CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION
India is a nation of villages. Almost 742 million people constituting 72.2 % of
India‟s population (2001 Census) live in the countryside. The rural segment; apart from
the demographic density represents true India, which is comprised of the people
predominantly depending on the agriculture for their livelihood.
Naturally, this sector evokes great interest and concern of the planners under the
successive governments regardless of their political affiliation. Agricultural growth and
upliftment of the rural community have remained in focus of planning in India since the
first five-year plan attracting prioritized attention, involving policy initiatives and
undertaking rural development programmes.
Rapid pace of industrialization, urbanization and globalization in the wake of new
world order under WTO changed the complexion of the very concept of rural
development, for the rural canvas has become still more complex as reflected by change
in demography, consumption pattern, types and the species of the crops grown.
Suddenly, the focus of farming has shifted from its traditional role of being a
labour oriented agrarian society to a segment in need of higher capital investment for
pushing through the and improved technology machinery, equipment and tools in
agricultural. Transition of agricultural from a labour intensive segment to a capital
intensive one increased the need for credit to the farming sector. Credit has become the
soul of rural development as Reddy C.R. put it: “Among the several inputs of farm sector
the one input that can make the farmers use other inputs is the „Capital‟ namely
„Credit‟.” (Reddy C.R., 1993)
Inadequacy of financial resources to defray such expenses the Indian farming
community, had to explore the loans or credit facilities from the sources, which were
easily available and accessible. Way back in 1931, the Central Banking “Enquiry
Committee” estimated Rs. 300-400 crores as the lower limit of the farmers‟ need for
short term and intermediate credit in the whole of the British India, and expressed the

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opinion that “there was an almost unlimited scope for the grant of long-term loans”
(Report of Central Banking Inquiry Committee, 1931).

1.2 SOURCES OF AGRICULTURAL FINANCE

Adequate and timely supply of rural credit holds the key to rural development
implying the growing need for a robust rural credit delivery system to provide support to
agricultural and related activities to enable the rural people to exploit opportunities for
development. Hence, it becomes important to study the sources of agricultural finance in
India. Agricultural credit in India is characterized by dualism based on the basic sources
of the credit namely:-
a) Non -Institutional sources and
b) Institutional sources
1.2.1 Non - Institutional sources :
“This source consists of the professional and agricultural moneylenders, relatives,
friends, traders, commission agents, landlords etc. It is very difficult to give a clear-cut
logical definition of the sector, which is better identified by its dominant characteristics
such as ease of entry and exist, informality of transactions and smallness of scale”
(Chandvarkar A. G., 1985).
Private moneylenders were the prime and dominant source of rural credit in the
pre-independence era. The share of moneylenders in the rural credit was as high as
71.6% in 1951. With the initiation of five years planning, the dominance of private
moneylenders showed a progressively diminishing trend which was reflected in fall of
their share in the rural credit to 36% in 1971, 16% in 1981 and 14% in 1991.
While the private moneylenders provided an efficient and prompt credit delivery
system free of any red tapism or excessive paper work or any collateral as the
moneylenders were easily accessible at all times, but they also were accused of using
their dominant position to exploit the farmers in many ways such as :
a. usury or charging exorbitant interest at extortionate rates reaching upto 50% or even
more,
b. manipulation of accounts by not issuing the receipts for payment of interest or the
principal.

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c. coercive recovery practices including forcing the farmers to sell the agricultural
product to the moneylenders at a low prices etc.
The farmers were in the grip of debt trap. Once a farmer took the loan from a
moneylender, he could never get out from the tight clutches of these moneylenders as the
legend went “born and buried in debts”!

1.2.2 Institutional sources:

Institutional rural credit system was formally set up in India with the introduction
of the cooperatives in early 20th century. By the end of 20th century, the cooperatives
became the largest Institutional source of agricultural credit with almost 60% share in the
institutional agricultural credit.
Later, India followed a multi-agency model comprising of Co-operatives,
Commercial Banks (CB), Regional Rural Banks (RRB) and the Government. This
resulted in reduction of the share of the cooperatives in rural credit sector and a
corresponding rise in the share of the commercial banks and RRBS largely due to the
liberalization reforms in the banking industry. Following table illustrates the
phenomenon:
Table 1.1
Agency wise Breakup of Agricultural Credit
(*Rs. in crores)
INSTITUTIONS YEARS

1991- 1995- 2001- % 2005-06* % 2011-12* %

92* % 96* 02*

CB 4,806 43 10,172 46 33,587 54 1,25,859 70 3,68,616 72

R. R. B. 596 5 1,381 6 4,854 8 15,223 8 54,450 11

Cooperatives 5800 52 10,479 48 23,604 38 39,404 22 87, 963 17
Source: Economic Survey and NABARD

1.2.3 Cooperative Credit structure in India:

The Cooperative Societies Act in 1904 granted the formal impetus to the
cooperatives as the main Institutional source of rural credit to provide long term, medium
term and short-term finance for agriculture and allied activities.

