IMPACT OF GROWTH OF PRIORITY SECTOR IN INDIA

IMPACT OF GROWTH OF PRIORITY SECTOR IN INDIA S.Felix Sophia, Ph.D. Research Scholar, Department of Commerce and Financial Studies, Bharathidasan University, Tiruchirappalli-24 INTRODUCTION Priority Sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.. This is essentially meant for an all-round development of the economy as opposed to focusing only on the financial sector. Such sectors are spread across the length and breadth of the country and especially prevalent in the hilly and coastal regions. Priority sector lending needs to be extended by banks as part of their normal business operations and should not be viewed as a corporate social responsibility. Towards this end, pricing of all credit has been made free, though with the expectation that pricing should not be exploitative. LITERATURE REVIEWS P.Veni And AtakeltHailuAsfa examined the effect of bank credit on production growth of MSME and agricultural sectors were carried out by using bank credit and production growth rate even though there are many other influential factor like level of investment, employment, GDP share, income and profitability etc. to study the relationship between the bank credit and growth of priority sector with special reference to MSMEs and agricultural sector were investigated through regression model. Nhung Nguyen used multinomial logistic models to address the first two research question with regards to determinants of SMEs credit accessibility to start their business and operation in Vietnam. The first MLN model indicates that the SMEs network with lenders plays a significant role in determining the access to SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 51

different sources of credit for SMEs start up financing. The source of data was primary data obtained from a survey of 487 SMEs in hanoi in June 2013. Anthony. K. Ahiawodzi and ThomascAdade examined small and medium scale enterprise play an important role in the economic development of both developed and developing nations.. The tools were used for this study is multi regression model. The study used both primary and secondary data, data collected for a specific purpose are known as primary data. The secondary data sources articles, journals, which were relevant to the study.dr. S. KishanRao examined accessing priority sector credit is not easy. As rural India still accounts for about 60% of total employment. The research is based both on primary sources of information and secondary data. The RBI annually publishes about half a dozan data based report. The bulk of the data was processed by using the software MS XL.DADA, Richard Mayowa examined the impact of bank credit on SMEs test indicates the all variables are stationary result difference and the cointegration result revealed 4 co-integrating relation between in variables. And the regression result revealed a positive relation between banks credit to SMEs and SMEs development. The study period of the research is 1980-2010. Sebastian O. Uremadu, Ogechi I. Ani, OkwuchukwuOdili, et al. examined the of banking system credit to small and medium scale enterprises (SMEs) and economic growth in Nigeria using annual data covering 1981-2013 periods. The study employed OLS and co-integration econometric method with the use of sequential modified LR test statistic as lag length selection criteria to conduct its test and analysis. The data presented in global recognition of role of SMEs in industrial and economic development of a nation. ArindamLaha et al. examined the impact of special government policy interventions on the performance of entrepreneurship measured by total number of firm, total output, total employment and the total export from the MSME sector in 35states and union territories of India. Shilpa Rani and DikshaGarg studied the trends of priority sector advances by public, private and foreign banks during 2011-2012 to 2012-2013. This study is based on the parameters like lending to priority sector by public, private and foreign banks as well as on the targets achieved by public, private sectors and foreign banks while lending to SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 52

priority sector. The secondary data collected from RBI trends, report and annual report has been considered for the propose of this study. Seena P. C analysed the agricultural occupies a key position in Indian economy, in the last few years, the Indian economy has emerged as one of the fastest growing economies in the world. To study the management of agricultural credit in India and analyse the measures announced by RBI for increasing the flow of credit to agriculture. To study the comprehensive credit schemes announced by the government of India for doubling credit flow to agriculture. Dr. V. Darling Selvi in her study presented an overview of the performance of priority sector lending by commercial banks. The objective of the study is to highlight the trend of lending by the scheduled commercial banks in India to the priority sector. This study based on the secondary data which is collected from the reports of the RBI. The researcher has applied the statistical tools like percentage analysis, correlation analysis, trend analysis and exponential growth rate to analyse. Najmi Shabbier et al. analysed the breakup of Priority Sector Advances to Subsectors within the overall Priority Sector advances (PSA).The comparative analysis of Agricultural Sector advances and Small Scale Industries advances by SCBs and PSBs from 1969 to 2011 has been carried out to find out that whether Public Banks or Private Banks, who has provided more credit to Priority Sector and whether Banks has achieved their sectoral targets regarding Priority Sector Advances over the period of time or not. JaynalUd-Din Ahmed discussed the priority sector advances of banks at the national level revealed that there are a number of serious issues relating to the PSL which became great concern of the policy makers. The secondary data collected from RBI Report on Currency and Finance, RBI Bulletins, RBI Annual Report, Regional offices of banks and Lead bank office of the study area has been considered for the purpose of the study. The entire study is subjected to statistical techniques like correlation analysis, regression analysis, growth rate analysis, parametric tests etc. AniekanOkonAkpansung discussed about the banking reforms and implication on sectoral credit allocation and economic growth in Nigeria. This paper examines the implications of the reforms on sectoral credit allocations and economic growth, using both analytical and ordinary least squares estimating techniques. SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 53

