Priority Sector

The Commercial Banking System in India Consists of Public Sector Scheduled Banks and Private Sector Scheduled as well as non-Scheduled Banks. Prior to Nationalisation, in the absence of any social control, these banks mainly catered to the credit needs of big-business houses, ignoring the sectors like agriculture and small business which are essential from the perspective of balanced economic growth of the country as well as the attainment of social justice. These sectors are collectively known as the "Priority Sector” As finance is one of the most important inputs effecting the growth of any sector, its shortage tends to have a detrimental impact on economic growth. Due to its significance, the concept of Priority Sector Lending was initiated by Government of India in 1969 in which the public sector, the private sector and the foreign banks were expected to participate effectively.

Hypotheses

H_1: Advances to the targeted sectors are playing a positive and significant role in the development of the respective sector.

Ho: Advances to the targeted sectors have no positive impact on the development of the respective sectors                       

MULTIPLE REGRESSION MODEL: 1

NSDP_A = a + b_oPSA_A  + µ_O...................... Model I a

NSDP_S = a₁ + b₁ PSA_S  + µ₁...................... Model I b

NSDP_T= a₂ +b₂ PSA_O + µ₂………………………  Model I c

NSDP_{A, S, T} :   Net State Domestic Product from Agriculture, Secondary Sector and Tertiary Sector

PSA _{A, S, O}  : Priority Sector Advances to Agriculture, Small Scale industries and other Priority Sectors              

However the data limitation of the present study is that the sectoral NSDP is available only for the broad primary, secondary and the tertiary sectors. Whereas the PSAs are available for agriculture, SSIs and OPSs. In case of agricultural sector, both the independent and dependent variable are compatible, whereas for the other two sectors, they are not.

However the SSI sector is a very important constituent of the secondary sector. The SSIs form approximately 67 percent of the total industrial sector in the country, and therefore, it was thought that the results will not be affected to a large extent by this data discrepancy. The constituent of OPS are to a large extent a part of services sector. But there are some sectors which are not part of it, but these sectors are relatively small in number, and therefore, we can consider OPSs to be same as the advances to the services sector.

Table 1: Role of PSAs in Growth of Real Sectors.

Note: Figures in Parentheses shows the p values (level of significance).

Source: Based on data placed in Appendix Table 1.1, 1.2, 1.3

The results based on Model I are placed in Table 1. As can be observed from this table the agricultural sector advances are playing a positive and significant role in the development of the agricultural sector. The SSI sector advances are having a significant role in the development of the industrial sector. However, in Table 1, at the first selected point of time, no significant relationship is found between the advances to OPS and the development of the services sector. However at the last selected point of time i.e.  2011-12, the OPS advances are playing a positive and significant role in the development of the services sector economy. This is but obvious, as the services sector has gained prominence in recent years only. Its share in total NSDP has increased and occupies the first position among all the three sectors. As a result of this phenomenal growth and high productivity, this sector has attracted banks to increase their lending to this sector as the chances of loans going bad is less as compared to agriculture and SSIs.

The impact of priority sector advances on the targeted sectors is positive. The agricultural sector advances are playing a positive and significant role in the development of the agricultural sector. The SSI sector advances are having a significant role in the development of the industrial sector and at the last selected point of time i.e.  2011-12, the OPS advances are playing a positive and significant role in the development of the services sector economy.  Hence alternative hypotheses H1 is accepted and null hypotheses Ho is rejected.