CII calls for reforms in priority sector lending to include emerging sectors

The Confederation of Indian Industry (CII) has proposed reforms to India’s priority sector lending (PSL) framework, advocating for the inclusion of emerging and high-impact sectors such as digital infrastructure, green initiatives, healthcare, and innovative manufacturing.

The apex industry chamber has also called for setting up more development finance institutions (DFIs) to cater to new and emerging sectors. In particular, CII has recommended that green initiatives, including green energy projects, electric vehicles, and climate-resilient agriculture, be brought under the PSL framework.

Similarly, for digital infrastructure, funding should be prioritised for sectors like digital technologies, artificial intelligence, and more. In healthcare, funds need to be allocated for innovation.

Chandrajit Banerjee, Director General of CII, said, “Sectors like agriculture have seen their contribution to GDP decline from 30 per cent in the 1990s to about 14 per cent now. Hence, it is time that the PSL framework be reviewed every 3-4 years to align with emerging priorities, and PSL allocations should be in line with GDP contributions and sectoral growth potential.”

PSL is a vital policy tool in India, ensuring that key sectors crucial to the nation’s development receive adequate financial support.

Mandated by the Reserve Bank of India (RBI), PSL requires banks to allocate a specified proportion of their loans to sectors such as agriculture, education, housing, and small industries. The framework ensures the equitable distribution of credit, 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 financial resources are optimally distributed, in harmony with the country’s vision of Viksit Bharat 2047, CII has said.

India’s economy has evolved rapidly over the past few decades, with the focus on employment shifting to newer sectors due to increased education levels in society and higher disposable incomes.

CII has highlighted that current development finance institutions (DFIs) like SIDBI and NABFID have specific roles, as they have earmarked sectors to finance. Therefore, the chamber has suggested setting up a high-level committee to review the Priority Sector Lending norms and explore the need for new DFIs to cater to emerging sectors.

The CII also recommended a transition to outcome-based metrics, where the focus should shift from absolute lending targets to measurable developmental outcomes, ensuring impact-driven credit distribution.