build up their capacity in term of productivity, innovation, modernization, product expansion and improvement. STATEMENT OF THE PROBLEM Financial system play greater role to mitigate problems of poverty through channelizing financial resources from surplus area to deficit productive area. Financial resource is the key factors of production that must be viewed as preconditions for the development and availability of other physical and human resources. Banking is the one of the oldest and biggest elements of financial system that lie at the heart of the world s financial system. Development of banking system play crucial role not only for stability and soundness of national economy but also for the stability of world financial system. Every economic unit, especially priority sector, has been contributing for this fast socio- economic development. Priority sector are sector that are prioritized and preferred by government as a result of their great share and contribution to GDP and living standard of society. Improving the financial access of priority sector enable to NEED OF THE STUDY The present study investigates the bank credit on growth of priority sectors in India and access the achievement of annual bank credit targets of priority sectors. OBJECTIVES OF THE STUDY The present study was made with the following objectives: To study at accessing credit on one side and its effect on growth of priority sector To study the trends of priority sector lending by public, private and foreign banks To access the achievement of annual bank credit targets of priority sector. HYPOTHESES OF THE STUDY H01: There is no significant difference between annual bank SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 54

credit flow and growth of priority sector. H02: There is no significant correlation between deployment of growth bank credit and growth of priority sector. The study focused only on the Priority Sector, base. The study was based purely on secondary data. All limitations, associated with tools, are applicable to this study also. The study was limited to only six years. METHODOLOGY OF THE STUDY SAMPLE SELECTION There are many priority sector in India, as per the convenient of the researcher has taken only two priority sectors. STUDY PERIOD The study covers a period of 6 years from 1 st April 2010 to 31 st March 2016. SOURCE OF DATA The study mainly depends upon secondary data. The data related to annual production growth rate and annual growth rate of priority sector bank credit are collected form the RBI hand book statistics on Indian economy. Limitations of the study ANALYSIS AND INTERPRETATION [INSERT TABLE 1] Table 1 shows that the agricultural bank credit flow is the independent variables and annual production growth rate of agricultural sector in the analysis and the R Square for growth of agricultural sector is 0.058 which means that about 5.8% of variation in the growth of agricultural sector is explained by growth of bank credit even though there are many factors influencing the production growth of agricultural sector. [INSERT TABLE 2] The results of Analysis of Variance for annual production growth rate of agricultural sector as dependent and annual growth rate of agricultural bank credit flow as independent variables is presented in Table2. The F-Statistic value at SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 55

was found to be 0.245. The p value was 0.646 which is greater than 0.05 at 5% level. Hence the H01: There is no significant between annual bank credit flow and annual production growth rate is accepted. growth of MSME (Manufacturing enterprise) sector is explained by growth of bank credit even though there are many factors influencing the production growth of MSME (Manufacturing enterprise) sector. [INSERT TABLE3] The tabulated Table 3 explains the co-efficients of annual growth rate of agricultural bank credit flow. It is to be noted from the results that p value of none of annual production growth rate of agricultural sector was less than 0.05. Hence it is clear that the annual production growth rate of agricultural sector variables had no impact on annual growth rate of bank credit flow. [INSERT TABLE4] Table 4 shows that the annual growth rate of MSME (Manufacturing enterprise) bank credit flow is the independent variables and annual production growth rate of MSME (Manufacturing enterprise) sector in the analysis and the R Square for growth of MSME (Manufacturing enterprise) is 0.065 which means that about 6.5% of variation in the [INSERT TABLE 5] The results of Analysis of Variance for annual production growth rate of MSME (Manufacturing enterprise) sector as dependent and annual growth rate of MSME (Manufacturing enterprise) bank credit flow as independent variables is presented in Table 5. The F-Statistic value at was found to be 0.276. The p value was 0.627 which is greater than 0.05 at 5% level. Hence the H01: There is no significant between annual bank credit flow and annual production growth rate is accepted. [INSERT TABLE 6] Table 6 explains the coefficients of annual growth rate of MSME(Manufacturing enterprise) bank credit flow. It is to be noted from the results that p value of none of annual production growth rate of MSME (Manufacturing SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 56