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The following chart shows the cooperative credit structure in India:
COOPERATIVE CREDIT STRUCTURE IN INDIA

Short term and Medium term Credit Long term Credit

State Co-op. Banks State Land Development bank

District- Central Co-op. Bank

Primary Agricultural Credit Societies (PACS) Primary Land development Bank

Figure 1.1
At the grass root level, the PACS provide short and medium term loans and Primary Land
Development Banks provide long term credits for agricultural and allied activities
.
1.3 CONCEPT OF COOPERATION
The term „cooperation‟ is originated from the Latin word “Cooperari”, which
means persons or an association of persons united to do some work together with
others for a common purpose.
“The meaning of co-operation varied from thinker to thinker and from one
sphere of human activity to another. To the sociologists, it is a social economic
movement, for the socialists, it is a social order in which man is free from class
struggle, economists believe that, it is a form of business organization in which there is
no scope of being exploited by middlemen, the lawyers take it to be an
organization in whose membership one enjoys the special privilege and concessions
conferred by law” (Kulkarni, K. R. 1960).
“Man is a social animal imbued with desires and aspirations and which can be
fulfilled within society. Co-operation is basic to the development of human beings and
ultimately to the progress and prosperity of society. Human body system is a good
example of perfect co-ordination among the different organs. Similarly, human

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 beings have to co-operate for the happier and healthier life” (Mathur, S. B. 1990).
Many scholars and thinkers have tried to define the term cooperative. Repot of
the Inquiry on Cooperative enterprises in Europe defines a cooperative enterprise as
the “one which belongs to the people who use its services, the control of which rests
equally with all its members and the gains of which are distributed in proportion to the
use they make of its services.”
Dr. C.R. Fay adds another dimension to the definition. He states “An
association for the purpose of joint trading organization among the weak and
conducted always in a selfish spirit on such terms that all who are prepared to
assume the duties of membership may share into its rewards, in proportion to the
degree in which they make use of their association.”
To sum up, a cooperative society is a voluntary and democratic association
of persons with common economic needs working on the basis of equality,
self-help and mutual-help. This alternative of business organization tries to
minimize the defects of both capitalization and socialization.

1.4 EVOLUTION OF COOPERATIVE MOVEMENT

Co-operation is as old as the humanity. The human beings have been behaving
on an informal cooperative basis with regard to their religious, social, economic and
cultural life. Rigveda, the oldest scripture in the history of civilization pronounces the
importance of cooperation as, “May you all have common purpose, May your hearts is
in union, May you all be the same mind, So you can do the work efficiently!”
Thus, Co-operation denotes the basic human traits namely, “Living, thinking
and working together” and co-operation is older than the co-operative movement in as
much as the co-operative movement is only the manifestation of human co-
operation among others.

1.4.1 Cooperative Movement in the World

1.4.1.1 Backdrop:
Cooperative movement was a sociologists‟ response to the exploitative situation
for marginal wage earners, agriculturists and common man brought about as a resolute of

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industrial revolution of the 18th century. Prine Kropotkin argued that organization
strength of the weak was the key to survive in the competitive situation. Saint – Simon
and other economists the social and church leaders in Europe supported this
concept. But it was Robert Owen of England whose initiative to experiment on co-
operations as an instrument of equitable economics order, despite lack of initial success
of such per se, nevertheless laid the roadmap of the cooperative movement in the years
to come .
Indeed, the world‟s first consumer co-operative society “Rochdale Equitable
Pioneers Society", was born in England in 1844, when a cheap provision store for food
and household goods was set up at Rochdale near Manchester by 28 weavers working in
the cotton mills in England facing miserable working conditions and low wages. It was a
kind of self-help group. Phenomenal success of Rochdale experiment created the ripples
in the society so much that by the end of nineteenth century year, some 1.7 Million
people and became members of Consumer Co-operatives in England.
World‟s first credit cooperative was however established in Germany in 1862 by
F. W. Raiffeisen, Mayor of Weyer Busch and Suhulze Delitsch, when they established
the first ever Agricultural Credit Bank of the World in Germany for fulfilling the credit
needs of the poor sections of the community. This experiment proved to be a milestone
on the road to the development of global cooperation movement indicating succinctly
the feasibility of applying the philosophy and ethos of cooperation in any sector. By the
year 1895, several agricultural cooperatives, workers' co-operatives, cooperative banks
and credit societies were established across the world in addition to the consumer stores.
Cooperation attained the stature of an important global movement inculcating a sense of
fellowship among the cooperatives across the world.
1.4.1.2 International Cooperative Alliance:
Time was ripe for a global body to promote cooperation, exchange information on
cooperatives, define, and develop the cooperative principles. Accordingly, on 18 August
1895 the International Cooperative Alliance (ICA) was founded in the first International
Cooperative Congress held in London. The conference had the representatives inter alia
from Argentina, Australia, Belgium, Denmark, England, France, Germany, Hungary,
India, Italy, Netherlands, Russia, and the USA.

