A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations. They do it through a jointly owned and democratically controlled enterprise. The essence of cooperation lies in bringing the diverse group together. Infuse inclusion by giving them voice and then create belongingness by offering ownership.
The first mutual aid society in India was probably established in 1889 in the princely state of Baroda. Initially Urban cooperative credit societies were formed to meet the consumption oriented credit needs of its members. Legal framework of Cooperative societies was framed in 1904 with the enactment of Cooperative Credit Societies Act 1904. This act was amended in 1912 with a view to broad basing it to enable non-credit societies also. The Maclagan Committee of 1915 was appointed to review their performance and suggest measures for strengthening them in 1915.
Later on the scope of this act covered banks and cooperative financing agencies also in urban and rural areas. The cooperative societies structure in India saw an increase in agricultural produce prices during the Second World War. In post independence era the footprint of these societies broadened from agricultural market to the credit, fisheries, housing, banking etc. This led to classification of Societies in six distinct areas namely Farming, Credit, Producer, Consumer, marketing and Housing. In 2002 Multistate Cooperative Societies Act (MSCSA) 2002 was enacted. Prior to this Cooperative society was a state subject. MSCSA came under the central legislative. The new legislation was to provide, promotion and development, reducing regional imbalances and capacity building of cooperative. Still nothing much was achieved. In 2002 again, National Policy on Cooperative societies was published.
Cooperative Infrastructure in India
There were many committees being formed to evaluate and review the functioning of Cooperative infrastructure in India. All India Rural credit Survey Committee Report 1954, Chaudhry Brahm Prakash Comm 1990, Mirdha Committee 1996, Jagdish Kapoor Committee 2000, Vikhe Patil Committee 20021 and S Vyas committee 2001/2004 are the most prominent amongst those. The last committee strongly advocated the need to replace the existing government dominated cooperative laws by a new people centric legislation. There was a strong recommendation to legally protect the cooperative societies. Most of the committees were of the opinion that the state governments used the cooperative societies for their political benefits.
This led to 97th Constitutional Amendment Act 2011 by bringing forming cooperative was added to the Fundamental Right giving constitutional protection to the cooperatives. Simultaneously the states were asked under the directive principle of state policy to promote voluntary cooperative formation. The state will also ensure autonomous functioning of such cooperatives with democratic control and professional management. The states were also made responsible for providing funds to cooperatives as well as to ensure fair and free elections as well as audits of these cooperative societies. States will also ensure not only ease of starting a society but ease of exit also. The states were asked to act pro cooperative manner.
Ministry of Cooperation
In July 2021, a new ministry has been formed to create prosperity through cooperative. Ministry of Cooperation is basically meant for people at grass roots level. This will also help in ease of doing business for both societies and multi state cooperative. It was earlier announced during Budget announcement of 2021.
Current Ministry of Cooperatives may extend the objectives of 97th amendment by taking full control of this ministry. Till now it was part of Ministry of agriculture and cooperative development. As per the National Cooperative Policy the following constraints were identified for the sustainability of cooperative society structure in the country.
- Legislative and Policy Constraints
- Resource Constraints
- Infrastructure Constraints
- Institutional Constraints
- Constraints related to members awareness
- Constraints arising out of Excessive government controls and needless political interference
Moment of truth
Cooperative style business is not financially profitable in India. India has over 8 lakhs cooperative societies, which are active in around 55 distinct areas related to six broad categories mentioned before. These cooperatives have close to 280 millions members. Dairy cooperatives numbering around 1.6 lakhs and agro-based cooperatives with around 0.8 lakhs members make up for almost one third of the total cooperatives in the country.
Most of the time the Amul model is being discussed while talking of Cooperative’s success in the country. Amul has around 20000 Cooperative society linked with 3.6 millions farmers of Gujarat and 7 lakh farmers from other parts of the country. Apart from Amul from Gujarat, most of other dairy cooperatives in the country are depending upon huge government support. They have not been able to sustain themselves in open market dynamics scenario.
There have been huge investments in infrastructure by these cooperatives but capacity utilization is still limited. Karnataka milk federation, the second largest cooperative in the country has almost tripled their milk procurement from 30 lakhs to 90 lakhs LPD (Liters per day) in last one decade. However this was done at the cost of regular milk subsidy given to the member farmers. This disturbed the level playing field in the state. Karnataka is still amongst the state with very poor footprint of the private sector.
Non dairy cooperatives
Sugar and cotton are amongst the leading agriculture societies in the country. These cooperatives also thrive on various quota based schemes and subsidies provided through MSP mechanism in the country. Rural financing and housing societies are other areas, which have huge financial base, but some of them are also facing the integrity issues. In 2020 the government has brought these cooperative banks under RBI to regulate their affairs in a more stringent manner.
“It is reported that there are more than 8.6 crores depositors in over 1,500 urban and multi-state cooperative banks across the country and that their money, amounting to ₹4.84 lakh crores, in these cooperatives banks will stay safe with this initiative. Bank failures have been an integral part of Indian financial history. It is not for nothing that in 1913, John Maynard Keynes after surveying the state of banking in the country, wrote in Indian Currency and Finance, “In a country so dangerous for banking as India, it should be conducted on the safest possible principles”. (The business line September 17,2020)
Challenges in front of the new ministry of Cooperation
Excessive government controls and needless political interference have already been listed as a major constraint under National Cooperative Policy 2002. It is very difficult to keep the operations of the new ministry without any political bias. All the opposition parties will look at the formation of this ministry as a step towards getting access to, large member base of the societies particularly in the state of Maharashtra and Gujarat, ahead of the polls.
The ministry will have to develop an enabling environment for the cooperative eco system to grow and flourish in near future. The ministry will have to exercise their centralized authority without diluting the inclusive intent of the cooperative societies.
Dairy cooperatives have shown the path to success to the nation through cooperative model. The ministry might benchmark this model to be implemented in all other agro-based sectors. There is a huge possibility for India to become self-sustainable like Milk, in Edible oils and Pulses also. The same model may be considered as a starting point for the entire agro-based cluster identified under the one district-one product program in the country.
Agricultural Infrastructure Development Fund
The ministry may also play a vital role in directing Agriculture infrastructure fund to ensure the logistics, storage and processing of agro-produce in the country through the cooperative model.
Profits have a somewhat negative connotation in the parlance of the cooperative world. The ministry must first ensure profitability of existing cooperative societies in whatever they do. The member cooperatives may be developed on the lines of entrepreneurs. Their initiatives may be treated like a startup. The fund availability for bridge finance, loans, working capital and risk capital must be planned well and made available to selected societies. All cooperative societies must be trained in finance and marketing.
Challenge of Non profitable value chain
Most of the cooperative societies begin and end their journey within the battery limits of non-profitable part of the value chain. There is always some marketing network available to exploit these cooperative societies. Handlooms and handicrafts based cooperatives are the best cases for such exploitations.
The success of Amul cooperative model in Gujarat is attributed to the relentless efforts of Dr. V Kurien.
Dr. Varghese Kurien was always against the interference of the government and bureaucrats in the functioning of cooperative system (like Amul) as well as Institutions (like NDDB). This will be the biggest challenge in front of the government to keep bureaucracy and farmers at the same level.
At the end I would like to share a famous quote by Dr. Varghese Kurien from his autobiography, I too had a dream, as follows:
“I began to see then that when the government enters business, the citizens of India get cheated. The greatest repercussion of the government entering into business is that instead of safeguarding people from vested interests, they themselves become the vested interest.”
Article Written by : Kuldeep Sharma , Founder Suruchi Consultants and Dr J B Prajapati Chairman, VKCOE IRMA, Anand