Primary Agricultural Credit Societies (PACS)

Primary Agricultural Credit Societies (PACS) are the grassroots-level institutions of the cooperative credit structure in India, established to provide short-term and medium-term credit to farmers and rural households. In banking, finance, and particularly in the Indian economy, PACS play a vital role in supporting agricultural finance, rural development, and financial inclusion by delivering institutional credit at the village level.
PACS represent the first point of contact between the rural population and the formal cooperative banking system. They are designed to meet the credit needs of farmers, agricultural labourers, and small rural entrepreneurs, especially those with limited access to commercial banks.

Concept and Meaning of PACS

A Primary Agricultural Credit Society is a cooperative institution formed at the village or local level to provide financial assistance to its members for agricultural and allied activities. PACS operate on the principles of cooperation, mutual help, and democratic management, with members both owning and using the society.
The primary objective of PACS is to provide timely and affordable credit to farmers for crop production, purchase of inputs, and other short-term agricultural needs, thereby reducing dependence on moneylenders.

Place of PACS in the Cooperative Credit Structure

PACS form the base of the three-tier short-term cooperative credit structure in India. This structure consists of:

• Primary Agricultural Credit Societies at the village level
• District Central Cooperative Banks at the district level
• State Cooperative Banks at the state level

PACS are directly linked to District Central Cooperative Banks, from which they obtain refinance and liquidity support. Through this linkage, cooperative credit flows from the state level to individual farmers.

Objectives and Functions of PACS

The main objectives of PACS are to provide credit for agricultural production and to promote rural economic development. Their key functions include:

• Providing short-term and medium-term loans to farmers
• Financing the purchase of seeds, fertilisers, pesticides, and farm equipment
• Supporting allied activities such as dairy, fisheries, and animal husbandry
• Mobilising savings from rural households
• Acting as agents for distribution of fertilisers, seeds, and government inputs

In many areas, PACS also serve as multipurpose institutions catering to both financial and non-financial needs of the rural population.

Membership and Area of Operation

Membership of PACS is open to farmers, agricultural labourers, and other rural residents within a defined geographical area, usually a village or a group of villages. Members contribute share capital and participate in decision-making through elected managing committees.
The limited area of operation enables PACS to maintain close personal contact with members, which facilitates credit appraisal based on local knowledge and social familiarity.

Role in Agricultural Credit Delivery

PACS are the principal channel for delivering short-term crop loans to small and marginal farmers. They provide credit at relatively lower interest rates compared to informal sources and often align repayment schedules with the agricultural crop cycle.
By ensuring timely availability of credit, PACS help farmers meet seasonal production requirements and stabilise agricultural output.

PACS and Financial Inclusion

PACS play an important role in promoting financial inclusion in rural areas. They provide access to institutional credit for farmers who may lack formal documentation or collateral required by commercial banks.
Through savings mobilisation, credit linkage, and participation in government schemes, PACS integrate rural households into the formal financial system and reduce reliance on informal moneylenders.

Regulatory and Institutional Framework

The functioning of PACS is governed by state cooperative societies laws, as cooperatives fall under the state subject in India. However, their banking-related activities operate within the broader financial framework overseen by the Reserve Bank of India, particularly through regulation of cooperative banks.
The dual control structure, involving both state governments and banking regulators, significantly influences the performance and governance of PACS.

Economic Significance in the Indian Economy

Agriculture remains a major source of livelihood in India, and PACS contribute directly to agricultural productivity and rural income generation. By facilitating credit flow to the farm sector, PACS support food security, employment, and rural consumption.
At the macroeconomic level, effective functioning of PACS strengthens the rural credit system, promotes balanced regional development, and supports inclusive economic growth.

Advantages of Primary Agricultural Credit Societies

PACS offer several advantages:

• Proximity to farmers and deep local knowledge
• Timely and relatively affordable credit for agriculture
• Promotion of cooperative spirit and community participation
• Reduction in dependence on informal credit sources

These features make PACS particularly suitable for meeting the credit needs of small and marginal farmers.

Limitations and Challenges

Despite their importance, PACS face several challenges. Many societies suffer from weak financial health, inadequate capital, poor governance, and high levels of overdues. Political interference and lack of professional management further affect their efficiency.
Limited adoption of technology and weak integration with modern banking systems also constrain their ability to expand services and improve operational efficiency.

Recent Reforms and Modernisation Efforts

In recent years, efforts have been made to revitalise PACS through computerisation, diversification of activities, and improved governance. Initiatives aimed at linking PACS with digital platforms and expanding their role beyond credit delivery seek to enhance their sustainability and relevance.
Strengthening PACS is considered essential for improving the overall effectiveness of the cooperative credit structure.