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 The ICA was set up as non-governmental association with the professed objective
to unite, represent and serve cooperatives worldwide as their mother body and to work
with countries to advocate to chart out a legal and regulatory framework catering to
the unique and specific needs of the cooperatives. The ICA also works with the
members to encourage inter-cooperation. It provides a forum for co-operations and
enforcement among national Co-operative movements. Currently, it operates from its
head office at Geneva in Switzerland and has 110 countries, 251 National and 4
International level organizations as its members serving over 800 million individual
members worldwide forming a strong base for the worldwide co-operative movement.
"Rainbow" is the International Cooperative flag and official symbol of the
International Co-operative Movement since 1925. Besides, first Saturday of July every
year is celebrated as the "International Co-Operative Day".
In 1995, ICA adopted the “Statement on the Cooperative Identity” in its
centennial conference held at Manchester in England. The statement declares: “A co-
operative is an autonomous association of persons united voluntarily to meet their
common economic, social and cultural needs and aspirations through a jointly owned and
democratically controlled enterprise.”

1.4.2 Cooperative Movement in India

Cooperative movement in India was not born at the grassroots. The government
pushed cooperatives the as an instrument for rural development. Even after a century
since its origin, the cooperative moment in India continues to be an integrated movement
for development having pervading impact on almost all fields of the Indian economy.
“The cooperatives have been operating the various areas of the economy such as
credit, production, processing, marketing, input distribution, housing, dairying and
textiles. In some of the areas like dairying, urban banking and housing, sugar and
handlooms, the cooperatives have achieved success to an extent on the other hand; there
are larger areas where they have not been so successful. The Dairy cooperatives of
Gujarat and Sugar cooperatives of Maharashtra are the best examples of the success of
the cooperative movement” (Sisodia, S. S., 2006).
The cooperatives witnessed a spurt in their number as well in their membership

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although the post globalization era witnessed a decline in terms of both the number of
societies and their membership, as shown in the following table:
Table 1.2
Progress of cooperatives in India
Year No of societies Membership
In lakhs
1950-51 1.81 155
1996-97 4.53 2045
2010-11 2.24 560
Source: Economic Survey and NABARD
The profile of the cooperatives has also changed by the year 2010-11. Only 9.6%
of the societies were engaged in agricultural credit and 10.4% in non-agricultural credit.
The remaining 80% were engaged in marketing, production, lift-irrigation, electricity
supply, transport and social sectors.
This is because “under the globalised environment, cooperatives have to
transform the challenges of globalization into opportunities through their dynamic and
flexible strategy and approach coupled with necessary structural and organizational
adjustments. This would involve implementation of the process of professionalism,
up-gradation of technology parameters and implementation of cost effective measures.
The future vision of cooperatives should be oriented towards labour intensive growth
of cooperatives which would help in making available more employment opportunities
and will thus promote equity, social justice and inclusive growth in the country in
the coming years” (Bhagavati Prasad, 2007).
Indian cooperative movement may be divided into two phases namely:
a. Pre-independence era.
b. Post–independence era.

a. PRE INDEPENDENCE ERA:

I. Backdrop
Agriculture was dependent on the vagaries of the nature during the 19th century.
Agricultural productivity was lower and highly unpredictable due to its dependence on
the natural factors like rain, famine or drought. Indeed, the famines in 1861, 1866,
1873 and 1876 substantially damaged the rural economy. This was the era when the

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farmers were under the clutches of Mahajans, Sawkars or Moneylenders and usuries
charging exorbitant rates of interest on their loans leading the farmers to fall into the
debt trap. The highhanded methods of coercive and oppressive recovery caused unrest
among the farmers giving birth to their violent uprising in some areas like Pune
and Ahmednagar in the year 1875, when the farmers resorted to violent attack on
the moneylenders.

II. Remedial Measures:

The severity of the situation directly linked to the inhuman sufferings of the
farmers compelled the then British Government to take some remedial steps, which
included the following:
a) Constitution of the Indian Famine Commission in 1880.
b) Enactment of laws dealing with rural indebtedness :
i. The Deccan Agriculturalists‟ Relief Act in 1879.
ii. Land Improvement loans Act, 1883.
iii. Agriculturists' Loans Act, 1884.
The efforts were perceived “too little - too late” in the context of the then
prevailing socio-economic conditions and failed to satisfy the needs, demands and
aspiration of the farmers. The people particularly the farmers revolted against the
government.

