No commercial bank branch can ever come close to providing the kind of services a Primary Agriculture Credit Society (PACS) can
By GR Chintala
Prime minister Narendra Modi, while inaugurating the Rs 1 lakh crore Agriculture Infrastructure Fund (AIF) on August 8, interacted with members of Primary Agricultural Credit Societies (PACS) from various states and raised some very relevant questions. Why can’t a farmer sell his crop like a soap-maker can sell his soaps wherever he wants? Why is there no concept of ‘one nation, one market’ for the farmer?
These are tough questions, indeed. These are also problems which have multiple solutions, many of which are being implemented currently with gumption and alacrity. The solutions also lead you to the role PACS can and will need to play to bring the objectives behind the AIF closer to farmers.
For the uninitiated, a PACS is the first building block of the century-old cooperative banking system of India. Each PACS was designed to be a village-level credit society into which the farmers brought in share capital, deposits and provided loans to each other. Elected members, one- member-one-vote, transparency, ground-level reach, ease of operations, speed, human connect—almost everything about the structure of a PACS makes for robust ‘public policy for credit’. Yet, PACS have run into many problems too.
Just about two decades ago, credit cooperatives covered 69% of the rural credit outlets and their share in rural credit was fairly impressive, at 45% of the total rural credit in the country. Of course, they had a lion’s share of 57% in purveying short-term credit for purchase of inputs. Today, those glory days are a distant memory, with their share in rural credit at just 12.26% in FY19. This continued slide, and just what can be done to set the course straight, has been at the heart of a lot of research within NABARD and RBI.
Multipurpose societies for multiple reasons
The year 2020 has become a war-zone of sorts. The recent amendments in critical Acts are a response to the new reality and work towards opening up the market for the Indian farmer. These amendments reinforce the role PACS can play in bringing farmer communities closer to credit, inputs, market and value addition. The AIF, set up for establishing decentralised farm gate infrastructure, holds huge promise for a nation which still loses 15% of its food grains due to poor post-harvest management (PHM) facilities and lack of farm-gate storage. But a PACS, to really make a difference, will need to first transition from being just a credit society to a multi-service centre (MSC) and turn into a one-stop shop for both goods and services.
The recent decision by NABARD to develop 35,000 PACS into MSCs in mission-mode is a step in this direction. The initiative will enable PACS to support farmers in post-harvest marketing activities and provide ancillary services to its members like creation of storage and processing facilities, custom hiring centers and collective purchase of inputs. Though such services are being provided by the cooperatives in a sporadic way, this intervention will help in structuring these services in a sustained and scalable manner, covering a much larger number of PACS. This will also help in increasing non-fund based income of the PACS. On the sidelines, a PACS can also play a major role by integrating its warehouse with physical and financial supply chain of agro-commodities in the upcoming Gramin Agriculture Markets (GrAMs) or large warehouses in private sector.
How will a PACS, with historical challenges of financial viability and shortage of qualified human resources, manage this transition? A separate line of credit has been set up under AIF by earmarking concessional refinance of `5,000 crore at 3% during FY21. PACS will get term-loans at 4%,which, with interest subvention under AIF, will come down to just 1%. Need-based accompanying measures in the form of grant would also be made available to the cooperative banks for capacity building, project management expenses and ICT initiatives, all of which will finally impact the PACS.
No commercial bank branch can ever come close to providing the kind of services a PACS can,and, that within itself shows just why PACS need to be propped up. Perhaps this is what the All India Rural Credit Survey of 1951 meant when it stated that “Cooperation has failed. But cooperation must succeed”.
Surely, the short-term cooperative credit eco-system with over 15,000 branches and over 95,000 PACS and which took a hundred years to evolve, deserves a fighting chance? Helping them turn into multi-service societies may just as well be the last chance we have of giving them this chance.