The Economic Advisory Council to the Prime Minister (EAC-PM) has released a report analyzing India's Priority Sector Lending (PSL) framework, which mandates that banks allocate at least 40% of their credit to priority sectors. While the PSL has contributed to financial inclusion and reduced rural poverty, the EAC-PM cautions against the indiscriminate expansion of directed credit, as it may not lead to higher economic growth. The report highlights that previous studies have shown positive correlations between PSL and improved firm performance and rural investment. However, it also notes risks such as potential inefficiencies and impacts on bank profitability due to asset defaults. A district-level analysis revealed that increases in Priority Sector Advances (PSA) do not significantly affect output growth. The EAC-PM suggests that instead of a top-down mandate for credit allocation to poorer districts, targeted interventions addressing development constraints may yield better results. Additionally, the report discusses Priority Sector Lending Certificates (PSLCs), which allow banks to trade PSL obligations, helping to manage profitability risks without altering the regional distribution of credit.