enterprise) was less than 0.05. Hence it is clear that the annual production growth rate of MSME (Manufacturing enterprise) sector variables had no impact on annual growth rate of bank credit flow. 8. The F-Statistic value at was found to be 0.266. The p value was 0.633 which is greater than 0.05 at 5% level. Hence the H01: There is no significant between annual bank credit flow and annual production growth rate is accepted. [INSERT TABLE 7] Table 7 shows that the annual growth rate of MSME (Services Enterprise) bank credit flow is the independent variables and annual production growth rate of MSME (Services Enterprise) sector in the analysis and the R Square for growth of agricultural sector is 0.062 which means that about 6.2% of variation in the growth of MSME (Services Enterprise) sector is explained by growth of bank credit even though there are many factors influencing the production growth of MSME (Services Enterprise) sector. [INSERT TABLE 8] The results of Analysis of Variance for annual production growth rate of MSME (Services Enterprise) sector as dependent and annual growth rate of MSME (Services Enterprise) bank credit flow as independent variables is presented in Table [INSERT TABLE 9] Table 9 explains the coefficient of annual growth rate of MSME (Services Enterprise) bank credit flow. It is to be noted from the results that p value of none of annual production growth rate of MSME (Services Enterprise) sector was less than 0.05. Hence it is clear that the annual production growth rate of MSME (Services Enterprise) sector variables had no impact on annual growth rate of bank credit flow. [INSERT TABLE 10] Table 10 shows the results of Correlation for examining the relationship between deployment of growth bank credit and growth of priority sector. It is to be noted that the probability value of Annual growth rate of agricultural sector bank credit flow and Annual production growth rate for agricultural sector was found to be 0.646. It is clear that the p value was greater than SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 57

0.05. Hence H02: There is no significant correlation between deployment of growth bank credit and growth of priority sector is accepted. [INSERT TABLE 11] The results of Correlation for examining the relationship between deployment of growth bank credit for MSME (manufacturing enterprises) sector and growth of MSME (manufacturing enterprises) sector is shown in Table 11. It is to be noted that the probability value of Annual growth rate of MSME (manufacturing enterprises) sector bank credit flow and Annual production growth rate for MSME (manufacturing enterprises) sector was found to be 0.627. It is clear that the p value was greater than 0.05. Hence H02: There is no significant correlation between deployment of growth bank credit and growth of priority sector is accepted. [INSERT TABLE 12] The results of Correlation for examining the relationship between deployment of growth bank credit for MSME (service enterprises) sector and growth of MSME (service enterprises) sector.is shown in Table 12. It is to be noted that the probability value ofannual growth rate of MSME (service enterprises) sector bank credit flow and Annual production growth rate for MSME (service enterprises) sector was found to be 0.633. It is clear that the p value was greater than 0.05. Hence H02: There is no significant correlation between deployment of growth bank credit and growth of priority sector is accepted. FINDINGS The study has been able to examine the impact of credit accessibility and priority sector growth in India. In last six year the credit flow for priority sector was increasing and the annual production also increasing, but there are no significant difference between annual growth rate of priority sector bank credit flow and annual production growth rate of priority sector. The regression result of the agricultural sector variables is annual growth rate of agricultural bank credit flow and annual production growth rate. The R square value is0.058 which means that about 5.8% of variation in the growth of agricultural sector is explained by growth of bank credit even SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 58

though there are many factors influencing the production growth of agricultural sector and the MSME regression result is shows R Square for growth of MSME (Manufacturing enterprise) is 0.065 which means that about 6.5% of variation in the growth of MSME (Manufacturing enterprise) sector is explained by growth of bank credit even though there are many factors influencing the production growth of MSME (Manufacturing enterprise) sectorand the R Square for growth of agricultural sector is 0.062 which means that about 6.2% of variation in the growth of MSME (Services Enterprise) sector is explained by growth of bank credit even though there are many factors influencing the production growth of MSME (Services Enterprise) sector. SUGGESTION Compared with previous studies the priority sector growth has not been up to the mark as of from the 2009 to 2016. Hence there is need for more attention to the micro units to help them grow in a concrete manner. The units mostly belong to traditional type of activities which are labour intensive. Hence these entrepreneurs need proper training to promote their production and marketing strategies in the modern world. Conclusion The study is investigates the impact of bank credit flow and the production of the priority sectors in India using the regression and correlation. Annual data was taken by RBI hank book statistics of Indian economy and year between 2010 to 2016. The contribution of bank credit flow on priority sector production are positively significant and play vital role in the process of socio economic developmental process. Annual growth rate of bank credit has strong positive correlation with the agricultural sector production growth rate of MSME while annual growth rate of agricultural production shows weak positive correlation. The regression result between annual growth rate of MSME s production and bank credit. Annual growth rate of agricultural sector production has weak relationship with annual growth rate of bank credit. SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 59

