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).

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.

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.

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.

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.

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.

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

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?