By Dr. Amrit Patel:
Revival Package: Government of India announced agricultural credit policy in 2004 to double the flow of credit to agriculture within three years. However, despite the phenomenal outreach the health of cooperatives continued to deteriorate. They are experiencing problems viz. low resource base, high dependence on external funding, excessive Government control, dual control, huge accumulated losses, regional imbalances, poor business diversification, poor recovery etc.
Government in 2004 appointed the Vaidyanathan Task Force to address the issues and suggest a Revival Package for Short Term Cooperative Credit Structure [STCCS] in the light of competitive role of cooperative credit institutions. The report on revival package accepted by the Government in 2006, besides reviving the STCCS to make it an efficient medium to serve the rural credit needs, seeks to
Recommendations, inter alia, on recapitalization of cooperatives, cleansing their balance sheets and adoption of prudential norms are under implementation. The progress so far indicates that:
Performance: Performance of PACS during the period [1994 — 2006] on account of NABARD’s initiatives and [2006- 2010] when revival package is being implemented showed that there has been improvement in memberships, owned funds, deposits and borrowings. While number of borrowers increased in 2010, outstanding loan remained the same. As on 31 March 2010, out of 94647 PACS, 40,936 PACS were in profit whereas 41,679 PACS were in loss, 3441 PACS dormant, 1665 PACS defunct and 1589 PACS saddled with other financial problems. The study showed that 65540 PACS were viable and 22372 PACS potentially viable.
During 2009-10 recovery performance of SCBs was good and modest for DCCBs whereas very poor for PCARDBs and SCARDBs. During 2009-10, SCB as a group earned an overall return of 7.39% while the cost of funds worked out to 5.30% resulting in a financial margin of 2.09% [excluding miscellaneous income of 0.82%]. The average transaction and risk cost of SCB worked out to 1.34% and 0.55% respectively. SCB as a group earned a net margin of 1.02% compared to 0.57% during 2008-09.The overall return on working funds of DCCB as a group was 7.52% while cost of funds was 5.05%, yielding a financial margin of 2.47% [excluding miscellaneous income of 2,57%]. The average transaction and risk cost as a percentage to working funds were 1.89% and 1.35% respectively. The DCCB as a group earned net margin of 1.80%. During 2008-09, 13 SCARDBs had positive net margin whereas remaining six had negative net margin. PCARDB in only four States had positive net margin.
Implementation process of revival package for short-term cooperatives approved in 2006 is extremely slow. Besides, revival package can express its potential only when State Governments create facilitating environment to remove root causes responsible for continued deteriorating health of cooperatives identified by the Task Force, viz.
Only nine States have so far passed cooperative laws on lines of the Model Act as recommended by the Brahm Prakash Committee to enable the growth of cooperatives based on thrift and mutual help. The Model Act will provide cooperatives operational freedom and autonomy from the State Government while being required to be fully accountable to their members. Cooperatives registered under this Act cannot accept share capital from the State Government. The Task Force on Credit Related Issues of Farmers reported that thrift cooperatives of both women and men in Andhra Pradesh and Orissa were self-reliant, vibrant and financially strong. While State Governments and short-term cooperatives need to complete implementation of revival package in a year, the Government of India should accord approval to implement revival package for long-term cooperatives pending since February 2010 and its implementation should be completed in two years. Similarly, recommendations need to be implemented within two years on legal, organizational, management, functional and operational reforms, contained in the reports of the Brahm Praksh committee on Model Cooperative Act , the Ardhanareeswaran committee on State Cooperative Act and the committee on financial sector reforms and cooperative banking . India has the potential to significantly contribute to the growth of rural economy through progressively establishing Credit Unions in relatively larger size villages and progressively converting all PACS as full-fledged branches of DCCBs that can be manned by professional trained by Institute of Rural Management, Anand and managed on sound principles of business.
Conclusion: There is need to form agricultural cooperatives on the lines of Anand Milk Union Limited [AMUL] in respect of Food Grains, Fruits, Vegetables, Meat, and Eggs progressively throughout the country during the twelfth and thirteenth five year plans integrating credit with supplies [of inputs and technology] and services [marketing and health] employing professionals trained by the Institute of Rural Management Anand. The Committee on All India Rural Credit in 1954 has aptly said “Cooperation has failed but cooperation has to succeed” Agricultural cooperatives with financial, managerial and professional competence can compete with private sector and contribute to feeding the world
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