AJAB Volume 2 Issue 2 2017

Amity Journal of Agribusiness

2 (2), (22-29)
©2017 ADMAA

Performance of the Primary Agricultural Cooperative Societies:

Special Reference to Short Term Cooperative Credit Structure
in North Eastern Region

Sujit Das
Bir Bikram Memorial College, Agartala, Tripura, India

Abstract
The short term Cooperative Credit Structure (STCCS) has a federal three-tier layer with the Primary
Agricultural Credit Society (PACS) being the bottom level institution. To revive and revitalise the STCCS,
the Government of India implemented conditional revival package (Vaidyanathan-2008) to provide financial
assistance to the PACS for recapitalisation. With this restructuring and reform package many units regained
their functional specialization with the inflow of the recapitalised fund. This revamping initiative gave an
impetus to investigate the overall performance of the PACS with the help of five performance score index
between pre and post implementation effects of the Revival Package for the PACS for a period of ten years.
To examine the intermediary and functional role of the units between and within the period, the study with
the help of identified indicators analysed the variances and correlations of the variables and then it ranked
the performance scores of the PACS operating in North Eastern region with All India score based on periodic
segments using static and dynamic panels and ranked them through the means for groups in homogeneous
subsets by means of the R-E-G-W range test. The results evidently signal that the PACS are not fully
performed well in all respects but they are improving their performance over the time span on an average.
Keywords: PACS, Overall Performance, Revival Package, Credit Structure, Recapitalisation
JEL Classification: Q13, H81
Paper Classification: Research Paper

Introduction
Performance evaluation is an important pre-requisite for sustained growth and development
of any institution. The need for evaluation has acquired greater relevance owing to the emergence
of competitive environment and growing credit need in the rural sector. It is necessary to
evaluate the performance of cooperative in relation to the pre-determined goals and objectives.
The principle of a cooperative society does not exist for maximising profit for its members, but
for improving the condition for its members. Indicators to evaluate the overall performance
of cooperative specific to PACS are seldom available. Those which are available are not
comprehensive. Nevertheless a few attempts have been made to evolve indicators in different
contexts. Based on the available literature, five categories of index have been developed namely
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structural, functional, business and profitability performance indexes with a view to evaluating
the overall performance of PACS. A cooperative society is a complex business mechanism
combining economic and social aspects at the same time. Any attempt to measure the performance
of PACS should be comprehensive to include the economic and social dimension. Short-term co-
operative credit institutions continue to occupy a significant position in institutional credit flows
to agriculture and remain a potent instrument for furthering the financial inclusion agenda, even
after the advent and spread of commercial and regional rural banks. As of March 2016, short-term
co-operatives had between themselves a branch network of 108,776 branches as against 110,361
branches of PSBs, Local Area Banks and Regional Rural Banks taken together (RBI., 2016-17).
Financial performance, profitability, productivity and operational efficiency have been studied
by Dutta, 2006; Samantaray, 2008; Ramesh & Patel, 1999; Namboodiri, 2001; Desai., 1983; Sant,
1986; Ranjan, 1978; Kadam, 1990 ; Vaikuntha, 1988 ; Roy, 2007; Satyasai & Patil, 2002 ; Hajela,
2000; Capoor, 2000 ; Singh, 2001; and Roy & Das, 2015 . They all pointed out that there is scope
for increasing the profit and profitability, if proper attention is paid on areas like recovery, deposit
mobilization, reduction in manpower, operating expenses, building up of more owned funds
and scientific management of funds. Some of the notable studies relating to interest, spread,
burden and profitability of the cooperative societies were made by Goyal, Kaur, & Suhag, 2006;
Prasad, 2006; Chalam & Prasad, 2007; Mallika, 2007 ; Dhanarajan, 1989; Murugesan, 2007; Das &
Chaudhury, 2011;and Natarajan, 2007. They observed that the excess reserves kept by the bank
are an indication of ineffective management of funds within the bank. The overall borrower to
member ratio, which is a useful indicator of access to credit from PACS, improved from the level
witnessed during 2013-14. Farmers – small and marginal – remained majority members of PACS
but the increase in access to credit by the ‘rural artisan’ group contributed substantially to the
increase in the overall borrower to member ratio. (RBI, 15-16). The empirical findings established
by Dr. Arindam Laha, argument that the farmers with access to institutional credit prefer to opt
for more lease in land under fixed rent contact vis-à-vis pure sharecropping contact. (Laha, 2011)
It is apparent from the review of literature that quite a lot of studies have been made on various
aspects of financial management in cooperative societies in different parts of the country. But
only a small number of mentionable studies have attempted a detailed analysis of performance
and other aspects of financial management, particularly in the area of efficiency gain in resource
allocation and resource utilization on overall financial and structural management practices. Even
such studies have limited themselves to either individual PACS or were limited to their scope.

