Rural Credit and Banking

UNIT 3 COOPERATIVES IN RURAL

DEVELOPMENT

Structure
3.0 Objectives
3.1 Introduction
3.2 Meaning and Definition of Cooperation
3.3 Principles of Cooperation
3.4 Evolution of Cooperatives in India
3.4.1 Pre-independence Scenario
3.4.2 Post-independence Scenario
3.4.3 Five-year Plans (Second to Fifth)
3.4.4 Five-year Plans (Sixth to Ninth)
3.4.5 10th Five-year Plan and Cooperatives
3.5 Growth and Development of the Credit Cooperatives
3.5.1 Structure of the Cooperative Credit System
3.5.2 Primary Agricultural Cooperative Society (Production Credit)
3.5.3 District Central Cooperative Banks
3.5.4 State Cooperative Banks
3.5.5 State Cooperative Agriculture and Rural Development Banks
3.6 Growth and Development of the Non-Credit Cooperatives
3.6.1 Cooperative Marketing
3.6.2 Processing Cooperatives
3.6.3 Cooperative Sugar Mills
3.6.4 Dairy Cooperatives
3.6.5 Fertiliser Cooperatives
3.6.6 Industrial Cooperatives
3.7 Regional Imbalances in the Growth and Development of Cooperatives
3.8 Assessment and Evaluation
3.9 Let Us Sum Up
3.10 Suggested Readings and References
3.11 Check Your Progress – Possible Answers

3.0 OBJECTIVES

After studying this unit you should be able to:

• define cooperation and principles of cooperation;
• trace the evolution of cooperatives in India;
• compare the characteristic features of cooperative enterprise with other
enterprises;
• review the progress and problems of cooperatives in their functioning and their
potential in rural development; and
• compare the relevance of cooperative organizations in the mixed economy
scenario.

3.1 INTRODUCTION
India lives in villages where most of the inhabitants are small, marginal, landless
farmers and artisans. After independence, agriculture was identified as one of the 29
Rural Development thrust areas for rural development. Even at that time, the policy makers had visualized
Administration the fact that without people’s participation and institutional support, the rural development
programmes could not be pushed through. Considering the situation of the rural
sector, the importance of the panchayati system and cooperatives was recognized
and these institutions were assigned specific roles to play. The main task assigned to
these institutions was to work for community development, to eradicate rural poverty,
to reduce inequalities and to eliminate privileges. Since the 1960s, a number of rural
development programmes, such as the Panchayati Raj and land reforms or the Green
and the White Revolutions through technical and cooperative missions, have been
initiated and implemented. In a village, the cooperative society enjoys a focal position
as an important socio-economic institution. The objective of the cooperative society
is to provide services to its members (i.e. the rural community) and these services,
which you will study in later units, are multifaceted. Although the membership of
cooperatives does not include the entire population of a village, it does include a major
part and a broad spectrum of the rural population. Besides, in implementing any
community development schemes by other agencies (for example, the removal of
illiteracy, making people conscious of their environment, health care, poverty alleviation,
water management, etc.), the involvement of cooperatives is envisaged to seek
consensus of the village community, as the cooperatives comprise a majority and a
cross section of the village community. Moreover, a cooperative is a legal entity. It
has institutional networks and infrastructure facilities at the grass roots level. It is also
involved in social welfare and social protection activities of the rural people, such as
village adoption, insurance, promotion of schools, hospitals, development of social
forestry, etc. It has also generated rural employment for large sections of rural people
through its agro-ancillary activities. In what follows, you will study in detail about the
emergence of cooperatives, cooperative principles and their values, structure, functions,
institutional networks, types of activity and finally you work through a review of the
performance of cooperatives in rural development.

The main aim of this unit is to familiarize you with the concept of cooperatives, their
principles, values, policies and the role they have played in the development of
agriculture and rural employment. Besides, it also aims at acquainting you with the
various types of cooperatives operating in India and their socio-economic goals and
development plans for the welfare of the rural people.

3.2 MEANING AND DEFINITION OF COOPERATION

The word cooperation has many meanings, but in common discourse it means
working, living and thinking together. In our existing socio-economic context,
however, we need to define it somewhat differently—”Cooperation is a form of
organization wherein persons voluntarily associate with each other as human beings
on the basis of equality for the promotion of mutual economic interests”.

