To give a big push to agricultural loans, the government is likely to announce a package of around Rs4,850 crore by November end to revive long-term rural cooperative credit institutions such as primary cooperative agriculture and rural development banks.
“I have informed the state governments, this (revival) is doable, it’s not beyond our capacity. This is the very last chance we have to revive cooperative institutions,” said finance minister P. Chidambaram after a meeting with representatives of state governments on Wednesday.
Positive note: Finance minister P. Chidambaram says the Centre will call a small group of states for intensive discussions.
A report by the Task Force on Revival of Rural Cooperative Credit Institutions, also known as the Vaidyanathan Committee, which formed the basis of discussion between the Union government and states, estimates that the revival would cost about Rs4,837 crore. According to the task force, long-term cooperative credit institutions have a membership of 16 million with a credit flow of Rs3,143 crore in 2002-03.
The agriculture sector, which accounts for close to two-thirds of the population, has been stagnant in the last few years, and is becoming an area of policy focus.
In 2006-07, agricultural growth rate was 2.7% while the overall economy grew at 9.4%.
Some of the states expressed reservations about eight of the task force’s recommendations, said Chidambaram, without giving details. The finance ministry would moderate the task force’s recommendations based on states’ suggestions, he added.
Some of the key reforms suggested by the task force are to allow long-term institutions to access all deposits from members and not just depend on government grants. In addition, the task force suggested that the institutions be allowed to extend even non-agriculture loans.
The cooperative institutions, the task force said, should be allowed to borrow from any regulated financial institution and their mandatory capital should be hiked over a five-year period from 7% to 12% of their assets. The recommendations also said that for a unit to qualify for a revival package, the ratio of total interest receipts to operating expenses should exceed 50%.
The West Bengal government on Wednesday issued a document that spelt out its reservations about some of the task force’s recommendations.
The document suggested mandatory capital should be first hiked over a three-year period to 9% of the assets and, thereafter, fresh targets could be fixed.
The share of a state government equity in the institutions should be allowed to go up to 25%, instead of being capped at 11%. In addition, they said the revival package should be extended even to units which have a ratio of interest receipts to operating expenses of less than 50%.
Once the recommendations are moderated by the end of the month, the Centre would call a small group of states for intensive discussions, and “hopefully finalize the package by end-November,” said Chidambaram.
The meeting on Wednesday was the first one to discuss the revival of long-term rural cooperative credit institutions. It came on the heels of earlier discussions during which the government finalized a package of about Rs14,839 crore to revive short-term rural cooperative credit institutions such as primary agricultural credit societies.
The revival package for short-term credit institutions is currently underway and is contingent on reforms in cooperative institutions initiated by state governments.
According to the task force’s report, long-term credit institutions have 2,500 retail outlets compared with more than 100,000 outlets for short-term credit institutions.