Relevance: GS-3: Indian Economy and issues relating to Planning, Mobilisation of Resources, Growth, Development and Employment.

Key Phrases: Primary Agricultural Cooperative Societies, Medium-term agricultural loans, Kisan Credit Card, Inadequate resources, Limited Coverage, Draft bye-laws, Subsidiary organisations, Cooperative Act, Transparency, Direct Benefit Transfer.

Why in News?

• The Central Government brought amodel by-laws for PACS (Primary Agricultural Cooperative Societies) to have uniform laws for PACS across the country.
• The Primary Agricultural Cooperative Societies (PACS), are set to get transformed with a different name and have a CEO to undertake infrastructure development, building and managing community centres, hospital or educational institutions, and dealership in petrol or diesel, if States agree to accept the draft bye-laws prepared by the Centre.

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.
• The first Primary Agricultural Credit Society (PACS) was formed in the year 1904.
• There are 4-entities in working with PACS
  • 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.
• 10 or more persons can open PACS.

Functions of PACS:

• To provide short and medium-term purpose loans to its members.
• To provide financial capital for serving the needs of the rural population. For ex. 41% (3 Crore Farmers) of the KCC (Kisan Credit Card) loans have been given by PACS.
• Borrowing an adequate amount of funds from Central financial agencies in order to help its members in a timely manner.
• To promote savings habits among its members.
• To make the arrangement of supplying of the agricultural inputs is another function of the PACS. Example of the inputs for agricultural purpose includes seeds, fertilizers, insecticides, etc.
• To helps its members by providing marketing facilities that could enhance the sale of their agricultural products in the market at the proper prices

Challenges with the PACS:

• Inadequate resources:
  • Most of the PACS are dependent on their working on loans from the Central and State Cooperative Banks.
  • The concept of mutuality (with savings and credit functions going together), that provided strength to cooperatives the world over, was not established strongly in India, with higher greater focus being given to borrowing and lending.
• Organisational Weakness:
  • Many committees have pointed out various issues plaguing the cooperative system such as;
    • lack of active participation by the members
    • lack of professionalism
    • absence of corporate governance
    • politicisation
    • bureaucratisation
    • ageing and unenthusiastic employees.
• Limited Coverage:
  • With smaller share of 11 per cent of total agricultural credit, cooperatives are covering 19 per cent of farmers (2.60 crore accounts), reflecting the coverage of small and marginal farmers.
• Increased Overdues:
  • A Large number of over-dues have become a big problem for the PACS.

Draft bye-laws Proposals:

• As per the draft bye-laws proposals Chief Executive Officer should possess the necessary educational qualifications, experience, and training as decided in the Staff Service Rules of Society by the Board of Directors.
• The Centre has proposed the PACS may promote subsidiary organisations, such as Farmer Producers Organisation (FPO) with 100 per cent funding from the society for the furtherance of its stated objectives.
• The Centre’s proposals brings enrollment of members under two classes—A and B.
  • A class members (shareholders) will have voting rights and claims over dividends
  • B-class (nominal members) will not get voting rights or contest for Board of Governors.
• The Centre’s proposals allow PACS to provide their members with timely and adequate short-term and medium-term credit for the development of backward and forward activities related to agriculture and its products.
• For disbursing long-term loans, PACS should get prior approval from the concerned District Cooperative Bank (DCCB).
• The draft bye-laws prescribes the society to borrow from banks and financial institutions to meet its financial requirements. The maximum outstanding borrowings received shall not at any time exceed 25 times of the paid up share capital and reserves.
• The PACS shall accept deposits from its members only and the interest rate of deposits and loans shall be fixed by the Board of Directors.
• As part of maintaining financial discipline, the draft says PACS “shall appropriate 25 per cent of net profit every year towards its Reserves and Surplus Fund or as per provisions of the Local Cooperative Act.

Importance of Draft bye-laws:

• These Draft Model Bye-Laws contain various provisions for bringing professionalism, transparency and accountability in their operation. like
  • Identification of regulatory
  • Elimination policy & operational barriers
  • Ease of doing business
  • Reforms for strengthening governance
  • Promoting new and social cooperatives
  • Revitalising defunct ones
  • Making cooperatives vibrant economic entities
  • Cooperation among cooperatives
  • Increasing membership of cooperatives.
• It further help them in their digitalisation and end-to-end automation of their businesses.
• It will bring transparency and enhance trustworthiness in the working of PACS and will also help them become nodal service delivery point for Interest Subvention Scheme (ISS), PMFBY, Direct Benefit Transfer (DBT) for various services and provision of inputs like fertilizers, seeds etc.
• It will create enabling environment for PACS to become vibrant multipurpose business entities.

Way forward:

• These Draft Model Bye-Laws will 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 (by NABARD) is an important step in this regard to achieve transparency, reliability and efficiency.

Source: The Hindu BL

Mains Question:

Q. Discuss the importance of Primary Agricultural Credit Society to provide boost to rural economy.