Centre to soon share model by-laws for Primary Agricultural Cooperative Societies (PACS) : Daily Current Affairs

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;


  • 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.
  • 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.
  • 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.


  • 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?