Primary agriculture credit societies

The Union Budget 2023-2024 has announced Rs 2,516 crore for computerisation of 63,000 Primary Agricultural Credit Societies (PACS) over the next five years, with the aim of bringing greater transparency and accountability in their operations and enabling them to diversify their business and undertaking more activities.

What is PAC?

• A Primary Agricultural Credit Society (PACS) is a basic unit and the smallest cooperative credit institution in India. The main aim of PACS is to provide short term and medium term loan to farmers for various agriculture activities. It works at the grassroots gram Panchayat and village level.
• A report published by the Reserve Bank of India on December 27, 2022 stated the number of PACS at 1.02 lakh. At the end of March 2021, only 47,297 of them were in profit.                                

Importance of PAC’s:

• Customized Credit Products: They design and offer tailored credit products to address these needs effectively. For instance, they provide crop loans to support seasonal agricultural operations etc.
• Cooperative Development: Farmers join together to form the PACS and participate in decision-making → enables farmers to negotiate better for credit, access markets collectively.
• Collective Bargaining Power: By pooling their resources and forming a cooperative, farmers can negotiate better terms for credit, purchase agricultural inputs collectively at lower prices etc.
• Risk Mitigation: Provide insurance that safeguard farmers against natural calamities, crop failures etc. For e.g., a PACS may offer crop insurance to protect farmers' investments in case of adverse weather etc.
• Economic Empowerment: Access to credit allows farmers to invest in farm inputs, modern technologies, and infrastructure, improving agricultural productivity and income levels. 
• Institutional Support: Cooperative banks, such as DCCBs and State Cooperative Banks provide refinancing and credit linkage support to PACS. 

Aim of Digitization of PAC’s:

• Financial inclusion and strengthening service delivery to farmers especially Small & Marginal Farmers.
• Improve Transparency- by seamless process of banking and lack of any form of fraud intermediaries.
• Increase efficiency, and will also facilitate the accounting of multipurpose PACS.
• It is nodal center for various programmes such as DBT, PM FBY, KCC etc which helps to improve productive and efficient delivery of policies.

Issues with PAC

• Politicization: Since PACS are cooperative bodies, political compulsions often trump financial discipline. 

• Organizational Weakness:

• Inadequate coverage- The rural population covered as members is only 50% of all the rural households.

• Weak units - inadequate memberships, Inadequacy of credit limits 

• Dependence on Refinancing Institutions: Challenges faced by DCCBs and SCBs, such as financial instability or delayed disbursal of funds, can have a direct impact on the functioning and credit availability of PACS. 
• Inadequate and Restricted Credit: First, the PACS provide credit to only a small proportion of the total rural population. Second, societies do not provide full credit even for all productive agricultural activities. 
• Limited Outreach: There are still 1.6 lakh Panchayats without PACS, leaving some farmers without access to formal credit facilities.

Digitization will help to create a strong base to PACS business integrating it with members and thus, become a real institution of rural development.