Rolling Out Digital Credit

One of the most important activities in the entire circle of agriculture activities is availing credit, as without it no further activity can be initiated. India has properly set up an agricultural credit disbursal system.

Primary Agricultural Credit Societies (PACS) play a crucial role in the rural economy as this village level institution directly interacts with the rural population, particularly farmers, numbering around 13 crore member farmers. The PACS account for 41 per cent of the Kisan Credit Card loans given to over 3 crore farmers. Realising its importance and the crucial role it plays in the rural economy, the government has decided to computerise them.

The Central government’s Cabinet Committee on Economic Affairs (EECA) recently approved the computerisation and modernisation of PACS. Agricultural credit system has a three-tier short term credit structure – State Co-operative Banks, District Central Co-operative Banks and PACS. The first two are already computerised by National Bank for Agriculture and Rural Development (NABARD) and brought into the common banking software system.

But their computerisation, automation and modernisation did not have the real impact till the third tier too is modernised. To realise the real desired impact, the third tier too, had to be brought into the modern system, which will be done now.

Computerising the PACS is a huge task as 63,000 units will have to be computerised. The total estimated cost is Rs 2,500 crore, of which the centre would contribute over Rs 1500 crore. Each PAC will be provided Rs 4 lakh for upgradation and computerisation. The rest of the expenditure will be for development of cloud-based common software with cyber security and data storage and digitisation of existing records, maintenance and support.

Considering the large number of PACS, it will be a five-year project. But, once completed, it will not only speed-up transactions like direct benefit transfers, accepting deposits from farmers, crop insurance scheme, disbursing loans and collecting repayment of loans, at the rural level, but it will link all credit societies to a common accounting system. That will create a network of agricultural credit accounting, bringing in overall transparency and accountability in the functioning of PACS. Even the old accounting records will be digitised and linked to a cloud-based software. The other two steps contemplated by the government include drafting model bye-laws for the PACS and increasing their number from the existing 63,000 to three lakh societies. Computerisation will speed-up the operations and bring in transparency. However, to convert both of them into the model functioning of the societies, a stronger legal framework will be needed which will be provided by the model bye-laws. A study published in a journal in 2020-21 examining the working of PACS in Maharashtra state, has found out several deficiencies in their working in Maharashtra. Some of the deficiencies are low operational efficiencies, low level of recovery and high incidences of overdue. Though the study is restricted to only one state, the observations may be applicable to other states too, with some minor differences. Hence, computerisation as well as a model bye-law will help remove these deficiencies. The legal structure with model by-laws will be needed even more when the number of societies will really start growing to reach three lakh status.

Upgradation of PACS was a much-needed step, particularly when a lot of agricultural activities are being done now using a host of new technologies. Agriculture is already taking a digital turn and using Artificial Intelligence (AI), drones and various software and apps. When the main activity was using technology, it was now imperative to bring in the same technology and automation in the credit system. Some societies are using computers in their operations. But the number is very low and it is being used as a standalone. As there is no uniformity in the software they use, they cannot be interconnected and hence the network cannot be created. The new plan of the government will ensure uniformity and create a network that will bring in a positive change in the rural credit operation system. .