The Indian Ministry of Cooperation recently introduced Model Bye-Laws aimed at rejuvenating Primary Agricultural Credit Societies (PACS). These Bye-Laws are set of guidelines established by the Ministry to direct the operations and functions of PACS at a grassroots level. This article explains the purpose of these Bye-Laws, the functions of PACS, and the issues they face.
Objective of the Model Bye-Laws
At the core of the Model Bye-Laws is the desire to enhance the financial viability of PACS and broaden their role within rural communities. With these new regulations in place, PACS will be able to expand their business activities into various areas such as dairy, fishery, floriculture, short-term & long-term credit, Fair Price Shops (FPS), community irrigation, and more. The Bye-Laws also seek to make the membership of PACS more inclusive, providing adequate representation for women and Scheduled Castes/Scheduled Tribes.
Understanding Primary Agricultural Credit Societies
PACS are local cooperative credit societies that play the final part in a three-tier cooperative credit structure, which is led by State Cooperative Banks (SCBs) at the state level. These societies work directly with farmers, offering them short-term and medium-term agricultural loans for diverse farming activities. According to a report by the Reserve Bank of India in December 2022, there were approximately 1.02 lakh PACS across the country, with only 47,297 making a profit by the end of March 2021.
Significance of PACS
PACS serve a crucial role within local communities, providing farmers with access to credit for purchasing seeds, fertilizers, and other necessary inputs. As a result, farmers can improve their production and increase their income. The societies are predominately located in rural areas, which means farmers can easily access their services. However, despite their importance, numerous issues plague PACS.
Challenges faced by PACS
Despite reaching approximately 90% of India’s 5.8 lakh villages, PACS coverage is significantly low in some parts of the country, particularly in the north-east. Furthermore, they only cover about 50% of all rural households. One of the most pressing issues faced by PACS is the lack of sufficient resources to meet the short and medium-term credit needs of the rural economy. Also, PACS struggle with large over-dues and Non-Performing Assets (NPAs), which inhibit the circulation of loanable funds, reduce borrowing power, and tarnish their reputation.
The Way Forward
Given their potential as building blocks of an Atmanirbhar village economy, these old institutions deserve a policy push towards more efficiency and financial sustainability. As part of the vision of Atmanirbhar Bharat and Vocal for Local of the Government of India, these societies can play a more substantial role in the future of rural finance. To achieve this, PACS must become more efficient, financially self-sustaining, and accessible to farmers. In addition, a robust regulatory framework must be put in place to ensure effective governance within PACS and cater to the needs of farmers.
To enhance the discussion, certain previous year questions from the UPSC Civil Services Examination on related topics are provided below. There are also explanations provided to offer additional context and clarity on the subject.