CII calls for reforms in priority sector lending framework ahead of Budget

The Confederation of Indian Industry (CII) has proposed significant reforms to India’s priority sector lending (PSL) framework and suggested the inclusion of emerging and high-growth sectors like green initiatives and digital infrastructure to make it more aligned with the country’s long-term developmental goals and evolving economic priorities.

 

The apex industry body has also called for the creation of a high-level committee to review PSL norms while pitching for setting up more Development Finance Institutions (DFIs) to support emerging sectors.

 

PSL, a key policy tool mandated by the Reserve Bank of India (RBI), ensures banks allocate a portion of their loans to crucial sectors such as agriculture, education, housing, and small industries. This mechanism has been instrumental in ensuring equitable credit distribution and fostering socio-economic development across underserved regions.

 

The CII pointed out that despite being successful, the PSL framework required recalibration to stay relevant.

 

“To achieve the vision of Viksit Bharat 2047, it is imperative that the PSL framework be reviewed and updated every 3-4 years,” said Chandrajit Banerjee, director general of CII.

 

Noting that the PSL allocations should reflect the changing contributions of sectors to India’s GDP and their growth potential, he asserted that while agriculture’s share of GDP has dropped from 30 per cent in the 1990s to about 14 per cent, its PSL allocation remains unchanged at 18 per cent.

 

The CII has recommended the inclusion of emerging sectors in the PSL framework to ensure sustainable growth. These sectors include green initiatives, digital infrastructure, increased focus on sectors like digital technologies and artificial intelligence, and healthcare.

 

The industry body also highlighted the need for greater focus on infrastructure and innovative manufacturing expected to play a pivotal role in driving India’s future economic growth. The CII also recommended transitioning to outcome-based metrics in credit distribution, shifting the focus from rigid lending targets to measurable developmental outcomes, ensuring that credit allocation leads to tangible, impact-driven results.

 

“The evolving economic landscape necessitates a shift towards a more dynamic and responsive PSL framework that supports high-growth sectors crucial to India’s future,” Banerjee added.

 

The CII’s proposals aim to ensure that India’s credit distribution is more aligned with its long-term developmental goals, enhancing the impact of financial resources in driving the nation’s progress. The proposals came ahead of Union Budget 2025-26, likely to be tabled in Parliament on February 1.