As per the definition given by the International Labour Organization (ILO), a

cooperative society is an association of persons, who assemble for their common
cause and work together voluntarily on democratic lines. According to the definition
given by the “International Cooperative Alliance”(ICA), a cooperative is an
association of persons united voluntarily to meet their common economic, social and
cultural needs and aspirations through a jointly owned and democratically controlled
enterprise. It means that cooperatives are based on the values of self-help, self–
responsibility, democracy, equality, equity and solidarity in the tradition of their founders.
Cooperative members believe in the ethical values of honesty, openness, social
responsibility and caring for others. Therefore, the cooperatives are different from
the private enterprise in their forms of ownership, control, distribution of profits,
values of equality, equity, solidarity and social responsibility.

30
 Rural Credit and Banking
Check Your Progress I
Note: i) Write your answer in the space provided.
ii) Check your answer with the possible answer provided at the end of
the unit.
1) What are the common features of “Cooperation “ in view of the definitions
given by ILO and ICA.

..............................................................................................................

..............................................................................................................

..............................................................................................................

..............................................................................................................

..............................................................................................................

3.3 PRINCIPLES OF COOPERATION

The principles and the guidelines by which cooperatives put their values into practice
are:
i) Voluntary and open membership: It means that the membership shall be
voluntary and available without any restrictions/discrimination on the basis of
gender or social, political or religious affiliations. All the members can make use
of the services of their cooperative and willingly accept the responsibilities of
membership.
ii) Democratic member control: Cooperatives are democratic organizations
controlled and managed by their own members. The primary members of
cooperative societies enjoy equal rights of voting (one member one vote) and
participation.
iii) Members’ economic participation: Economic results arising out of the
operations of the society belong to the members and shall be distributed among
them proportionately according to the size of their transactions with the society,
while a part of the funds will be kept aside for specified purposes as per the
provisions.
iv) Autonomy and independence: Cooperatives are autonomous, self-help
organizations controlled by their members. If they enter into agreements with
others including governments to raise capital from external sources they do so
on terms that ensure democratic control by their members and maintain their
cooperative autonomy.
v) Education, training and information: Cooperative provide education and/or
training for their members, elected representatives, managers and employees so
that they may contribute effectively to the development of their cooperatives.
vi) Cooperation among cooperatives: All cooperative organizations, in order to
best serve the interests of their members and community, shall actively cooperate
in every practical way with other cooperatives at local, national, and international
levels.
vii) Concern for community: Cooperatives work for the sustainable development
of their communities through policies approved by their members.
31
Rural Development
Administration 3.4 EVOLUTION OF COOPERATIVES IN INDIA

After having studied the concept, values, principles and functions of the cooperative
enterprise, it will be appropriate to study the emergence of cooperatives in
contemporary India, in particular the way they have evolved since independence.
Before we do so, however, let us have a brief account of the pre-independence
scenario.

3.4.1 Pre-independence Scenario

In India, the cooperative movement began its work with the objective of making
breakthroughs in the stagnation of the poorer classes who were heavily indebted and
were fully in the grip of Sahukars. With the enactment of the 1904 Act, the first
cooperative credit society was registered on 8th May, 1905 in the then state of
Bombay in the Gadag Taluka of the Dharwad district under the name of Kanginhal
Agriculture Credit Cooperative. By 1911, the number of registered societies rose to
5321 with a membership of 305,060. Subsequently, the 1904 Act was replaced by
another passed in 1912, with a broader base, opening registration to non-credit
cooperatives also. The Reform Act was passed in 1919, when cooperatives became
a state/provincial subject. The decade from 1919 to 1929 was a period of unplanned
expansion and some re-organization. During the period 1930/31-1937/38, the movement
under went a number of changes. This period is known for the great depression,
which was a major setback for the cooperatives in India, mainly due to our backward
economy and the disturbed political atmosphere. The arrears of the loans of
cooperatives rose from 39% in 1930-31 to 63% by 1937-38. But the Second World
War (1939 to 1946) came as a boon for agriculturists, as the prices of agricultural
commodities rose significantly, and the cooperatives revived. The repaying capacity
of the farmers increased significantly, they were able to clear off their old debts and
the arrears came down from 63% in 1937-38 to 39% in 1945-46. This period is
considered the recovery period.

3.4.2 Post-independence Scenario

After the independence of India in 1947, the country adopted the policy of planned
economic development for establishing an integrated and just society, providing individual
liberty, equality of opportunity and a basic economic minimum for all. Cooperation
was accepted as an effective and important instrument for achieving the objectives
of rural economic development.

The first five-year plan (1950-51 to 1955-56) emphasized that all agricultural families/
households may join as members of primary agriculture cooperatives. In turn, these
societies would take care of their needs and safe guard the interests of farmers and
artisans. During this plan period, the number and membership of cooperatives went
up from 115,462 and 5.2 million in 1950-51 to 159,939 and 7.8 million by 1955-56
respectively.

