Budget 2025: CII calls for priority sector lending reforms and outcome-based credit

Ahead of the Union Budget 2025, the Confederation of Indian Industry (CII) has called for a comprehensive overhaul of India's Priority Sector Lending (PSL) framework to better align with the nation's evolving economic priorities.

CII’s Recommendations:

Revise PSL Norms: CII suggests that PSL norms should be revised every 3-4 years to reflect changing economic dynamics. This would ensure that emerging sectors like digital infrastructure, green energy, healthcare, and innovative manufacturing receive the necessary credit support.

Align with GDP Contributions: Despite agriculture's contribution to GDP declining from 30% in the 1990s to 14% today, its PSL allocation remains static at 18%. CII argues for a realignment of PSL allocations to match the sectoral contributions to GDP, ensuring that sectors crucial for long-term growth are adequately supported.

Expand PSL Scope:

Green Initiatives: Renewable energy, electric vehicles, and climate-resilient agriculture.

Digital Infrastructure: Artificial intelligence, broadband networks, and advanced technologies.

Healthcare: Innovation and accessibility in medical services.

Support for Infrastructure and Manufacturing: CII emphasizes the need for stronger support for infrastructure and advanced manufacturing, which are vital for driving India’s growth.

Establish a High-Level Committee: To periodically review PSL norms and assess the need for new Development Finance Institutions beyond SIDBI and NABFID.

Transition to Outcome-Based Credit: CII advocates for a shift from lending targets to measurable developmental outcomes. This approach would focus on the socio-economic impact of loans, ensuring tangible benefits from credit distribution.

CII's recommendations aim to modernize the PSL framework to better support sectors that are pivotal for India’s future growth, making credit distribution more aligned with current economic needs and emerging priorities.