Page 172 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes Most of the PACS are dependent on the finance provided by central cooperative banks (CCBs). In
case the CCBs are weak, the PACS are starved of finance which affects the credit functions of PACS.
As at the end of March 2006, the loans and advances outstanding for PACS were about ` 51,780
crores.
Financial Strength of PACS : To make all primary agricultural societies viable and ensure adequate
and timely flow of co-operative credit to the rural areas the Reserve Bank of India, in collaboration
with State Governments, had been taking a series of steps to strengthen PACS and to correct regional
imbalances in co-operative development. Steps were taken to reorganize viable PACS and for
amalgamation of non-viable societies with farmers’ service societies or large sized multipurpose
societies. These efforts are being intensified by providing larger funds to weak societies to write off
their losses, bad debts and overdues. The programme of re-organisation of PACS has been under
implementation for the last two decades and is almost completed in all states except Gujarat,
Maharashtra and Jammu & Kashmir.
PACS and Weaker Sections : The major objective of the co-operative development programmes is to
ensure that the benefits of co-operative activities flow increasingly to weaker sections including
scheduled castes and scheduled tribes. The Government seeks to achieve this through expanding the
membership of the weaker sections in the existing PACS and ensuring larger flow of funds and
services to them. In the tribal areas, large sized multipurpose societies are being organised mainly for
the benefit of the tribals.
PACS and Commercial Banks : The commercial banks in India introduced in 1970 a scheme of
financing PACS, through which the funds of the commercial banks are being made available to PACS.
This scheme came in handy to commercial banks which could use PACS for disbursing agricultural
loans and thus find a way out of the serious problem of not having close contacts with farmers
through their own branches and field staff. The scheme, however, has not been as successful as was
anticipated.
Firstly, the two systems with two unrelated cultures—one commercial and the other co-operative—
could not be linked effectively. Difficulties have arisen from this basic incompatibility.
Secondly, state co-operative banks as well as central co-operative banks have not liked successful
PACS being taken away from their fold by the commercial banks.
However, a good deal of scope for co-ordination exists between PACS and the branches of commercial
banks in rural areas :
(a) The rural branches of commercial banks can assist such of those members of the PACS who are
eligible for loans but who are unable to get finance from PACS for lack of funds.
(b) They can also help the PACS with advice on management e.g., proper maintenance of books of
accounts, accounting procedures, etc.
(c) The PACS, in their turn, can help commercial bank branches to identify eligible borrowers and
to recover loans.
Shortcomings of PACS : The co-operative credit system makes credit available to the farmers at
convenient distances and has intimate knowledge of the local conditions and problems. But it is
organisationally and financially weak and hence, in practice, its ability to support credit to the
agricultural sector is considerably limited. The All-India Rural Credit Review Committee brought
out the following weaknesses of the primary credit societies :
(a) Co-operative credit still forms a small portion of the total borrowings of the farmers;
(b) Tenants and small farmers find it difficult to satisfy their need for funds fully from PACS alone.
(c) Most primary credit societies are financially weak and are unable to meet fully even the
production-oriented credit needs of farmers.
(d) Overdues at all levels are financially increasing alarmingly indicating the failure of co-operative
credit institutions; and
(e) PACS have not been able to ensure adequate and timely credit for the borrowing farmers.

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