In the year 1951, the RBI set up a committee known as the All India Rural Credit
Survey Committee and its report was published in 1954. At that time, the main thrust
was on the viability concept. It was observed that only 20% of the cooperatives
were found to be economically viable due to their limited operations and it was
recommended that large size cooperative societies should be organized to procure
more business. It was also recommended that a government, with a share capital to
the extent of 51%, be allowed to become a partner in cooperatives. Beside, it was
recommended that the credit delivery system be three-tier for short and medium
term loans, and long-term credit be arranged through land development banks. Also,
the need for an effective cooperative training system to develop a sound network
32
of institutions from the village to the national level was emphasized in order to guide Rural Credit and Banking
and implement the rural programmes effectively. Fortunately, the Government accepted
all the recommendations of the committee.

3.4.3 Five-year Plans (Second to Fifth)

The broad objective of the second five-year plan (1956-57 to 1960-61) was to evolve
a socialistic pattern of society. The plan envisaged building a cooperative sector as
a part of the scheme of planned development. Subsequently, the National Cooperative
Resolution 1958 recommended that credit and marketing should be linked and it was
resolved to organize service societies instead of re-organizing large sized societies at
the village level. This subject was referred to the Vaikunth Mehta Committee, which
having studied both the aspects, recommended the middle path, i.e. the organization
of medium sized societies for them to be viable and manageable. The third five-year
plan concentrated on workers, consumer cooperatives and employment generation.
Accordingly, eight different types of committee were set up. The need for the
development of cooperative activity was emphasized in the fourth plan (1969-70 to
1973-74). During this period, the education and training setup was strengthened. Also
the All India Rural Credit Review Committee was appointed to review the rural
credit supply in the context of the fourth plan. On the basis of its findings, the
committee emphasized (a) re-organization of rural credit, (b) the need for relevant
primary education, (c) setting up of SFDA, MFDA, and IADP agencies and (d)
ensuring adequate flow of credit for agriculture through cooperative and commercial
banks. The fifth five-year plan recognized the cooperative society to be an important
institutional framework for the development of weaker sections, particularly for providing
relevant inputs and the management of the public distribution system. In 1977, the
policy resolution of 1958 was reviewed in the context of the political, social and
economic changes that had taken place during the period. The resolution, now adopted,
recommended that a) a strong and viable cooperative system should be put in place
for rural development, b) the Consumer Cooperative Movement should be developed
to strengthen the public distribution system, c) cooperatives should be built to function
as one of the major instruments of decentralized labour-intensive and rural oriented
economic development, and d) professional management of cooperatives should be
put in place as early as possible.

3.4.4 Five-year Plans (Sixth to Ninth)

The main emphasis during these plans was on a) the strengthening of the primary
agriculture cooperatives (PACS) to act as multi-purpose societies to meet the diverse
needs of their members, b) the development of professional manpower, and c) a re-
examination of the existing cooperative policies and procedures in order to ensure
that the programmes actually improve the economic condition of the rural poor.
During this period, a committee to review the arrangements for the institutional credit
for agriculture and rural development (CRAFICARD) was constituted. The seventh
plan emphasized the need for cooperatives to a) increase food production, b) generate
employment avenues, and c) increase productivity generally. This pointed to the
importance of diversifying activities and also the consolidation of the efforts of the
cooperative movement. During the Ninth plan period, it was emphasized that greater
autonomy should be given to all the cooperatives. As a result, the Multi State
Cooperative Societies Bill was passed and a new Act 2002 came into force to
provide greater autonomy to the cooperatives. The other achievement of this period
was that a new cooperative policy was declared. Among other things, it recognized
the contributions of cooperatives and also pointed to their future role in rural
development.

33
Rural Development 3.4.5 10th Five-year Plan and Cooperatives
Administration
The current, i.e. the 10th Five-year Plan has shouldered greater responsibility in
relation to cooperatives for purposes of:
a) actualizing the vast potential of agriculture,
b) promoting more value additions to safe guard the interests of farmers,
c) transferring technology to cooperatives to bring them at par with other sectors
of economy,
d) identifying new areas for cooperative action, such as insurance, tourism, health,
irrigation, electricity cooperatives, etc., and
e) improving the social and economic health of the rural people.