Statement of Problem
In today’s world dominated by globalization and severe competition, PACS needs to decide
whether they will follow a relatively risk-averse or risk-neutral approach to financial management
or ready to reorient for a more aggressive- approach and target higher long term earnings to
increase overall value of the units. However, regardless of the risk-return choice, bank needs to
realize that the right level of skills and resources need to be committed to support the function.
Failure to do this can result in a poorly managed operation characterized by volatility in, core
earnings/margin, economic value, and unpredictable economic results. Several studies on the
operational efficiency of the PACS show that most of the units were inefficient in the mobilization
of finances as well as in the operation of resources. The data prima facie shows inefficiency slacks,
so there appears ample scope and scale of these PACS to improve their financial position by
finding out new avenues for venture, better management of resources and by taking all efforts
to curtail the overdue position by implementing the effective management practices. One of the
reasons of slow progress may be the poor operational and managerial practices of the PACS. The
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ramification of the problems that arise from the research question require to be addressed form
empirical findings through identification and evaluation of relevant factors which can reduce the
inefficiency level of fund and design its assets and liabilities mix to improve their performance.
The selection of the topic has been made with a view to investigate and explore the leading
structural bottleneck along with the financial and functional policies to assess the spreading
between the policies and practices of the PACS during the period under study and to suggest
ameliorative measures to overcome the necessary loopholes. The study adds greater significance
as it is first exploratory study in its nature covering national and the North Eastern region in
particular.

Objectives and Hypothesis

The significance of the study arises on getting the answer of the research questions as to
why the PACS are not performing up to the mark in spite of the several committees being set
up to suggest cooperative sector reforms and so many reforms and incentive packages being
implemented during this period. Are the PACS fulfilling the expectation of the members as well
as nation? The selection of the topic has been made with a view to investigate and explore the
leading trouble to suggest ameliorative measures to overcome the necessary loopholes. The study
adds greater significance as it is the first exploratory study of its nature covering all India as well
as North Eastern region and also Tripura in particular. Accordingly the aim of the present research
paper is to investigate the overall performance of the PACS pre and post implementation of the
Revival Package for STCCS. The study is directed towards the following objectives:
I. To review the present performance status in terms of financial and functional efficiency of the
PACS in the changing financial environment and to assess whether the performance of the
PACS in the North Eastern region are improving over the time.
II. To compare the PACS units operating in the North Eastern region between pre and post
revamping package and whether performance improvement if any is comparable with that of
all India standards or not.
III. To prescribe policy implications for ameliorative measures and for re-engineering the
policy inputs for better decision usefulness of the PACS keeping with the current and future
developments.

To help answer the above research question, the following formal hypothesis is deduced from
the theoretical propositions in two forms: the research or alternative hypothesis (HA), which is
guessing the true situation to be, and the null hypothesis (H0), which requires to be tested in
representativeness with a reference point.
HO: There is no significant difference between structural and financial performance of the
PACS operating in the NE region as compared to the All India average.
HA: There is significant difference between structural and financial performance of the PACS
operating in the NE region as compared to the All India average.

Research Method and Design

The study is based on the secondary data which is obtained from the annual report and
financial statements of NAFSCOB, RBI and NABARD from the year 2006-07 to 2015-16. Besides,
the facts and figures and findings in the similar earlier research studies; journals, magazines and

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Government publications are also to be used to supplement the secondary data. The methodology
to be followed in this study includes the different tools and techniques of financial management
and statistics. To measure the amount of variance shared between the variables, focus will on the
Spearman’s- rho and Kendall’s- tau to get an idea about the strength of the relationship on S.P
Index (SPI) as a measure of Structural Performance, F.P Index (FPI) as a Functional Performance,
B.P Index (BPI) as a Business Performance, R.U.P Index (RUPI) as a Resource Utilisation and
P.P Index (PPI) as a measure of profitability performance. As the focus of analysis is to find
the differences, next to the F test, it used the K-W (H) test to compare mean rank differences in
performance practices as the underlying assumptions of statistics are not met among the PACS
under study.

