Relevance: GS-3: Indian Economy and issues relating to Planning, Mobilisation of Resources, Growth, Development and Employment.
Key Phrases: Model by-laws for PACS, Schedule VII, StCBs, DCCBs;
Context
- The Central Government will bring model by-laws for PACS (Primary Agricultural Cooperative Societies).
- The aim is to make them economically viable by increasing the number of services they provide.
- But, these model by-laws will be dependent on States for their implementation as cooperatives are a subject in the State List (Schedule VII).
Key Highlights of the Article
What are Primary Agricultural Cooperative Societies (PACS)?
- Primary Agricultural Cooperative Societies (PACS) are ground-level credit institutions with a mandate to provide short-term and medium-term agricultural loans.
- Association of Persons - PACS provide equal rights to all its members without considering their share-holding and their social standing.
- There are 4-entities in working with PACS
- The general body of PACS
- This exercises control over the board and management.
- Management Committee
- For managing the work as per the society’s rules, acts and by-laws.
- Chairman, VC and Secretary
- They supervise the work to ensure society works for the benefit of its members.
- Office Staff
- They are responsible for performing day-to-day work.
- The general body of PACS
- 10 or more persons can open PACS.
Evolution and Hierarchy of cooperatives
- PACS originated in 1904.
- The idea of Hermann Schulze and Friedrich Wilhelm Raiffeisen during the economic meltdown to provide easy credit to small businesses and poor sections of the society resulted in cooperative banks.
- The Co-operative Credit Societies Act, 1904 was passed on the recommendations of Sir Frederick Nicholson (1899) and Sir Edward Law (1901).
- A comprehensive legislation was passed in 1912, which continues to be the law under which any cooperative in India is registered.
- PACS are at the bottom level of the hierarchy of cooperatives
which are responsible for short-term lending in India.
- It is preceded by District Central Cooperative Bank.
- At the apex level in the State, there are State Cooperative Bank.
Functions of PACS
- Financial Functions
- They are responsible for the financial inclusion of the rural
population.
- As most of the loans (up to 95%) are availed by small and marginal farmers.
- They provide financial capital for serving the needs of the rural
population.
- 41% (3 Crore Farmers) of the KCC (Kisan Credit Card) loans have been given by PACS.
- They promote savings habits among people.
- They are responsible for the financial inclusion of the rural
population.
- Functions related to Agriculture
- Make arrangements for Agri inputs.
- Provides marketing facilities to facilitate the sale of farm produce at remunerative prices.
- Other Functions
- Running PDS shops.
- Arranging funds for borrowing from State Cooperative Banks and Central Cooperative Banks.
- Running of Janta Bazaar.
Steps taken to improve the PACS ecosystem
- The number of PACS has been planned to be increased.
- From the current 63K to 3L PACS.
- Funds allocated for computerisation of PACS.
- Rs 2516 Crore has been allocated.
- New opportunities created
- 20 new services to be provided by PACS to ensure their financial business doesn’t get affected by the opening of more PACS.
- These include - Bank Mitras and Common Service Centres (CSCs), cold storage, warehouse, fair price shop (under PDS), dairy, fishery, irrigation and biogas among others.
Do you know?
- Bank loans to PACS are considered as direct finance for agricultural purpose under the priority sector lending specified by the Reserve Bank of India.
- Recently the Cabinet Committee on Economic Affairs (CCEA) approved to digitise around 63,000 Primary Agricultural Credit Societies (PACS).
- PACS will be digitised at a cost of RS 2,516 crore, which will benefit about 13 crore small and marginal farmers. Each PACS will get around RS 4 lakh to upgrade its capacity and even old accounting records will be digitised and linked to a cloud based software.
Challenges/ Concerns
- Issues have been reported in opening new PACS even when old ones have been declared defunct.
- No uniformity in PACS computerisation
- Different software is being used for computerisation.
- This defeats the purpose of core banking.
- Organizational Weakness
- Politicisation and favouritism in the appointment of executives of the PACS.
- Inability to recover loans.
- Inadequate resources
- Most of the PACS are dependent on their working on loans from the Central and State Cooperative Banks.
- Lack of regulatory oversight and due diligence before deciding on credit worthiness and credit history of the borrowers
- Increased overdue
- Borrower to member ratio less than 50%.
- Since 2010, the share of non-agricultural loans has increased at the cost of agricultural loans
Way Forward
- Organisational Intervention
- Following the due process in appointing key persons in the society.
- Financial Intervention
- Computerisation along with regular audits will increase transparency and openness, along with Ease of credit availability.
- Liquidating and merging the unviable PACS and allowing new PACS to open up.
- Improving the practice of self-reliance by relying on funds from depositors.
- Stringent provisions for recovering loans from wilful defaulters.
- Computerisation
- Using the same software in a particular State to increase the
benefits of digitisation of the process namely
- Faster loan transmission
- Reduced cost of transaction
- Transparency and openness of the transaction will increase.
- Faster audit and reduction in imbalances in payments and accounting with State. Cooperative Banks and District Central Cooperative Banks.
- Bringing PACS on a common national platform.
- Subjecting PACS to Common Accounting System.
- Using the same software in a particular State to increase the
benefits of digitisation of the process namely
Conclusion
- There is an urgent need to transform the PACS system to rejuvenate the rural economy. Computerisation of PACS on the lines of Computerisation of District Central Co-operative Banks (DCCBs) and State Co operative Banks (StCBs) (by NABARD) is an important step in this regard to achieve transparency, reliability and efficiency.
Source: The Hindu BL
Mains Question
Q. What are PACS? Discuss the challenges being faced by it and the concerns wrt improvement of the PACS ecosystem?