Check Your Progress II

Note: i) Write your answers in the space provided.
ii) Check your answers with the possible answers provided at the end of
the unit.
Tick mark the appropriate box:

1) a) The first cooperative society in India was registered in

i) 1904 ii) 1882 iii) 1885 iv) 1905

b) Under which Act did the cooperatives become a State/provincial

Subject?

i) 1904 ii) 1919 iii) 1912 iv) 1922

c) Who appointed the All India Rural Credit Survey Committee?

i) GOI ii) NABARD. iii) Planning Commission iv) RBI

3.5 GROWTH AND DEVELOPMENT OF THE CREDIT

COOPERATIVES

Let us now study the mechanism of the credit cooperatives and their delivery system.
Since cooperatives in India constitute a state subject, the primary responsibility for
the development of cooperatives vests in states. Cooperative credit has been classified
into three category: a) Production Credit, i.e. short and medium term credit,
b) Investment credit, i.e. long-term credit and c) Urban credit for urban areas. These
credit systems are managed by different types of institution. The growth of the
cooperative credit disbursement in recent years has been depicted through a graphic
presentation as follows.
34
 Rural
Cooperatives
Credit and in
Banking
Rural
Development
AGRICULTURAL CREDIT DISBURSEMENT BY
COOPERATIVES

270750
TL

217782.4

225939
300000

250000

148390.4
142947.8

140845.3
121674.9
200000

87589.8
80918.1

150000
59046.4
54033

100000

50000

0
90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-0k 1-2
ST 39318.244029.260186.667292.295173.2107895.2 93280 107400 157897 166803 208151
MT 7470.3 5703.9 9621 7814.812773.919425.6 36160 32270 11924 34176 34237
LT 7244.5 9313.311110.912482.813727.815626.9 18950 16934.223979.524957.128361.8

Year 2001-2002 Value in Million Rupees

Names of Cooperatives No. of Total Share

CREDIT COOPERATIVES Societies Membership Capital
Total Capital
Primary Agrl.. Cooperative Societies 100604 109832118 361943.59 4408333.25

Primary Cooperative Agri. Devp. Banks 730 7181650 68019.52 926090.17

Primary Urban Cooperative Banks 2038 17684798 214489.56 9102197.35

Employees Credit Societies 47491 22448844 292267.24 1343646.79

CREDIT TOTAL 150,863 157147,410 936,719.91 15780,267.56

3.5.1 Structure of the Cooperative Credit System

By and large, the structure of production credit is a three-tier system comprising the
State Cooperative Bank at the state level, the District Cooperative Bank at the
district level and the Primary Agriculture Cooperative Society at the village level. The
investment credit structure has two tiers, i.e. the State Cooperative Agricultural and
Rural Development Banks at the state level and Primary Agricultural Cooperative
Rural Development Banks at the grass roots level. But wherever there is no structure
for providing the investment credit, it is rooted through the production credit system
as explained in the diagram below. Beside, there are national level Federations which
take care of policy, planning and promotional works in this case. The refinance to
cooperative banks comes largely from the National Bank for Agricultural and Rural
Development (NABARD).

35
Rural Development
Administration
AGRL COOPERATIVE CREDIT SYSTEM
Refinance
PRODUCTION CREDIT NABARD
REDIT
MENT C
INVEST
STATE Rs. 34,237 million
STATE COOPERATIVE
COOPERATIVE AGRL. &RURAL
BANKS- 30 [Link]-19
- STRENGTHENING CAPITAL BASE
BY SAVINGS, SUBSCRIPTION

- KISAN CREDIT CARDS FOR FREE

CENTRAL
ACCESS OF MONEY
COOPERATIVE Production Credit
BANKS-368 Disbursed = Rs. - BUILDING RESERVES
208,151.7 million - LENDING POLICIES ARE BEING
REVIEWED INTEREST LOWERD
PRIMARY COOP. FROM 13% TO 9%
PRIMARY AGRL. [Link]
COOPS- 100,604 DEVP. BANKS-755

3.5.2 Primary Agricultural Cooperative Society (Production

Credit)

