Primary Agricultural Credit Societies (PACS)- Explained Pointwise

The Government of India (GOI) has been placing its emphasis on the cooperative sector, particularly on the Primary Agricultural Credit Societies (PACS) for the rejuvenation of Indian Agricultural Sector. GOI, has crafted a central role for PACS, in the execution of the world’s largest grain storage infrastructure project of 700 lakh metric tons.

Govt has also started the process of modernisation of PACS by allocating Rs 2,516 crore for digitization of 63,000 Primary Agricultural Credit Societies (PACS) over the next five years. The formation of Ministry of Cooperation is indicative of the priority of government, on the cooperative sector in India.

What are Primary Agricultural Credit Societies (PACS)?

PACS- PACS are the cooperative credit societies at the Village level. They are the last link, at the village level, in the rural cooperative banking structure in India.

Structure of Cooperative Banking in India

Functioning of PACS- PACs provide short-term, and medium-term agricultural loans to the farmers. Credit from the State Cooperative Banks (StCBs) is transferred to the District Central Cooperative Banks (DCCBs). DCCBs provide credit extension to the farmers through PACS.

What are the advantages of Primary Agricultural Credit Societies (PACS)?

1. Extension of Credit to Agriculture- PACS have the capacity to extend agricultural credit with minimal paperwork within a short time. For ex- The Kisan Credit Card (KCC) scheme, launched by the government to provide short term agricultural credit, is also facilitated through PACS.

2. Solving Farmer’s Problems through group/collective strength- PACS play a colossal role during times of strife like droughts, agricultural distress for the small and marginal farmers, by extending them credit and group support.

3. Grassroot presence facilitating Financial Inclusion- As per RBI report, there are 1.02 lakh PACS at the grassroot level (March 2021). PACS offer the last mile connectivity and promote financial inclusion. For ex- Social security schemes like Atal Pension Yojna (APY), Pradhanmantri Suraksha Bima Yojna (PMSBY) are extended through PACS.

4. Agricultural Marketing- PACS also assist farmers in the marketing of their agricultural produce and provides support in finding better markets. Thus, these help in improving farmers’ income and reducing dependency on middlemen. For ex- In Kerala, PACS play an active role in marketing cash crops like rubber and spices.

5. Training and Capacity Building- PACS also conduct the training programs on modern agricultural practices and organic farming for small and marginal farmers.

What are the challenges?

1. Inadequate geographical Coverage and representation- PACS are largely concentrated in the western parts of the country. There are numerous exclusions in the membership of PACS. For ex- Lack of adequate women and marginalised community members.

2. Inadequate Financial Resources- Primary Agricultural Credit societies have low deposit mobilization, and they are largely dependent upon the devolution from higher financing agencies like District Central Cooperative Banks and State Cooperative Banks.

3. High Losses due to overdues and NPAs- As per RBI report, out of ~1 lakh PACS, only 47,297 are in profit. Large over-dues and NPAs have hit PACS profitability. According to the RBI report, PACS have NPAs of Rs 72,550 cr out of the total lending of Rs 1,43,044 cr.

4. Politicisation of PACS- PACS as a credit institution has been politicised with the election of dominant local politicians as the chairperson of PACS. There is a partisan basis of awarding loans.

5. Governance Challenge- PACS are not under RBI control and the provisions of Banking Regulation Act 1949 does not apply to them. Further, the small size and scattered nature of these cooperative societies, makes their governance and regulation, a challenge for the regulators.

6. Infrastructural Challenges- These cooperative societies face logistical challenges like substandard softwares and substandard booking keeping systems, which has made them susceptible to frauds.

What are the Govt schemes for PACS in India?

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What should be the way Forward?

1. Bringing PACS under RBI- Efforts must be made towards extension of the provisions of Banking Regulations Act 1949 to PACS, for their effective regulation and decreasing their NPAs.

2. Cooperative Federation for regular audits- A cooperative federation must be formed to conduct regular comprehensive audits of these cooperative societies.

3. Upgradation of infrastructure- The provisions must be made for a common, standardized software, standardized bookkeeping systems. These must be linked to a central database for proper financial monitoring using artificial intelligence and pattern recognition.

4. Removal of political influence- There is a need to promote democratization of PACS elections by reducing the influence of local politicians and increasing the representation of women and marginalised groups as chairpersons.