The collapse of Punjab Maharashtra Cooperative Bank has shaken the trust of people in cooperatives as an alternative to meet the needs of household and producers in sectors such as dairy, fisheries, sugar cane, cottage industries. The cooperatives provide India an alternative to the trans-village industry model of China based on agriculture and allied industries. However, the focus on strengthening cooperatives and bringing in stringent discipline has vanished over years. The current discourse is not focused on enhancing the advantages that cooperatives bring in raising the income levels of members.
The cooperatives are facing a crisis mainly due to the lack of active participation of the members. Soaring number of bad loans, inability to raise internal funds that resulted in the dependence on government funds, lack of professional management and political interference have also contributed to the crisis.
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The first cooperative credit societies Act was passed in 1904 and amended in 1912. Maclagan Committee in 1914 established procedures for better functioning. The early decades of the 20th century gave the fillip to the cooperative movement, leading to the establishment of Cooperative Planning Committee in 1945, The Reserve Bank of India appointed a committee in 1951 to survey rural credit societies across the country which submitted its report in 1954.
The rural credit societies created forward and backward linkages including marketing, storage, warehousing, skilling and cooperative training. They targeted fiscal discipline among members and enhancement of their incomes. The knowledge and technology were brought in by the RBI, and National Agriculture Credit and State Agriculture Credit organizations brought in the initial funds. A federal structure was developed starting from village to the apex body. This initiative was triggered in the Second Five Year Plan.
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The rural cooperatives created backward and forward linkages for agriculture and allied sectors and were non-banking in nature, while the urban cooperatives provided an alternative to the traditional banking system. In 1933, the RBI recognized the cooperative movement and created a separate department dealing with cooperative credit. The cooperative movement was strengthened by the five-year plans as an instrument to enhance rural incomes. With the growing concerns over the slow economic growth, the policy makers tried to strengthen the cooperatives by bringing in fiscal discipline, expertise, skills to ensure fund flows and technology inputs to optimize the use of resources.
In the urban areas, there are consumer cooperative societies to bring in the daily requirements reasonable prices. Producer and industrial cooperatives worked well for small manufacturers more as a voluntary association for sharing skills, raw materials, and technology to bring in the benefits of the economies of scale.
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The cooperatives are a need for farmers, allied agriculture sector, artisans like weavers, and small producers. There is a need to develop them on the lines of trans-village model of China. The marketing is done at bigger scale by experts to ensure better equipment, research, market inputs, sustainability of market and better prices. Tax concessions to cooperative societies can be leveraged to ensure better incomes to members, helping to reduce poverty in the country.
The cooperatives have become a platform for furthering political ambitions that has given a bad name to the movement. Despite this, India has sustainable models in dairy, vegetable marketing, producer companies, self-help groups and strong cooperative banks. There is an urgent need to go back to the drawing board to energise the cooperatives in both manufacturing and consumer sectors through digitization, fiscal discipline and better links with experts.
Dr Aruna Sharma is a New Delhi-based development economist. She is a 1982-batch Indian Administrative Service officer. She retired as steel secretary in 2018.