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It is also true that with the release of larger lendable resources of banks
by reducing cash reserve ratio (CRR) and statutory liquidity ratio (SLR) after
reforms over time, the quantum of credit available for the ‘priority sector’
has gone up. Similarly, the absorptive capacities of the informal sectors like
agriculture (as measured by their contribution to GDP, for instance) may have
been eroded. However, both these questions do not justify any reduction in
the intended allocation of 40% of bank credit, or 18% thereof for agriculture
and 22% for non-farm informal sectors, as “priority sector” credit. An internal
RBI Working Group on Priority Sector Lending (Chairman: C.S. Murthy,
September 2005) has clearly spelt out that the rationale for having priority
sector prescriptions continues to remain valid:
“Even after 36 years of priority sector lending prescriptions, it is
observed that certain important sectors in the economy continue to suffer
from inadequate credit flow. Even though the current share of agriculture
and allied activities in India’s GDP at 22% is less than half of what it was
three decades ago, the agriculture sector continues to be the single largest
occupation as it still provides livelihood to about two-thirds of the population.
Moreover, the production base continues to comprise predominantly small and
marginal farmers. It also contributes about 14.7% of the export earnings and
provides raw material to a large number of industries. Similarly, the SSI sector
occupies a unique position in the Indian economy. In terms of employment
generated, this sector is next only to agriculture sector. It has a share of over
40% of the gross industrial value added in the economy. About 50% of the total
manufactured exports of the country are directly accounted for by this sector.
The policy thrust to this sector has been consistent with multiple objectives
of employment generation, regional dispersal of industries and a seedbed for
entrepreneurship. A few other segments also impact a large number of small
borrowers. However, credit deployment to these sectors of the economy has
not been to the desired extent.
As such, the need for having priority sector
prescriptions continues to exist
” (RBI’s
Internal Working Group on Priority
Sector Lending
, September 2005, Section 6.2, Emphasis is as in the original).
Except for the above recommendation, the Murthy Working Group has
not proposed any significant change in the composition of different items in
the priority sector, thus perpetuating the system of allowing relatively large-
size loans and loans not for vulnerable sections as part of the ‘priority sector’.
For instance, by no stretch of imagination can the retail traders with
`
10 lakh
credit limit or medical practitioners or self-employed professionals with credit
limits of
`
15 lakh or individuals constructing houses with loans up to
`
15 lakh,
be considered as non-bankable without the clutches of RBI directed credit
programmes. The RBI had issued fresh guidelines on ‘priority sector’ targets of