III. The Cooperative societies Act, 1904

The chaos caused due to the debt-ridden farmers eking out a living in most
pathetic and pitiable conditions had a positive impact too. It created room for alternative
financial institutions like the Mutual Loan Associations, Chit Funds and Cooperative
Societies. Some Mutual Loan Associations were registered under the Societies
Registration Act 1860 in Punjab, United Province (UP), Madras and Bengal.
In 1897, at the recommendation of Fredric Nicholson the then Collector of
Madras, the Madras Government established agricultural credit banks based on the
German “Raiffeisen Model” to solve the problems farmers indebtedness. Sir Edward
Law Committee Report of July 2001 recommended establishing Cooperative Credit

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 Societies based on the Raiffeisen Model. The recommendation led to enactment of the
Co-operative Credit Societies Act 1904 prescribing an elaborate legal and administrative
framework for the cooperatives under two separate models namely: -
i. Raiffeisen Model for rural area
ii. Schulze Delitzsch Bank Model for the urban area
The First Urban Co-operative Credit Society was registered in October 1904 at
Conjeevaram in Madras State. The Act gave boost to formation of rural cooperative
societies beginning with the setting up of the First Rural Cooperative Credit Society
in 1906 at Bodhwad Khandesh district in Bombay State, number of such societies
rose to 5,300 with a collective membership of over 3 lakhs by the year 1911. Despite
the phenomenal growth, the cooperatives were not effective because the Act, which
was enacted to facilitate registration of the cooperatives credit societies in rural area,
did not have any provisions for:
a) Setting up of not Noncredit or Functional Societies,
b) Any central agency for financing, supervising or monitoring the cooperatives,
c) Mechanism for classification of the Cooperatives into rural or urban societies.

IV. The Cooperative Societies Act, 1912

The Cooperative Societies Act, 1912 sought to address these difficulties and to provide
legal sanction for functional societies. The Act enabled Central Cooperative Banks at
the district level to attract the deposits and provide loans to the village societies and
made provisions for registration of functional societies of different types. This gave
the requisite momentum to the concept of cooperation reflected in the increase in
the number of societies and of their membership and capital as will be seen from the
data tabulated in the following table:
Table 1.3
Increase in the No. of Societies and the Membership
Year No of Societies Membership Capital
( Thousand ) (Lakh Rs)
1906-07 843 91 24
1911-12 8177 403 336
1913-14 14811 695 745
Source: Economic Survey

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 V. Post -Government of India Act 1919 period:
In 1914, the Maclagen committee appointed by the government recommended a
three tier co-operative credit structure comprising of:
a) Primary Agricultural Credit Societies (PACS) at the grassroots level,
b) District Central Co-operative Banks (DCCBs) at the District or Intermediary level,
and
c) State Co-operative Banks (SCBs) at the state level.
Meanwhile, the Government of India Act passed in 1919 included the cooperation
in the provincial list delegating the provincial governments with the power to enact the
laws based on their requirements. The Bombay province was the first, to enact a separate
Cooperative Societies Act in 1925.
Similarly, finding the DCCBs unable to provide long term credit, Punjab set up a
Cooperative Land Mortgage Bank in 1920 to provide long-term credit. In 1927, the
Townsend Committee recommended setting up of the Provincial Land Mortgage Bank at
Apex level and Primary Land Mortgage Bank at Taluka Level. In 1935, the government
set up the Reserve Bank of India (RBI) under the RBI Act, 1935. Under Section 54 of the
Act, the RBI set up an agricultural credit department with expert staff and logistics to
study the problems relating to agricultural credit and take necessary initiatives to
encourage the co-operative movement and keep it alive.
In the wake of severe scarcity of food articles and other commodities during the
two world wars (1914-18 &1939-44), the Government of India moved to develop the
consumers‟ cooperatives as the nodal agencies for the distribution of such controlled
commodities. The Multi-Unit Cooperative Societies Act, 1942 was enacted to deal with
incorporation and winding up of cooperative societies having jurisdiction and
membership in more than one provinces.
Several committees such as the Maclagan Committee in 1915, the Royal
Commission on Agriculture in India in 1928 and Indian Central Banking Enquiry
Committee in 1931 were appointed to look into the issue of cooperative credit structure.
The Committees advocated and paved way for a two-tier credit structure for short and
long-term credit.
The Mehta committee in 1937 recommended reorganization of cooperative credit

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societies as multipurpose cooperatives. The Co-Operative Planning Committee; popularly
known as Saraiya Committee; suggested several measures for the development of co-
operatives in India. In 1947, the 15th Conference of Registrars of Cooperative Societies
suggested effective linking of credit with marketing through: construction of a large
number of godowns and Setting up of processing plants.
Official guidance and support during the pre-independence period paved way for
the growth of the movement resulting into formation of 84,000 primary societies 31.75
lakhs members, paid up capital of Rs. 14.43 crores, deposits of Rs. 3.11 crores and a
working capital of Rs. 21.58 crores by 1946-47.

b. POST INDEPENDENCE ERA:

For the first three years after the independence, priority was to rehabilitate and
giving a healing touch to the people affected by the partition. The process began again
with the five-year planning when the cooperatives were back at the core as the catalyst
for the faster socioeconomic growth and alleviation of poverty. Several steps were taken
for strengthening the cooperative movement such as:
First Plan:
Emphasis on training of personnel of the cooperatives and setting up of Co-
operative Marketing Societies.
Second Plan:
Extending the cooperatives to other fields like developing the Warehousing
Cooperatives at the state and central level, emphasizes on cooperative marketing and
processing of agricultural produce.
Third Plan:
Developing cooperatives for sugarcane, cotton processing, spinning, milk supply,
marketing, distribution, housing and construction. Concrete steps for training the
personnel by establishing the Cooperative Training College at Pune and other regional
centers.
Fourth Plan
Prioritized steps both at the national level and in the state plans for rehabilitation
and reorganization for viable short and medium term credit programmes at the primary