Analysis and Findings

Table-1: Descriptive Statistics –Performance Index of the PACS Under Study
MODEL STATE STATISTICS
MEAN SD STD. ERROR MIN MAX
SPI TR-PACS 94.2540 4.31672 1.36507 86.54 100.00
NE-PACS 91.9550 1.71217 .54144 90.00 95.00
IND-PACS 95.4329 2.15133 .68031 89.93 96.76
FPI TR-PACS 91.6958 4.95730 1.56764 85.19 97.01
NE-PACS 53.4852 4.89003 1.54636 45.37 59.62
IND-PACS 64.8171 4.68141 1.48039 59.07 72.28
BPI TR-PACS 743.4838 231.61651 73.24357 466.41 1287.33
NE-PACS 1855.1984 157.26687 49.73215 1703.35 2189.42
IND-PACS 7332.2365 2458.78611 777.53644 4980.21 12456.07
RUPI TR-PACS 58.7206 9.98425 3.15730 44.69 68.82
NE-PACS 82.1596 3.41586 1.08019 76.07 89.86
IND-PACS 75.2756 7.75172 2.45131 58.83 88.61
PPI TR-PACS 29.8976 12.98086 4.10491 6.32 44.44
NE-PACS 16.4341 1.49812 .47375 13.99 18.60
IND-PACS 51.5125 15.39452 4.86818 34.95 74.21

The descriptive statistics indicating average performance index at the national, regional and
state level standard deviation, standard error, minimum and maximum values are shown in the
Table-1, with the first row representing the analysis using structural performance index, second
row indicating functional performance index, third row indicating business performance index,
fourth row explaining the resource utilisation index and last row presenting the profitability
performance index score.
It clearly appears that structural performance index, business performance index and
profitability performance index score on an average are lower than national average and
consequently the FPI and RUPI correspondingly depicts higher average score in the NE region as
compare the national average. The analysis revealed that Tripura state crossed both national and
regional average in terms of FPI score.

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Table-2 Anova Test of the PACS Units Under Study

Model Statistics Sum of Squares df Mean Square F Sig.
SPI Between Groups 62.567 2 31.284 3.583 .042
Within Groups 235.744 27 8.731
Total 298.311 29
FPI Between Groups 7703.094 2 3851.547 164.122 .000
Within Groups 633.625 27 23.468
Total 8336.719 29
BPI Between Groups 248818391.416 2 124409195.708 60.945 .000
Within Groups 55116073.874 27 2041336.069
Total 303934465.290 29
RUPI Between Groups 2902.819 2 1451.409 25.398 .000
Within Groups 1542.983 27 57.148
Total 4445.802 29
PPI Between Groups 6263.219 2 3131.610 23.041 .000
Within Groups 3669.645 27 135.913
Total 9932.865 29

The estimated F test in which an estimate of the between group ( explained) variance is
compared with an estimate of the within group (error), it is found that for all the performance
index score, they are significant. Consequently, there appears a significant difference among the
five parameters of the performance index between the units under study.
Table-3: Correlation Results of Performance Indexes of the PACS Units
Model Index Statistics SPI FPI BPI RUPI PPI
SPI Correlation Coefficient 1.000 .284(*) .054 -.300(*) .268(*)
Sig. (2-tailed) . .031 .680 .022 .041
N 30 30 30 30 30
FPI Correlation Coefficient .284(*) 1.000 -.213 -.644(**) .288(*)
Sig. (2-tailed) .031 . .100 .000 .027
N 30 30 30 30 30
BPI Correlation Coefficient .054 -.213 1.000 .368(**) .247
KENDALL’S TAU_B Sig. (2-tailed) .680 .100 . .004 .056
N 30 30 30 30 30
RUPI Correlation Coefficient -.300(*) -.644(**) .368(**) 1.000 -.136
Sig. (2-tailed) .022 .000 .004 . .292
N 30 30 30 30 30
PPI Correlation Coefficient .268(*) .288(*) .247 -.136 1.000
Sig. (2-tailed) .041 .027 .056 .292 .
N 30 30 30 30 30

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SPI Correlation Coefficient 1.000 .428(*) .057 -.389(*) .349

Sig. (2-tailed) . .018 .766 .034 .059
N 30 30 30 30 30
FPI Correlation Coefficient .428(*) 1.000 -.435(*) -.825(**) .392(*)
Sig. (2-tailed) .018 . .016 .000 .032
N 30 30 30 30 30
BPI Correlation Coefficient .057 -.435(*) 1.000 .503(**) .409(*)
SPEARMAN’S RHO Sig. (2-tailed) .766 .016 . .005 .025
N 30 30 30 30 30
RUPI Correlation Coefficient -.389(*) -.825(**) .503(**) 1.000 -.205
Sig. (2-tailed) .034 .000 .005 . .276
N 30 30 30 30 30
PPI Correlation Coefficient .349 .392(*) .409(*) -.205 1.000
Sig. (2-tailed) .059 .032 .025 .276 .
N 30 30 30 30 30

