1989 Agricultural Credit Review: Setting the Stage for Future Credit Systems

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By the late 1980s, India’s agricultural economy was at a crossroads. The Green Revolution had boosted food production, but the financial backbone supporting farmers – the cooperative credit system – was creaking under the weight of mismanagement, mounting overdues, and institutional inefficiency. To address this, the Reserve Bank of India constituted the Agricultural Credit Review Committee (ACRC) in 1989 under the chairmanship of the eminent economist Dr. A. M. Khusro. The committee’s mandate was both diagnostic and prescriptive: assess what was broken in India’s agricultural credit architecture, and chart a credible path forward for the decade ahead.

Table of Contents

Background: why a review was necessary

Post-Green Revolution India required significantly more capital-intensive farming. Inputs like improved seeds, fertilizers, irrigation, and machinery demanded consistent and accessible credit – not just sporadic, inadequate loans. Yet the rural credit system had failed to keep pace. Previous landmark surveys – the All-India Rural Credit Survey (1954) and the All-India Rural Credit Review Committee (1969) – had laid certain foundations, but by the time the 1980s rolled in, those reforms were no longer sufficient for a rapidly evolving agricultural landscape. Farm credit demand was escalating, but delivery mechanisms were fragile and unresponsive. The ACRC was formed precisely to bridge that gap.

The state of cooperative credit: what the committee found

The committee’s most significant concern lay with the Primary Agricultural Credit Societies (PACS) – the grassroots-level institutions that form the base of India’s three-tier cooperative credit structure. At the time of the report, there were around 87,000 PACS covering about 90% of villages across the country, and serving nearly 9 crore rural family members. Despite this massive reach, the committee found that the system was deeply dysfunctional in several critical respects.

Financial non-viability

A substantial number of PACS were running at losses. Poor fund management, inability to mobilize deposits internally, and an excessive dependence on external refinancing meant that many PACS could not sustain themselves without constant institutional support. This was not a marginal problem – it was endemic to the cooperative credit structure.

Recovery failures and mounting overdues

High levels of loan overdue were choking the recycling of credit funds. Studies on rural financial institutions consistently pointed to overwhelming non-performing assets as the primary reason cooperatives were heading toward financial unsustainability. Overdues didn’t just harm individual PACS – they weakened the entire multi-tier structure above them, including District Central Cooperative Banks (DCCBs) and State Cooperative Banks (SCBs).

Governance and management deficiencies

Political interference in PACS management had become a serious problem. Staff were often untrained, recruitment was not merit-based, and there was little accountability for performance. The committee observed that the cooperative structure urgently required comprehensive legislative reforms to insulate it from political pressures. As researchers analyzing Indian agricultural credit reform later noted, the ACRC identified the need for legislative overhaul as one of its central concerns.

Limited outreach to weaker sections

Despite the extensive network, PACS were still failing to reach small and marginal farmers – the very constituency they were meant to serve. Farmers belonging to scheduled castes and tribes, agricultural labourers, and rural artisans remained underserved or entirely excluded from formal credit channels.

Key recommendations of the Khusro Committee

Strengthening the cooperative credit structure

The committee firmly supported retaining the three-tier cooperative credit structure rather than dismantling it. It recommended comprehensive legal reforms to give cooperatives genuine autonomy – insulating PACS from political interference and allowing them to function as genuinely member-managed institutions. The role of federations in strengthening their constituent bodies was explicitly recognized, and the committee opposed any delayering of the Short-Term Cooperative Credit Structure (STCCS).

Professionalizing management

One of the committee’s most forward-looking recommendations was the professionalization of management across the cooperative credit system. It called for merit-based recruitment of qualified professionals, structured training programs at all staff levels focused on credit appraisal and risk management, and performance-linked incentive systems. The committee envisioned modern management practices – including strategic planning and management information systems – replacing the informal, politically managed structures that had come to dominate PACS.

Technology and inter-institutional coordination

The ACRC recommended gradual computerization of cooperative credit operations, beginning with SCBs and DCCBs and eventually extending to viable PACS. This was a prescient recommendation: it took India another three decades to act on it in earnest. Today, the government’s PACS Computerisation Project (2022-2027), backed by NABARD and the Ministry of Cooperation with a budget of Rs. 2,516 crore, is finally implementing the kind of digital transformation the Khusro Committee had envisaged.

The Regional Rural Banks question

The committee took a bold stance on Regional Rural Banks (RRBs). It concluded that the weaknesses plaguing RRBs were not incidental but structural – built into the very design of these institutions. Accumulated losses, heavy overdues, and a lack of viable commercial orientation led the committee to recommend the merger of RRBs with their respective sponsor banks. It argued that serving weaker sections effectively could only be achieved through self-sustaining credit institutions. However, the Government of India did not accept this recommendation at the time, choosing instead to revitalize RRBs through other measures like increasing their authorized capital and reducing refinance interest rates.