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level, where the performance was below the expectations despite the growing number of
such programmes.
Fifth Plan
Improvement of Central Banks recognizing marketing as well as consumer
societies, establishment of Farmer‟s Service Societies for efficient working.
Sixth Plan
Transforming the Primary Agricultural Credit Societies into viable multipurpose
societies providing single-point services to the rural folk areas other than credit, which
were hitherto remained untouched by utilizing their countrywide network in institutional
credit in the terms of both volume and territorial coverage.
Seventh Plan
Emphasis on the growth and expansion of cooperative societies to ensure public
participation to achieve its main objective of bringing social justice through a sharper
focus on employment and poverty alleviation.
Eighth Plan
Making the cooperatives self-managed, self-regulated and self-reliant by giving
more autonomy and training the cooperative functionaries as professional managers to
meet the challenges of new economic policy.
Recent Plans
To strengthen the rural cooperatives by adopting the revitalizing programmes and
adopt restructuring policies to achieve a new vision based on inclusive economic growth.
Improving the financial health of the cooperatives affected by the mounting non-
performing assets (NPA).

1.4.3 Institutional Development:

Following are some of institutes having lions share in the growth of cooperative
movement:
DEPARTMENT OF COOPERATION-1955
Department of Cooperation, which is primarily entrusted with the task of a streamlining
the rural credit was originally under the Ministry of Food and Agriculture since 1955 but
later it was linked with other ministries also.

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NAFED -1958
First breakthrough in the area of institutional development came in 1958 with the
establishment of the National Agricultural Cooperative Marketing Federation of India
Ltd., (NAFED) to assist in production, procurement, processing and marketing of
agricultural and allied products within the country and outside. State level marketing
societies are the members of the NAFED, which has its branches and offices in all the
state capitals, major port towns and terminal markets
NCUI-1961
All India Cooperative Institutes‟ Association established in 1929 was later
reorganized as Indian Cooperative Union after its merger with Indian Cooperative Bank.
In 1961 it was renamed as National Cooperative Union of India (NCUI). It is the apex
body serving as the torchbearer of Cooperative movement. It represents all the
cooperative organizations in the country.
NCDC-1963
National Cooperatives Development Corporation (NCDC) established on 14
March, 1963 is an autonomous body involved in promoting and planning activities
through cooperatives for marketing, agro-processing, storage and supply of agricultural
inputs to the farmers. It also provides financial assistance, technical guidance to the
various programmes through constructive supervision and periodic review. NCDC is
regarded as an executive organization with field oriented and programme based
activities.
ARDC- 1963
At the recommendations of the All India Rural Credit Survey Committee (1951)
and the Committee on Cooperative Credit, later supported by the Standing Advisory
Committee of RBI on Agricultural Credit, the Agriculture Refinance Corporation
(ARC) was set up on 1st July, 1963 as an apex institution for refinancing and
providing long term financial assistance for promotion and development of agriculture. It
was, later renamed as the Agricultural Refinance and Development Corporation (ARDC).
ARDC aimed at augmenting the role of RBI in building up the cooperatives with an
authorized share capital of Rs. 25 Crore and paid up share capital of Rs. 5 crore, a major
part of which was subscribed by the RBI.

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NAFSCOB- 1964
The National Federation of State Cooperative Banks Ltd. (NAFSCOB) is a
federation of state cooperative banks established on 19th May 1964. The specific
objectives of this federation are to promote and protect the interests of the member banks
in all spheres of their activities, to co-ordinate and liaison with Government of India,
RBI, respective State Governments, NABARD and other higher financing institutions
for the development of cooperative credit on behalf of the member banks. Addition to
this this federation provides research and consultancy inputs to the member banks.
Organizing conferences, seminars, workshops, as well as meeting to share the views
of common interest of the member banks is also an important object of this federation.
NDDB -1965
The National Dairy Development Board (NDDB) established in 1965 at Anand in
Gujarat brought the revolution in the field of dairy development encompassing all the
major aspects viz. the production, processing and marketing. NDDB is considered as the
pioneer in the field of dairy products for its Anand Pattern of uniting producer members
in a democratic manner.
IFFCO- 1967
Another legendry cooperative institution is the Indian Farmers Fertilizer
Cooperative Limited (IFFCO) established in 1967 by the Department of Agriculture and
Cooperation, Government of India with a moderate capital of Rs. 85 crore. Now it is the
largest producer and marketer of fertilizers in India.
NABARD -1982
As a result of the recommendation of the Banking commission (1972), National
Commission on Agriculture (1976) and Committee to Review Arrangements for
Institutional Credit for Agriculture and Rural Development (CRAFICARD) in 1979
for setting up of a National Level Institute having regard to the fact that the role
of ARDC in integrated rural credit was inadequate, the National Bank for Agricultural
and Rural Development (NABARD) was set up as an apex refinancing institution in July
1982. The ARDC, the Agricultural Credit Department (ACD) and Rural Planning and
Credit Cell (RPCC) of RBI were merged with NABARD. NABARD purports to
coordinate and monitor the credit planning and disbursement.