It appears from Table-3, Kendall’s Tau-b is noticeably lower than Spearman Rho, which
indicates the rank differences are not extreme. Because large differences in ranks are magnified,
the presence of large rank differences result in relatively lower value of Rho. Value of Rho is
significant under alpha level of 0.05 and Kendall’s Tau-b is also significant. It appears that the
variations in the ranks of all the performance index parameters are very much in concordance with
each other and yet ineffectual.
Table-4: Annual Performance Index Score and Ranking
Year Performance Index Model
SPI FPI BPI RUPI PPI
Score Rank Score Rank Score Rank Score Rank Score Rank
1.00 96.7600 1 62.0832 6 4980.2083 10 73.6356 7 74.2140 1
2.00 96.5300 5 61.5283 8 5318.2851 9 88.6109 1 71.5752 3
3.00 96.6450 2 61.3685 9 5318.5308 8 71.3002 9 73.2834 2
4.00 96.5875 4 62.5329 5 5820.0550 7 74.1063 6 41.6613 7
5.00 96.6163 3 59.0667 10 6526.9664 6 74.9260 5 34.9533 10
6.00 95.2700 8 61.5893 7 6927.3897 4 77.9136 3 40.3444 8
7.00 89.9300 10 67.8343 4 6822.0393 5 73.5467 8 38.9939 9
8.00 96.2400 6 69.2468 3 8840.8996 3 76.8421 4 43.2512 6
9.00 93.6700 9 70.6379 2 10311.9179 2 83.0398 2 47.6957 5
10.00 96.0800 7 72.2834 1 12456.0724 1 58.8346 10 49.1529 4

For evaluating the effectiveness in all performance scores of national and regional PACS by
comparing them across the years despite differences, in which it is employed in this study as a
dynamic Panel it may shed light on the trends over the period of the study. The findings show
that PACS are more efficient in functional and business performance in comparison to other
performance and that with the advancement of years the PACS under study are improving their
performance score.

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Table-5: Performance of PACS- Pre and Post Implementation of STCCs Revival Package
State STAT SPI FPI BPI RUPI PPI
Pre post Pre post Pre post Pre post Pre post
T-PACS Score 92.200 96.308 87.704 95.688 883.463 603.505 66.552 50.889 27.926 31.869
Min 92.200 86.540 85.190 90.740 759.500 466.410 63.210 44.690 15.560 6.320
Max 92.200 100.000 90.740 97.010 1287.330 759.500 68.820 64.380 44.440 44.440
Variance 0.000 31.379 7.778 7.673 51558.364 20160.531 4.234 66.725 147.435 221.978
NE- Score 91.000 92.910 49.438 57.532 1753.259 1957.138 81.727 82.593 15.602 17.266
PACS Min 90.000 90.000 45.370 55.630 1703.350 1736.300 81.000 76.070 13.990 15.760
Max 92.000 95.000 52.840 59.620 1802.470 2189.420 82.630 89.860 17.370 18.600
Variance 1.000 3.316 10.800 2.057 2297.821 27372.053 0.477 25.307 2.228 1.092
IND- Score 96.628 94.238 61.316 68.318 5592.809 9071.664 76.516 74.035 59.138 43.888
PACS Min 96.530 89.930 59.070 61.590 4980.210 6822.040 71.300 58.830 34.950 38.990
Max 96.760 96.240 62.530 72.280 6526.970 12456.070 88.610 83.040 74.210 49.150
Variance 0.007 6.837 1.794 16.870 362540.564 5676106.409 47.530 83.825 368.099 19.783

It is judicious to analyze most of the performance index improvement scores if any pre and
post STCCS revamping both at the national, regional and Tripura state level PACS under study.
A summary of descriptive statistics and statistical tests of significance for all the PACS concerning
two phases are depicted in Table-5. A comparative picture for the entire performance index for the
PACS operating in NE region shows a sharp improvement after STCCS.

Findings
• It is concluded that, all the inefficiency levels in N-E Region are in the same order as the
averages in all India levels, as well as, all the PACS are more efficient in functional and
business performance in comparison to other performance and with the advancement of years
the PACS under study are improving their performance score.
• Analysis reveals that Tripura state crossed both national and regional average in terms of FPI
score.
• A comparative picture for the entire performance index for the PACS operating in NE region
shows a sharp improvement after STCCS.

References
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Chalam, P. G., & Prasad, A. (2007). An Evaluation of Financial Performance of Cooperative Societies in Andra
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Author’s Profile
Sujit Das is presently working as Assistant Professor in the Department of Commerce, Bir Bikram
Memorial College, Agartala, West Tripuria, India. Before joining the Institute, he was working as the Head
of the Department of Commerce, Dasharata Dev Memorial College, Government of Tripura, Khowai, Tripura
and Faculty Member, Centre for Cooperative Management, Tripura . He has more than 15 years teaching
experience. Beside that he has 5 years experience as General Manager, Tripura Cooperative Agricultural And
Rural Development Bank Ltd. and Assistant Registrar of Cooperative Societies, Department of Cooperation,
Government of Tripura. He has 11 Articles published in national and international journals. He has
successfully run a Minor Research Project funded by UGC.

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