Innovative credit delivery mechanisms

The ACRC underscored the urgent need for innovative lending instruments that could adapt to farmers’ actual working patterns – seasonal cash needs, post-harvest repayments, and allied activities beyond crop cultivation. This emphasis on flexible, need-based credit delivery laid the intellectual groundwork for what eventually emerged as the Kisan Credit Card (KCC) Scheme, formally introduced in 1998 on the recommendations of the R. V. Gupta Committee and implemented by NABARD. The KCC scheme became one of India’s most successful agricultural credit innovations, with over 77 million cards active as of 2024.

Impact and legacy of the report

The Khusro Committee’s report, formally titled A Review of the Agricultural Credit System in India and published by the Reserve Bank of India in 1989, ran to over 1,000 pages – a measure of the depth of its analysis. Its most enduring contributions were not in immediate policy action, but in framing the reform agenda for the 1990s and beyond.

Several states enacted new cooperative laws in the 1990s in response to the committee’s call for legislative autonomy and professionalization. NABARD established the Cooperative Development Fund (CDF) to support capacity building in cooperative training institutions, a direct recognition that human resource development was critical to the system’s survival. The cooperative reform momentum the committee triggered also contributed, decades later, to the Vaidyanathan Committee’s revival package for PACS and DCCBs, which involved recapitalization assistance and structural reform conditionalities.

One criticism of the committee, however, was that its focus remained largely on restructuring credit delivery rather than addressing broader agricultural production constraints. Subsequent analysts noted that the ACRC directed most of its attention toward reorganizing rural credit structures, without adequately engaging with how agricultural production itself needed to be reformed to make credit demand sustainable and repayment viable.

Connecting 1989 to today’s rural finance landscape

Reading the ACRC report today is a reminder of how persistent India’s rural credit challenges have been – and how slowly structural change moves. The concerns the committee raised in 1989 about PACS viability, governance, overdue management, and technology adoption are strikingly similar to what the Bakshi Committee in 2013 and subsequent reform exercises continued to grapple with. The 2022 PACS Computerisation Project, now underway, reflects a government finally acting on what the Khusro Committee recommended over three decades ago.

Yet there is genuine progress to note. Institutional credit to agriculture has nearly tripled in the last decade, from Rs. 8.5 lakh crore in 2014-15 to Rs. 25.48 lakh crore in 2023-24. The proportion of small and marginal farmers accessing formal loans grew from 57% to 76% in the same period. The Khusro Committee would likely view these numbers as a vindication of its core argument: that quality institutional credit, professionally delivered, is central to agricultural development.

What do you think? Given that many of the Khusro Committee’s recommendations – particularly on PACS governance and technology – took decades to implement, what does this suggest about the relationship between expert committee reports and actual policy reform in India? And if a similar committee were constituted today, which gaps in India’s agricultural credit system do you think would demand the most urgent attention?

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References
  1. https://www.nabard.org/demo/auth/writereaddata/File/OC%2023.pdf
  2. https://www.cooperation.gov.in/about-primary-agriculture-cooperative-credit-societies-pacs
  3. https://www.researchgate.net/publication/325817356_Institutional_Reform_in_Indian_Agricultural_Credit_System_in_India
  4. https://nafscob.org/master/whasnew/images/image18392021-06-09-12-00-48.pdf
  5. https://www.nabard.org/digitalizing-cooperatives-faq.aspx
  6. https://citeseerx.ist.psu.edu/document?doi=d621c715a0bf4396a8620f8f4a4705ef8b3a8ef3&repid=rep1&type=pdf
  7. https://www.pib.gov.in/FactsheetDetails.aspx?Id=148600&reg=3&lang=2
  8. https://library.niti.gov.in/cgi-bin/koha/opac-search.pl?q=au%3A%22Khusro%2C+A+M+%28Chairman%29%22
  9. https://www.nabard.org/about-departments.aspx?id=5&cid=475
  10. https://dvararesearch.com/recommendations-of-the-bakshi-committee-report/
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Co-operation – Genesis, Principles, Values, Growth and Development

1 Genesis of Co-operative Movement in India and Few Selected Countries

  1. Characteristics of Co-operative Enterprise
  2. Objectives of Co-operation
  3. Origin and Development of Co-operative Movement in India
  4. History of the Co-operative Movement in India up to 1947
  5. England (Consumer Co-operative Movement)
  6. Germany (Raiffeisen and Schulze)
  7. Dairy Co-operatives in Denmark
  8. Co-operatives in Israel (Collective Farming)
  9. New Age Co-operatives

2 Development of Co-operative Principles and Values including ICA Restated Principles, 1995

  1. International Co-operative Alliance (ICA)
  2. Rochdale Principles
  3. ICA Statement on Co-operative Identity – 1995
  4. Principles of 1995 Co-operative Statement
  5. Co-operative Values