The first Primary Agricultural Credit Cooperative Society was registered in 1905 at
Dharwad in the former state of Bombay. By March 2003, the number had increased
to 106,004 with a total membership of 109 million in the country. In 1960-61, the
number of such societies was 2.12 lakhs, but the process of re-organization brought
this number down considerably. Almost cent percent of the villages and 71% of the
rural households have now been covered by these societies. Initially, the PACS used
to provide only short and medium term credits (i.e. crop loans) to farmers, but after
they were granted the status of multi-purpose societies, the PACS extended the
number of services, which include distribution of inputs like fertilizers, certified seeds,
insecticides, consumer goods, storage facilities and marketing of agricultural produce
to farmers at the village level. By 2001-2002, the total loans advanced by these
societies amounted to Rs. 247.38 billion to 42.69 million borrowers. These societies
are also actively involved in the public distribution system and procurement of wheat,
cotton and jute on behalf of the Government. Nearly 58% of the PACS are involved
in consumer business and the distribution of inputs. During the year 2001-2002, these
societies marketed 132.3 billion rupees worth of agricultural produce and also distributed
consumer goods worth Rs. 9127.4 million. During the mid review period of the fourth
five-year plan, it was emphasized that there were SFDA, MFDA and Tribal areas
where PACS could not meet their requirement of inputs and seeds, nor market the
tribal produce easily. As a result, Farmers Service Societies were organized in the
SFDA/MFDA areas and LAMPS in the tribal areas to meet their needs in their
respective areas. But later on, in 1989, Khusro Committee reviewed the viability
norms of primaries and recommended that to materialize the viability of PACS, these
societies should be transformed into multi-purpose institutions. The recommendations
were accepted. Accordingly, PACS, LAMPS and FSS became multi-purpose institutions
and are now involved, besides the credit services, in the distribution of inputs, consumer
goods and also in the marketing of agricultural produce. They are, however, operating
under differing nomenclature in their respective areas. Even after re-organization,
nearly 36% PACS are not viable. The main problems are low participation of members
in the business, high overdue amounts, lack of professionalism and little transfer of
technology.
36
3.5.3 District Central Cooperative Banks Rural Credit and Banking

The District Central Cooperative Banks are the nodal banks for production credit at
the district level. By 2002-2003, there were 368 DCCBs, which operated through
12,763 branches. These banks provide finances to Primary Agriculture Cooperative
Societies at grass roots level. The borrowings from these banks flow largely from
NABARD, which accounted for 87% of the total borrowings from the DCCBs by
the end of March 2002. The rest of the finances come partly from the respective
state governments (10.8%) and partly from the commercial banks (3.5%). The DCCBs
function as fully-fledged banks at the district level and accept deposits from non-
members also, but advance loans only to the members. By 31st March, 2001-2002,
these banks had advanced loans to the extent of Rs. 506 billion. There are 1,12,692
employees deployed in these banks.

3.5.4 State Cooperative Banks

The State Cooperative Banks (SCBs) are the apex cooperative organizations for
production credit, i.e. short and medium term loans, at the state level. These banks
are classified as scheduled banks and perform all the business that a normal bank
performs. There are 29 State Cooperative Banks, which operate through their 880
branches. The share capital of these banks is Rs. 6752.7 million and the government
participation in the share capital accounts to only 8.5%. Major borrowings (nearly
80.5%) from these banks come from NABARD. The SCBs provide finances to their
respective District Central Cooperative Banks, and also supervise, monitor and control
their operations. The total amount of loans disbursed by these banks during the year
2002-2003 was about Rs. 366.4 billion. The deposits of these banks increased to Rs.
35992.8 million in 2001-2002 from Rs. 7525.1 million in 1990-91, and 80.50% of the
total deposits are from the cooperatives.

3.5.5 State Cooperative Agriculture and Rural Development Banks

There are 19 State Level Cooperative Agriculture and Rural Development Banks
(SCARDB). Of which 11 (those in Assam, Haryana, Himachal Pradesh, West Bengal,
Karnataka, Kerala, Madhya Pradesh, Orissa, Punjab, Rajasthan and Tamil Nadu)
have a Federal Structure, i.e. they function at both the state and the primary levels,
and 8 (those in Bihar, Gujarat, J&K, Tripura, Uttar Pradesh, Maharashtra, Andhra
Pradesh and Pondichery) have a Unitary Structure, i.e. they function only at the state
level. In all there are 1421 branches of SCARDBs spread all over the country. These
banks provide investment or long-term loans to farmers and to 726 Primary Cooperative
Agriculture and Rural Development Banks (PCARDBs). Long-term credit is given
for minor irrigation projects, farm mechanization, plantation and horticulture, diversified
purposes, land development, rural housing and non-farm sectors. The total amount of
loans advanced during the year 2001-2002 by these banks was Rs. 25185.8 Million,
of which 80.04 % was advanced for farm sector development, 14.1% to non-farm
sector and the remaining 5.58% to the rural housing sector. These banks raise their
funds by floating special and ordinary debentures. The institutional membership of
these banks has risen to 5556 members. The participation of the government in the
total share capital of SCARDBs is 13.4%. In addition to their own operations,
SCARDBs operate through the 1214 branches of PCARDBs also. The membership
of the PCARDBs stands at 7.11 million. These banks have disbursed long-term credit
to the extent of Rs. 17844.7 million, of which farm sector constitutes nearly 64.1%
and non-farm sector 16.3%. The remaining 5.8% was disbursed to the housing
sector. These banks are guided, controlled and supervised by their respective
SCARDBs.