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1.4.4 Development in Cooperative Training
Sir Frederick Nicholson Committee (1885), Machlagan Committee (1915), the
Royal Commission on Agriculture (1928) and several other committees were
unanimous in their opinion that education, awareness and training of the members and
staff in the principles and meaning of cooperation was essential to build up the
cooperative movement. The Saraiya Committee on Cooperative Planning 1945 went to
the extent of recommending establishment of a Cooperative Training College in every
state and a Cooperative Training Institute for Advanced Study and Research at the
Central level.

The first step in direction was taken in 1953 with the establishment of Central
Committee for Cooperative Training (CCCT). It was followed by the National Centre for
Cooperative Education established (NCCE) by NCUI in 1958. The NCCE / CCCT
organize conducts several cooperative educational programmes and award Diplomas in
Leadership Development in addition to Refresher and Orientation Courses to cater to the
needs of cooperatives.

In 1960, a Study Team on Cooperative Training under the leadership of S.D.

Mishra was appointed by the Government of India for reviewing the performance and
progress of cooperative training facilities under the CCCT. The recommendations of the
Committee in 1962 kindled a new phase of Cooperative Education and Training in India
leading to establishment of Vaikunth Mehta National Institute of Cooperative
Management (VAMNICOM), Pune amalgamating the two premier institutions viz. the
National Cooperative College and Research Institute and the Central Institute of
Management of Consumer Business.
In 1974, the Informal Expert Group on Cooperative Education, Training and
Research under the chairmanship of M.S. Swaminathan recommended the establishment
of a central agency cooperative training. At the recommendation of Zainul Abedin
Committee appointed to advise on the implementation of the recommendations of the
Swaminathan Committee, “National Council for Cooperative Training (NCCT)” was
established to replace NCCT in 1976.

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1.5 SHORT TERM COOPERATIVE CREDIT STRUCTURE (STCCS) FOR
AGRICULTURE IN INDIA
1.5.1 Introduction
Agriculture being the coveted jewel of the Indian economy because of its
pervasive impact on the quality of life of people in terms of employment, income and
consumption pattern and territorial expanse, agricultural credit was the first to receive the
attention of the cooperative movement. The rural credit cooperatives cover every village
in its influence area and the farmers as their members whether for meeting their crop loan
requirements or for meeting the capital expenditure. A robust short and medium term
cooperative credit system for agriculture is an essential characteristic of cooperative
movement in India.

1.5.2 Short Term Cooperative Credit Structure (STCCS):

Ever since the Maclagen committee recommended a three-tier cooperative credit
structure in 1914, Indian STCCS functions on a three-tier pattern with State Co-operative
Banks at the Apex or State level, District Central Co-operation Banks (DCCBs) at
Intermediary or District level and Primary Agricultural Credit Societies (PACS) at the
Grassroots or Village level in as many as 16 states and on a two-tier level In 13 smaller
states and union territories. In these states / union territories, PACS are directly affiliated
to the SCBs. In 3 States STCCS operates on a mixed basis two–tier in some districts and
three-tier in the other. The three-tier structure of STCCS consists of:
1. State Cooperative Banks (SCBs):
“The state Co-operative Bank is the final link in the chain between the small,
scattered primary societies and the money market as also with the RBI, the central
Banking Authority of the country, which can be called on for short medium-term
accordantly under certain conditions”.8 These are the SCBs in each state at the apex level
and they are closely linked with the RBI providing Finance to the DCCBs. SCBs thus
function as the link between the RBI and DCCBs.
2. District Central Cooperative Bank (DCCBs):
District Central Cooperative Banks (DCCBs) are at middle level in the STCCS.
DCCBs serve as a link between the PACS and SCB. “The reason for the establishment

17
of district co-operative banks is that there should be on intermediary agency between the
primary credit society with rural bids run by agriculturists having no touch with the
money market and the provincial co-operative Banker run mainly by city men with urban
bias and having no close association with the countryside”, (Laud, G. M., 1956).
3. Primary Agricultural Credit Societies (PACS):
PACS are the third tier of the STCCS at the grassroots or at the village level and
have direct contacts with the farming community. PACs are financed by the DCCBs. The
success of any STCCS depends on the working of PACS. PACS have a century old
standing since the enactment of Cooperative Credit Societies Act in 1904 on the
Raiffeisen Model. PACS function based on the cooperative principles of voluntary
participation, democratic control, limited area of operation and limited liability.