Table 1: Table showing Model Summary of Regression Result for the AGR of Agricultural Bank Credit Flow and APGR of Agricultural Sector. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1.240 a.058 -.178 6.8493859 a. Predictors: (Constant), annual growth rate of agricultural bank credit flow b. Dependent Variable: annual production growth rate of agricultural sector Table 2: Table showing ANOVA Result for the AGR of Agricultural Bank Credit Flow and APGR of Agricultural Sector. Table 3: Table showing Co-efficient Result for the AGR of Agricultural Bank Credit Flow and APGR of Agricultural Sector. ANOVA b Model Sum of Squares Df Mean Square F Sig. 1 Regression 11.516 1 11.516.245.646 a Residual 187.656 4 46.914 Total 199.172 5 a. Predictors: (Constant), annual growth rate of agricultural bank credit flow b. Dependent Variable: annual production growth rate of agricultural stor SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 60

Coefficients a Model Unstandardized Coefficients Standardized Coefficients T Sig. B Std. Error Beta 1 (Constant) 8.541 9.726.878.429 annual growth rate of agricultural bank credit flow.315.636.240.495.646 a. Dependent Variable: annual production growth rate of agricultural sector Table 4: Table showing Model Summary of Regression Result for the AGR of MSME (manufacturing enterprises) Bank Credit Flow and APGR of MSME (manufacturing enterprises) Sector. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1.254 a.065 -.169 11.9099828 a. Predictors: (Constant), V2 Source: RBI - hand book statistics on Indian economy Table 5: Table showing ANOVA Result for the AGR of MSME (manufacturing enterprises) Bank Credit Flow and APGR of MSME (manufacturing enterprises) Sector. ANOVA b Model Sum of Squares df Mean Square F Sig. 1 Regression 39.159 1 39.159.276.627 a Residual 567.391 4 141.848 SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 61

Total 606.550 5 a. Predictors: (Constant), annual growth rate of MSME (Manufacturing Enterprise) bank credit flow b. Dependent Variable: annual production growth rate of MSME (Manufacturing Enterprise) sector Table 6: Table showing Co-efficient Result for the AGR of MSME (manufacturing enterprises) Bank Credit Flow and APGR of MSME (manufacturing enterprises) Sector. Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 21.259 10.607 2.004.116 annual growth rate of MSME (Manufacturing Enterprise) bank credit flow -.337.640 -.254 -.525.627 a. Dependent Variable: annual production growth rate of MSME (Manufacturing Enterprise) sector SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 62

Table 7: Table showing Model Summary of Regression Result for the AGR of MSME (Service Enterprises) Bank Credit Flow and APGR of MSME (Service Enterprises) Sector. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1.250 a.062 -.172 5.6419571 a. Predictors: (Constant), annual growth rate of MSME (Services Enterprise) bank credit flow Table 8: Table showing ANOVA Result for the AGR of MSME (Service Enterprises) Bank Credit Flow and APGR of MSME (Service Enterprises) Sector. ANOVA b Model Sum of Squares Df Mean Square F Sig. 1 Regression 8.455 1 8.455.266.633 a Residual 127.327 4 31.832 Total 135.781 5 a. Predictors: (Constant), annual growth rate of MSME (Services Enterprise) bank credit flow b. Dependent Variable: annual production growth rate of MSME (Services Enterprise) sector SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 63

Table 9: Table showing Co-efficient Result for the AGR of MSME (Service Enterprises) Bank Credit Flow and APGR of MSME (Service Enterprises) Sector. Co-efficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 11.279 4.918 2.294.084 annual growth rate of MSME (Services Enterprise) bank credit flow.109.211.250.515.633 a. Dependent Variable: annual production growth rate of MSME (Services Enterprise) sector Table: 10 Table showing Correlation Result for the AGR of Agricultural Bank Credit Flow and APGR of Agricultural Sector. Correlations Annual growth rate of agricultural sector bank credit flow Annual production growth rate for agricultural sector Annual growth rate of agricultural sector bank credit flow Pearson Correlation 1.240 Sig. (2-tailed).646 N 6 6 Annual production growth rate for agricultural sector Pearson Correlation.240 1 Sig. (2-tailed).646 N 6 6 SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 64

