Priority Sector Lending (PSL) in India aims to ensure that key sectors like agriculture, small businesses, and weaker sections receive adequate credit. Despite its challenges, PSL remains a crucial policy tool. Banks often struggle with high non-performing assets (NPAs) in priority sectors, leading to cautious lending. Additionally, PSL targets are sometimes met through indirect means, like purchasing priority sector lending certificates, rather than direct lending, which dilutes its impact.

However, PSL’s utility cannot be overlooked. It fosters financial inclusion, ensuring underserved sectors receive necessary funds. This support helps drive rural development, promote small businesses, and uplift weaker sections, contributing to overall economic growth. By mandating a portion of bank lending to these sectors, PSL aims to balance credit distribution and support equitable development. Addressing the implementation challenges can enhance PSL’s effectiveness as a policy instrument.