Report of the Expert Group on Agricultural Indebtedness

<strong>Expert</strong> <strong>Group</strong> on Agricultural Indebtedness2.9 Low recovery rates and mounting overdues have clogged <strong>the</strong> process <strong>of</strong> recycling <strong>of</strong>credit by cooperatives, impaired <strong>the</strong>ir ability to avail <strong>of</strong> refinance facilities from <strong>the</strong> National Bankfor Agriculture and Rural Development (NABARD), increased transaction costs and moreimportantly, have deprived potential borrowers <strong>of</strong> <strong>the</strong> opportunity to avail <strong>of</strong> credit facilities from<strong>the</strong> cooperatives. As a result, cooperatives have been losing <strong>the</strong>ir capacity to meet <strong>the</strong> growingcredit needs <strong>of</strong> agriculture.2.10 The regional distribution <strong>of</strong> cooperative credit is highly uneven. In general, <strong>the</strong>agriculturally advanced states account for a disproportionately large share <strong>of</strong> cooperative credit.During 2002-03, 78 per cent <strong>of</strong> <strong>the</strong> total short term credit <strong>of</strong> cooperatives was accounted for by<strong>the</strong> nor<strong>the</strong>rn, western and sou<strong>the</strong>rn regions <strong>of</strong> India and seven states (Andhra Pradesh, Gujarat,Haryana, Maharashtra, Kerala, Punjab and Tamil Nadu) received as much as 70 per cent <strong>of</strong> <strong>the</strong>loans advanced by <strong>the</strong> PACS.Revamping <strong>the</strong> Cooperative Credit Structure2.11 Several committees have gone into <strong>the</strong> question <strong>of</strong> reorganising <strong>the</strong> cooperative creditstructure in <strong>the</strong> country. Recently, <strong>the</strong> Task Force on Restructuring <strong>of</strong> Cooperative CreditInstitutions (2005) underlined <strong>the</strong> need to eliminate state governments’ interference in <strong>the</strong>functioning <strong>of</strong> cooperatives. It recommended a revival package <strong>of</strong> about Rs.15,000 crore forretiring <strong>the</strong> share capital contributed to cooperative societies by state governments and forcleaning up <strong>the</strong>ir balance sheets. The report also recommended capacity building, humanresource development, institutional restructuring to ensure democratic functioning, and improving<strong>the</strong> regulatory regime to empower <strong>the</strong> Reserve Bank <strong>of</strong> India (RBI) to enforce prudent financialmanagement.2.12 The Task Force also recommended that rural financial cooperatives should be dealt withas a distinct and separate class and be made fully democratic, self-governing, self-reliantorganisations for mutual thrift and credit. It also suggested that cooperatives be reorganisedprimarily as credit or marketing societies on <strong>the</strong> pattern <strong>of</strong> <strong>the</strong> National Dairy Development Board(NDDB). Implementation <strong>of</strong> <strong>the</strong> Task Force recommendations would go a long way towardsreviving cooperative credit societies. The Government <strong>of</strong> India has accepted most <strong>of</strong> <strong>the</strong>recommendations <strong>of</strong> <strong>the</strong> Task Force and has already put in place a revival package for <strong>the</strong>short-term cooperative credit structure. As for <strong>the</strong> long-term cooperative credit structure,Government’s decision is awaited on <strong>the</strong> recommendation <strong>of</strong> <strong>the</strong> Task Force–II.III.COMMERCIAL BANKS2.13 The expansion <strong>of</strong> commercial banks credit to agriculture has been impressive, particularlyafter bank nationalisation. The share <strong>of</strong> agricultural credit in total commercial bank lending rosefrom around 10 per cent in <strong>the</strong> mid-1970s to a peak <strong>of</strong> about 18 per cent (<strong>the</strong> <strong>of</strong>ficial target setfor public sector banks) at <strong>the</strong> end <strong>of</strong> <strong>the</strong> 1980s. Thereafter, it steadily declined to a low <strong>of</strong>39