The data pertaining the general and financial indicators of the entities in the
STCCS has shown in the table 1.4 which explains the detailed profile of STCCS in
India as on March 2011.
Table 1.4
STCCS IN INDIA – A PROFILE AS ON 31st MARCH 2011.
Items SCBs DCCBs PACS
A. Number of Cooperatives 31 370 93,413
B. Balance sheet Indicators (Amounts in billions)
Owned Funds (Capital + Reserves) 112 242 145
Deposits 783 1651 372
Borrowings 319 424 540
Loans and Advances 640 1308 878
Total Liabilities/ Assets 1.302 2,541 1,442
C. Financial Performance
I. Number of Institutions in Profit 30 318 54554
II. Amount of Profit Rs. 5.2 14 18
III. Number of Institutions in Loss 1 52 38859
IV. Amount of Loss Rs. 0.6 5 20
V. Overall Profits Rs. 4.6 9 -2
A. Non-performing Assets Rs 57 153 227
B. Recovery of Loans to Demand Ratio (%) 91.8 78.8 NA
Source: NABARD and NABSCOB

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1.6 PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS)
The theme of the research is in respect of the nature and working of the PACS.
This society works at the grassroots level and is the foundation of the STCCS. Hence, if
this society functions as viable, efficient and strong organization, then DCCBs and SCBs
will also be in a position to work in a better position to discharge their responsibilities.
There is at least one PACS for every six villages. The PACS cater to almost half of
India‟s total population through their widespread retail outlets down to village level and
even remote areas. What makes the PACS as an attractive form of organization is that
the PACS can be formed by a group of farmers residing in the same village or in the
nearby villages by contributing minimum capital of as low as Rs 100.

1.6.1 Sources of Funds:

The working capital of the PACS is composed of:
i. Admission fees of the members.
ii. Deposits accepted
iii. Paid up Share Capital: members‟ participation and also State Government
participation.
iv. Loan borrowed by from the central financing agency.
v. Grants and donations
vi. Surplus assets or Reserve Funds.

1.6.2 Membership of the PACS:

The person fulfilling the following conditions would be the member of the PACS:
i. Such person should be a resident of the village or the nearby villages. Initially the
area of operation of the PACS was normally restricted to a village. Now the scope
of are of operations is widened up to 3 to 4 miles from the headquarters. Number
of villages is immaterial but the population covered under the PACS is restricted
to 3000 or about 500 cultivating families.
ii. The person must possess the contractual capacity. In other words the person must
be an adult person of sound mind, who is not an insolvent or otherwise
incompetent in law.

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 iii. The person must possess the contractual capacity. It means the person must be an
adult person of sound mind, who is not an insolvent or otherwise incompetent in
law.
iv. The person should be of good character and moral.
v. A person is not allowed to become a member of any other society except a Land
Development Bank.

1.6.3 Functions of PACS:

The Committee on Cooperative Credit (1963) has listed out the following functions of a
PACS:

i. To associate itself with the programmes of production.

ii. To lend adequate amount to members for their agricultural and consumption
purposes.
iii. To borrow from the Central Financing Agencies for lending adequate amount to its
members.
iv. To attract local savings not only as share capital but also as fixed deposits.
v. To supervise use of loans advanced.
vi. To recover the loans and ensure punctual repayment of loans.
vii. To supply certain consumer goods of common demand.
viii. To distribute fertilizers, insecticides and agricultural implements etc.
ix. To store the produce of its members till it is sold.
x. To associate itself with programmes of economic and social welfare for the village.

1.6.4 Performance of PACS:

“The existing Primary Agricultural Credit Societies are pitiably admired as grass
without root agencies and totally contemned. They are accomplishing partly as the agents
of District Central Cooperative Banks mainly engaged in disbursement and recovery of
the loans granted by the DCCBs”, (Vaidyanathan Committee Report, 2005).
In order to assess the performance of per Primary Agricultural Credit Societies
certain performance indicators have been identified and evaluated over a period of

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 eighteen years from 1993-1994 to 2010- 2011. The performance indicators have been
compared for the following points of time:
i. 1993-94 being the year for which earliest data were available pre-reform exercise.
ii. 2003-04, being the year for which the special audits of PACS were carried out to
find out the financial status of eligibility as per the recommendations of the
Vaidyanathan Committee; and
iii. 2010-11 being the latest year for which the aggregate national data was available
The following table shows the performance of the PACS.
Table 1.5
Performance of PACS: Pre and Post Reform Exercise