37
Rural Development
Administration Check Your Progress III
Note:i) Write your answers in the space provided.
ii) Check your answers with the possible answers provided at the end of the
unit.
1) What is the structural difference between production credit and investment
credit?

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

2) Name the cooperative institution that takes care of the tribal people at the
village level.

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

3) Who provides credit for non-farm sector development?

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

...................................................................................................................

4) Who is the major refinance provider to Credit Cooperatives?

...................................................................................................................

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...................................................................................................................

...................................................................................................................

...................................................................................................................

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38 ...................................................................................................................
 Rural Credit and Banking
3.6 GROWTH AND DEVELOPMENT OF THE
NON-CREDIT COOPERATIVES

In the previous units, you have learnt about the importance and role of credit
cooperatives in the development of agriculture in India. Equally important are the
non-credit cooperatives and their role in rural development. The important segments
of non-credit cooperatives are Marketing, Consumers, Dairy, Fishery, Fertilizers,
Handloom and Handicrafts, Labour, Irrigation, Agro–processing, Transport, Weavers,
Industry, Farming, Electricity, Poultry, etc. The non-credit cooperatives came into
existence partly out of necessity and partly out of ideological reasons. The non-credit
sector has played a significant role in developing infra-structural facilities, which have
helped in providing value additions to the agricultural produce as well as boosted
employment in the rural sector.
Growth and Development of Non-credit Cooperatives In India
Year 2001-2002 (Value in Million Rupees)

Names of Cooperatives No. of Total Share

NON-CREDIT COOPERATIVES Societies Membership Capital
Total Capital
Marketing Cooperatives. 8869 5096863 49066.16 212459.00
Consumer Cooperatives 23975 7055185 10984.39 33772.05
Student Cooperatives 7688 14782458 1571.16 5214.44
Agro-Processing Coop. 1564 508862 2890.66 25555.32
Dairy Cooperatives 103305 11536704 27953.53 146678.67
Women Cooperatives 11374 999673 2896.23 13572.38
Housing Cooperatives 92000 6600000 36160.70 520000.00
Farming Cooperatives 7149 349589 709.68 4714.90
Irrigation Cooperatives 7315 571756 2648.19 82476.18
Electricity Cooperatives 56 939551 3543.52 30831.99
Industrial Cooperatives 45017 2439291 9089.63 44811.39
(Other than Weavers)
Weavers Cooperatives 20037 2015600 22399.27 87209.24
Fisheries Cooperatives 13649 2130217 4043.54 17477.82
Poultry Cooperatives 4900 441694 2100.27 13008.43
Labour Cooperatives 30428 1671825 2711.43 23178.39
Forest Labour Cooperatives 3408 739530 535.72 17516.68
Transport Cooperatives 10446 156374 2326.69 14617.25
Sugar Cooperative Mills 281 4484000 216218.00 873661.00
Spinning Cooperative Mills 326 783635 94253.75 177561.25
Tree Growers Cooperatives 633 49618 3.36 61.35
Hospital Cooperatives 181 111824 1130.94 3508.35
NON - CREDIT TOTAL 391370 63461007 493236.82 2347886.08

3.6.1 Cooperative Marketing

The need for cooperative marketing was realized in view of the growing malpractices
prevailing in buying and selling of agricultural produce. The producers were not
getting the due share of their agricultural produce. They were forced to sell their
produce on through away prices. So as to protect farmers, marketing cooperatives
emerged after the enactment of Cooperative Societies Act 1912. Accordingly, an
integrated programme of cooperative marketing was planned and a cooperative 39
Rural Development marketing structure was set up at various levels. The significance of cooperative
Administration marketing was recognized as early as 1928 by the Royal Commission on Agriculture,
which remarked that group marketing would be more efficient than marketing by
individuals, especially in conditions that prevailed during that period in India. The
objectives of promoting the marketing cooperatives were: a) to strengthen the bargaining
capacity of the member cultivators so as to secure them a better price for their
produce, b) to help in improving the socio-economic conditions of producer members,
c) to help in stabilizing marketing conditions to regulate the supply of commodities,
d) to eliminate the middle men and moneylenders, e) to restrict the intermediaries and
benefit the consumers directly asking them for reasonable prices, f) to systematize
fair trading practices, g) to educate and persuade the farmers to grow better quality
products, h) to arrange and provide the facilities of transportation, grading and storage
of agricultural produce, i) to protect the economic interests of members by educating
them about the latest techniques of farming and j) to inculcate the habits of self-help
and thrift among the members of the cooperative marketing society.