3 Co-operative Autonomy, Distinctive Features of Democratice Management in Co-operatives vis-a-vis Companies

  1. Nature of Co-operatives
  2. Principles of Co-operatives
  3. Democratic Member Control as a Restated Principle (1995)
  4. Features of a Co-operative
  5. Comparison between a Co-operative and Company

4 Co-operative Policy and Support at Centre and States (After 1990)

  1. Model Co-operative Law
  2. Andhra Pradesh Mutually Aided Co-operative Societies Act 1995
  3. Enactment of Multi-State Co-operative Societies Act 2002
  4. National Co-operative Policy 2002
  5. Vaidyanathan Committee Recommendations

5 Phase-I 1st to 3rd Five Year Plan

  1. First Five Year Plan (1951-1956)
  2. Second Five Year Plan (1956-1961)
  3. Third Five Year Plan (1961-1966)

6 Phase-II 4th to 8th Five Year Plan

  1. Introduction
  2. Fourth Five Year Plan (1969-1974)
  3. Fifth Five Year Plan (1974-1979)
  4. Sixth Five Year Plan (1980-1985)
  5. Seventh Five Year Plan (1985-1990)
  6. Eighth Five Year Plan (1992-1997)

7 Phase-III 9th to 11th Five Year Plan

  1. Ninth Five Year Plan (1997-2002)
  2. Tenth Five Year Plan (2002-2007)
  3. Eleventh Five Year Plan (2007-2012)

8 Present Status of Co-Operative Movement

  1. Spread of Co-operatives
  2. Share of Co-operatives in National Economy
  3. Significance of Co-operative Movement
  4. Important Sectors of Co-operative Movement
  5. Problems of Co-operative Movement
  6. Issues/Challenges before Co-operative Movement

9 Types of Co-Operatives

  1. Co-operative Marketing
  2. Co-operative Processing
  3. Co-operative Farming
  4. Consumer Co-operative
  5. Industrial Co-operatives
  6. Housing Co-operatives
  7. Dairy Co-operative
  8. Fishery Co-operatives
  9. Transport Co-operatives
  10. Education Societies
  11. Labour Co-operatives
  12. Hospital Co-operatives
  13. Agri-tourism Co-operatives

10 Study of Co-Operative Credit Institutions

  1. Origin
  2. Co-operative Rural Credit Institutions in India
  3. Credit Co-operative Movement after Independence
  4. Long Term Credit
  5. Co-operative Rural Credit Institutions – Issues
  6. Non-Agricultural Co-operative Credit Institutions

11 Study of Marketing, Consumer, Processing Co-Operatives

  1. Marketing Co-operative
  2. Consumer Co-operative
  3. Sugar Co-operative
  4. Dairy Co-operative

12 Study of Co-Operatives for Weaker Section– Labour, Tribal, Fishery, Weavers, Women

  1. Importance of Weaker Section Co-operatives
  2. Different Weaker Section Co-operatives
  3. Fishery Co-operatives
  4. Tribal Co-operatives
  5. Labour Co-operatives
  6. Weavers’ Co-operatives
  7. Women Co-operatives

13 Study of Other Types of Co-Operatives- Housing, Fertilizer

  1. Housing Co-operatives
  2. Fertilizer Co-operatives
  3. Health Co-operatives
  4. Tourism Co-operatives
  5. Tree Growers’ Co-operative Societies

14 Findings and Recommendations of Important Committees (1954- 1989)

  1. All India Rural Credit Survey Committee Report – 1954
  2. Committee on Co-operation – 1965
  3. All India Rural Credit Review Committee (AIRCRC) – 1969
  4. Madhava Das Committee – 1978
  5. Report of the Committee on Co-operative Law for Democratisation and Professionalisation of Management in Co-operatives – 1987
  6. Report of the Agricultural Credit Review Committee – 1989

15 Findings and Recommendations of Important Committees (1991- 2010)

  1. Report of the Committee on Model Co-operative Act – 1991
  2. Report of the Committee on Licensing of New Urban Co-operative Banks
  3. Report of the Task Force on Revival of Rural Co-operative Credit Institutions (2005)
  4. Report of the High Powered Committee on Co-operatives (2009)

16 Role of Regulatory and Development Institutions for Co-operative Movement

  1. Role Functions of Reserve Bank of India
  2. Role Functions of NABARD
  3. Role Functions of NCDC
  4. Role Functions of NDDB
  5. Promotional Role of Registrar of Co-operative Societies in Co-operative Development

17 Co-Operative Training and Education

  1. Evolution of Co-operative Training and Education
  2. Structure of Co-operative Training and Education under NCUI
  3. Co-operative Training and Education Facilities in Junior Training Centres in States
  4. Co-operative Training and Education provided by other Co-operative Organizations