The Economics of Cooperatives
Primary Agricultural Credit Societies
How village-level credit cooperatives provide short-term loans to farmers, why many struggled, and the push to computerise and diversify them.
Primary Agricultural Credit Societies (PACS) are village-level cooperatives that lend to farmers. India has around 1 lakh PACS.
The three-tier structure
India’s rural cooperative credit system has three levels:
- PACS at the village level lend to farmers.
- District Central Cooperative Banks fund PACS.
- State Cooperative Banks fund district banks.
NABARD refinances the system.
What PACS do
- Short-term crop loans.
- Fertiliser and seed sales.
- Sometimes storage and procurement.
Problems
- Weak finances: many PACS have high overdue loans, partly due to loan waivers and political pressure.
- Poor governance.
- Manual records, making supervision hard.
- Many became dormant.
Reforms
- A project to computerise tens of thousands of PACS, approved in 2022, links them to a common software and banking system.
- Model bye-laws let PACS diversify into dairy, fisheries, storage, gas distribution, petrol pumps and Common Service Centres.
- A plan announced in 2023 aimed to set up grain storage capacity through PACS, described as the world’s largest grain storage plan in the cooperative sector.
Why PACS matter
They reach farmers in remote villages where banks have few branches. Strengthening them can improve rural credit and services.
A PACS in Maharashtra that once only gave crop loans now runs a fertiliser shop, a warehouse and a Common Service Centre. Its income diversifies, and farmers get more services in one place.
Reforms allow PACS to run storage, dairy, fuel outlets and service centres.
- India has around 1 lakh PACS lending to farmers.
- PACS sit in a three-tier cooperative credit structure refinanced by NABARD.
- Weak finances, governance and manual records hurt many PACS.
- Computerisation and diversification aim to revive them.
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