The cooperative marketing structure in the country has two tiers, except in Andhra
Pradesh, Gujarat, Haryana, Himachal Pradesh, Karnataka, Maharashtra, Manipur,
Punjab, Tamil Nadu, Uttar Pradesh and Pondichery, where it has three tiers, i.e.
primary at the block level, district marketing at the district level and state cooperative
marketing federations at the state level. Initially, general purpose cooperative marketing
societies were organized and later attention was shifted to more specialized or
commodity marketing cooperatives, such as those for Fruits and Vegetables, Cotton,
Tobacco, Areca nut, Coconut, Rubber, Sugarcane, Tea, etc. At present, there are 30
general purpose and 22 specialized state level cooperative marketing federations, 394
district marketing and 8869 primary marketing societies in operation. Besides, NAFED
and TRIFED are two national level federations. NAFED has been recognized as the
nodal agency for marketing agricultural commodities, price support and export
channeling of agricultural produce.

3.6.2 Processing Cooperatives

The marketing cooperatives did not seem to help much, as many of the earlier
problems continued. And it was felt that without making any value additions to the
agricultural products, the cooperatives would not be able to help much in ensuring
better prices for the products. In order to reduce the number of middlemen and to
obtain a greater return on the agricultural produce, processing of crops by the marketing
cooperatives was felt to be necessary. This resulted in the emergence of processing
cooperatives, such as those for paddy processing, ginning and cotton baling, rice
mills and those for pulses, and gradually the operation was extended to Fruits and
Vegetables, Cashew, Rubber, Cocoa, Copra, Isabgol and Straw Board. Later on, the
All India Cooperative Planning Committee recommended that in the cases where the
marketing/sales society was unable to put up a processing plant, separate processing
societies be organized. As a result, sugar, spinning, dairy and many other processing
cooperatives came up. The important ones among them are the sugar, spinning and
dairy processing cooperatives, which have not only helped in promoting the economic
well being of the farmers in the rural areas, but also generated rural employment by
deploying a large number of local people and the promotion of ancillary activities.

3.6.3 Cooperative Sugar Mills

The second five-year plan also included a programme for starting cooperative sugar
factories. In the middle of 1958, licenses under the Industries Act 1951 were granted
to 38 cooperative sugar factories. By 2002, the number of cooperative sugar factories
had increased to 281, of which 137 were in Maharashtra. The cooperative sector
contributes nearly 59% of the total sugar produce in the country. By and large, sugar
cooperatives have a two-tier structure, i.e. sugar mills at grass roots level and State
40
Cooperative Sugar Federations at the state level. Most of the sugar cooperative mills Rural Credit and Banking
are concentrated in 15 states. These mills have promoted a number of ancillary units
such as distilleries, paperboard units and baggasy. Besides, a number of educational
and social institutions such as medical colleges, engineering colleges, schools,
polytechnics, health centers, etc. are being promoted by these mills at their respective
rural sites. Also, they are helping the rural youth in their efforts for higher education
and are generating rural employments. During the year 2002, these sugar factories
crushed 96,272 million tones of sugar cane and produced 10,499 million tones of
sugar. These factories have not only assured a fair return to the primary producers
but are also providing extension services to farmers for producing high yield varieties.
Obviously, all walks of rural life have benefited directly and indirectly from rural
industrialization.

3.6.4 Dairy Cooperatives

Dairy in India is closely interwoven with agriculture and plays an important role in
the rural economy. Besides having vast employment potential, dairy provides not only
milk, but also stabilizes farm incomes. Small farmers and landless Labourers account
for 53% of the animals and 51% of milk production. Thus small, marginal and
landless farmers play a very important role in milk production in the country. The
need to form the dairy cooperatives emerged due to continued exploitation of these
weaker sections of the rural population by the private local dairy owners and other
traders. With the declaration of the National Policy on Dairying in 1956, the growth
and development of dairy cooperatives received a major boost.

