Role of Priority Sector and MSME in the Indian Economy

First call from GoI for stepping up credit to agriculture and small-scale industry — gives birth to the idea of directed lending.

14 major commercial banks nationalised. Gadgil Study Group (Dr. D. R. Gadgil) set up by National Credit Council (NCC) to recommend a priority sector framework — first formal articulation of the term Priority Sector.

The NCC, on the basis of an internal RBI working-group report, formalised the definition of Priority Sector — agriculture, small-scale industry, road & water transport, retail trade, professional services, education and housing initially listed.

RBI prescribed one-third (33⅓%) of total advances as the initial PSL target for public-sector banks, to be reached by March 1979.

Krishnaswamy Committee recommended raising the target to 40% of net bank credit by March 1985 and introduced sub-targets for agriculture and weaker sections.

40% target formally implemented for public-sector banks.

PSL applied to private-sector banks as well, at 40%.

First major revamp of categories — inclusion of renewable energy, social-infrastructure precursors.