Performance Per PACS 1993-94 2003-04 2010-11

Membership (in thousands) 972 1281 1298
Number of Borrowers (in thousands) 552 485 561
Working Capital (in Rs. Lakhs) 17.01 58.68 154.39
Reserves (in Rs. Lakhs) 0.86 3.06 7.39
Deposits (in Rs. Lakhs) 2.29 17.16 39.86
Borrowings (in Rs. Lakhs) 9.95 32.39 57.81
Loan & Advances Issued (in Rs. Lakhs) 8.20 33.21 97.74
Loan & Advances Outstanding (in Rs. Lakhs) 11.50 41.49 93.96
Overdues (in Rs. Lakhs) 4.57 15.41 24.29
Total Number of PACs 91,592 105,735 93,413
Source: NAFSCOB [http://www.nafscob.org/pacs_f.htm]
On a careful perusal of the data available following facts emerge out:
i. There was substantial and consistent rise in the membership per PACs over the three
periods.
ii. The number of borrowers marginally declined in 2003-04 but came back to the old
level in 2010-11.
iii. The working capital of each PACS has multiplied manifold showing a tremendous
growth.
iv. The reserves held per PACS have more than doubled over each period.
v. Deposits and borrowings of the PACS have shown a significant expansion over the
three periods under the study.

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vi. The same is also true for loans and advances issued and outstanding, and the amount
of over-dues per PACS.

1.6.5 Principal Reasons for Failure of the PACS:

Viable and financially sound PACS are essential for a viable STCCS because of
the pivotal role of the PACS at grassroots. Ironically, enough attention has not been
given to the primary level as compared to the higher levels. Result is that the PACS
are economically non-viable and dormant units and almost half of them have turned
into loss-making units. The share of PACS in agricultural credit at all India level fell
down from 62% in 1992-93 to 22% in 2007-08.
Moreover, “Government Measures such as write off of agricultural dues,
concessions or relief announced by political functionaries from public platforms, stay
orders on legal process of recovery, disbursement of loans / assets at the hands of
political dignitaries in loan melas etc. have vitiated the recovery climate”, (Ramchandra
Reddy, 2004). This results in mounting overdue.
PACS could mobilize only about 10% of the agricultural loans granted by them
and the rest 90% had to be provided by DCCBs either through their own resources
of through borrowings or were supported through deposits. It is desirable to mobilize
large amount of deposits from the rural folk if PACs were to become self-reliant and
strong. Sadly, the PACS are seen to be functioning at present only as the agents of the
upper-tiers.

1.6.6 Multipurpose Cooperative Societies:

Recent trend is in favour of conversion of agricultural credit societies - mainly the
PACS into multi-purpose societies to make them broad-based so as to enable them to
cater to the multifarious needs of the members. As Multipurpose Cooperative Societies,
they could become the centers of all activities of the whole village life act as a catalyst of
all sided development of agriculture and betterment of the life of the village from every
point of view. The Cooperative Planning Committee 1946 suggested the following
functions of Multi-purpose Cooperative Society:
i. To provide crop loans.

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 ii. To act as an agent for the sale of produce to the nearest marketing organization.
iii. To Supply the farmers‟ simple needs like: seeds, cattle feeds, fertilizers and
agricultural implements and also consumer goods like cloth, kerosene etc on indent
basis.
iv. To serve as milk collecting station for nearest dairy and as a center of animal first-aid.
v. To serve as a center for maintaining agricultural machinery for the use of the
members.
vi. To serve as a centre for maintaining agricultural machinery for the joint use of the
members.
vii. To encourage the members for subsidiary occupation like: dairy and poultry farming,
bee-keeping, roper and basket making, pottery coir and carpet making etc.
viii. To arrange for the liquidation of prior debts and recommend such cases to the Land
Development Banks.
ix. To introduce better living methods by encouraging the members to take interest in
primary education and in inculcate the habit of thrift etc.

In Maharashtra also the Primary Agricultural Cooperative Credit Societies are

being converted into Multipurpose Societies since 1958 following the Nagpur Congress
Resolution. These societies are providing services such as the supply of improved seeds,
fertilizers, insecticides and agricultural implements to the members over and above the
supply of credit. These societies are renamed in Marathi as Vividh Karyakari Sahakari
Seva Societies (VIKAS Seva Societies) in Maharashtra and became popular with this
name.

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REFERENCES:

1. Reddy (1993) “Over dues Management in Cooperative Banks.” p. 1

2. Report of the Central Banking Enquiry Committee, (1931), pp. 70-71.
3. Chandvarkar (1985): “The Non-institutional Financial Sector in Developing
Countries” Savings and Development, Vol. 2 p. 129.
4. Kulkarni (1960): “Theory and Practice of Co-operation in India and Abroad”, Vol. I,
p.11.
5. Mathur (1990): “Co-operation in India”, Sahitya Bhawan Publication, Agra, p. 1.
6. Sisodia (December 2006): Article “Rural Cooperative Credit and Banking Sector at
Crossroads”, p.259.
7. Bhagawati Prasad (December 2007): Article “Future of Cooperatives in Globalised
environment”, p. 249.
8. Hough (1966): “The Co-operative movement in India”, p. 281.
9. Laurd (1956): “Co-operative Banking in India”, Bombay, p. 336.
10. The Report of the Task Force on Revival of Short Term Cooperative Credit
Structure (Vaidyanathan Committee 2004), p.16
11. Ramchandra Reddy (2004) “ Rural Banking and Overdose management” p. 254

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