that current development finance institutions or DFIs like SIDBI and National Bank for Financing Infrastructure and Development have their roles cut out as they have earmarked sectors to finance. “Setting up a high-level committee to look at the revision of PSL norms and explore the need for any new DFIs to cater to some of the new and emerging sectors,” it suggested.
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 per cent. “Similarly, sectors like infrastructure and innovative manufacturing lack adequate PSL focus despite their potential to drive economic growth. We could look at inclusion of emerging and high-impact sectors, including digital infrastructure, green initiatives, healthcare, and innovative manufacturing,” the industry chamber said.
In a statement, the CII also said that in view of Chandrajit Banerjee, 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 the 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,” it said.