Table 11: Table showing Correlation Result for the AGR of MSME (manufacturing enterprises) Bank Credit Flow and APGR of MSME (manufacturing enterprises) Sector. Correlations Annual growth rate of MSME (manufacturing enterprises) bank credit flow Annual production growth rate for MSME (manufacturing enterprises) sector Annual growth rate of MSME (manufacturing enterprises) bank credit flow Annual production growth rate for MSME (manufacturing enterprises) sector Pearson Correlation 1 -.254 Sig. (2-tailed).627 N 6 6 Pearson Correlation -.254 1 Sig. (2-tailed).627 N 6 6 Table 12 Correlation Result for the AGR of MSME (Service Enterprises) Bank Credit Flow and APGR of MSME (Service Enterprises) Sector. Correlations Annual growth rate of MSME (services enterprises) bank credit flow Annual production growth rate for MSME (services enterprises) sector Annual growth rate of MSME (services enterprises) bank credit flow Pearson Correlation 1.250 Sig. (2-tailed).633 N 6 6 Annual production growth rate for MSME (services enterprises) sector Pearson Correlation.250 1 Sig. (2-tailed).633 N 6 6 SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 65

Source: RBI - hand book statistics on Indian economy Bibliography I. ARTICLES 1. P.VeniAndAtakeltHailuAsfaw (2014) Effect of Bank Credit on the Growth of Indian Priority Sector. Elsevier vol.67 No.2. 2. Nhung Nguyen Credit Accessibility and Small and Medium Sized Enterprise Growth in Vietnam. http:www//nguyen-mcm.com. 3. Anthony. K. Ahiawodzi and ThomascAdade Access to Credit and Growth of Small and Medium Scale Enterprises in the Ho Municipality Of Ghana British Journal of Economics, Finance and Management Sciences Vol. 6 (2). 4. Dr. S. KishanRao Priority Sector Credit Across States and Banks: Issues of Inclusiveness Equity across Regions and Impact Assessment in A.P www.sciencedirect.com. 5. DADA, Richard Mayowa(2014) Commercial Banks Credit and SMEs Development in Nigeria: An Empirical Review International Journal of Research (IJR) Vol-1 Issue-8. 6. Sebastian O. Uremadu, Ogechi I. Ani, OkwuchukwuOdili, et al. (2014) Banking system credit to small and medium scale enterprises (SMEs) and economic growth in Nigeria IOSR Journal of Economics and Finance (IOSR-JEF) Volume 5 Issue 6. 7. ArindamLaha et al. (2014) Access to Credit to Micro, Small, And Medium Enterprise and Its Determinants in India: An Inter State Analysis Vidyasagar University Journal of Commerce Vol. 19. 8. Shilpa Rani and DikshaGarg (2015) Priority Sector Lending: Trends, Issues and Strategies International Journal of Management and Social Sciences Research Volume 4 No. 1. 9. Seena P. C (2015) Management of Agricultural Credit and the Impact of Indian Banking Sector Reforms on Agriculture International Review of Research in Emerging Markets and the Global Economy (IRREM) An Online International Research Journal Vol: 1 Issue 3. SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 66

10. Dr. V. Darling Selvi Lending to Priority Sector: A Scenario from Indian Scheduled Commercial Banks EPRA international journal of economic and business review vol.2 No.7. Allocation and Economic Growth International Journal of Business and Social Science Vol. 5 No. 13 December 2014 11. Najmi Shabbier et al. (2013) Sector Wise Priority Sector Advances In India International Journal of Research In Social Sciences Vol. 3 No.2. 12. JaynalUd-Din Ahmed (2010) Priority Sector Lending By Commercial Banks in India: A Case of Barak Valley Asian Journal of Finance & Accounting Vol. 2 No.1. 13. AssefaAdmassie A Review of the Performance of Agricultural Finance in Ethiopia: Pre-and Post-Reform Periods www.sciencedirect.com II. WEBSITES 1. www.ssrn.com 2. www.googleschola r.com 3. www.jstor.com 4. www.sciencedirect.com 5. www.rbiorg.in 6. www.google.com 14. Ismaila2 Mohammed et al. Commercial Bank Credit Accessibility and Sectoral Output Performance in a Deregulated Financial Market Economy: Empirical Evidence from Nigeria Journal of Finance and Bank Management Vol. 1 No. 2 December 2013. 15. AniekanOkonAkpansung Recent Banking Reforms in Nigeria: Implications on Sectoral Credit SAMZODHANA A Journal of Management Research Vol 6(1), 2016,April 67