The present structure of dairy cooperatives in India is three-tier. The main objectives
of the dairy cooperatives are: i) to increase the number of milk animals from the
present average holding of 1-2 animals, ii) to collect and sell milk to milk unions,
iii) to ensure regular and remunerative payment to producers, iv) to help members in
increasing milk production, v) to provide veterinary first aid and artificial insemination
services, vi) to sell cattle feed, vii) to increase timely flow of milk (which is a
perishable commodity) to far off markets and viii) to make value additions to dairy
products and the related activities. The present network of cooperatives serves more
than 11.5 million farmers in over one lakh villages. The average milk procured by
these cooperatives per day, is around 165.0 lakh liters and the liquid milk marketed
per day comes to 133.6 lakh liters. The total turnover per annum was Rs. 5957.90
million by 2001-2002. Over the years, the dairy cooperatives have not only changed
the economic situation of the rural people, but also taken care of improving the health
of the animals. The production of milk has gone up from 38.8 million tones in 1983-
84 to 81 million tones in 2002. The other important development related to these
cooperatives is the empowering of the rural women. Now, women play a major role
in dairying, as over 7000 village dairy cooperatives are now run by women. They
have given many a woman some degree of economic independence. Almost two
million women belong to these women’s cooperatives. Overall, dairy cooperatives
have played a significant role in the White Revolution. Today almost every district
and state cooperative is engaged in processing activities and is manufacturing quality
milk products, which compete favourably with the products of multinationals. Dairy
cooperatives have also diversified their activities and entered into new commercial
areas, such as oil manufacturing, food processing, water bottling and salt manufacturing
through their subsidiary companies. They are also serving the farmers in providing
nutritious feed for their animals, hygienic containers, veterinary services, artificial
insemination and in organizing camps, study tours and educational programmes for
their benefit.

3.6.5 Fertilizer Cooperatives

With the growing population and the increasing demand for food grains, pressure
continued on farmers to grow more. So as to increase productivity, farmers were 41
Rural Development required to ensure adequate and quality inputs at reasonable prices. Faced with this
Administration requirement, farmers were facing immense problems in relation to the timely availability
of quality chemical fertilizers. To solve these problems, a cooperative fertilizer plant
was set up in 1967 at Kalol in Kandla in Gujarat under the aegis of the Indian
Farmers Fertilizer Cooperatives with three major objectives: a) to produce chemical
fertilizers and ensure that they reach the door steps of farmers, b) to educate the
farmers how to use fertilizers effectively, and c) to transfer the required technology
for modern farming to Indian farmers. With the success of the IFFCO fertilizer
production and its network of distribution, the demand for quality and reliable fertilizers
increased significantly. As a result, another plant under the aegis of Krishak Bharati
Cooperatives was set up in 1980 at Hazira. These giant fertilizer cooperatives produce
29% of the total fertilizer needs and distribute 36% of the fertilizer requirement of
the country through rural channels. Besides, these institutions continue to provide
social services, such as developing the village farm forestry, setting up of storage-
cum-community centers, adopting villages for integrated rural development, extending
funds for building rural houses to earth quack affected people of Gujarat and for
promoting educational and cultural activities.

3.6.6 Industrial Cooperatives

Along with agricultural production, it was thought necessary to promote village industries
for rural development. The second five-year plan recognized the need for developing
village and small-scale industries on cooperative basis as far back as the 1950s. With
the acceptance of the recommendations of the first Working Group on Industrial
Cooperatives in 1958, the industrial cooperatives made rapid progress. As against
7101 Industrial Cooperatives with a membership of 7.66 lakh in 1950-51, their number
had gone up to 33266 with a membership of 25.64 lakh in 1960-61 and by 2001-2002,
the number of industrial cooperatives had increased significantly: Weavers’ cooperatives
(20,037), Non-Weavers’ (43,786) and Handicrafts’ (1778), with memberships of 2.01
million, 2.436 million and 1.09 million respectively. The industrial cooperatives have
a three-tier structure, but it is facing difficulties in obtaining finances, availability of
raw materials and marketing due to competition and modernization. Well, this is a
sector that has vast potential to assist the weaker and rural artisans and also to
preserve the traditional arts. This sector has not received the needed support, and is
now being reviewed to see how this sector may be improved.

Check Your Progress IV

Note: i) Write your answers in the space provided.
ii) Check your answers with the possible answers provided at the end of
the unit.
1) In what way do the marketing cooperatives help the farmers?

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 Rural Credit and Banking
2) List the types of processing cooperatives that are run by marketing
cooperatives.

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3) Name the major processing cooperatives, which have generated significant

rural employment and have also promoted the various types of socials
institutions.

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3.7 REGIONAL IMBALANCES IN THE GROWTH AND

DEVELOPMENT OF COOPERATIVES

The growth and development of the cooperative movement in the country has been
reviewed from time to time by various committees and measures devised to minimize
imbalances in their development. Here we must remind you that with the enactment
of the Cooperative Societies Act 1919, cooperatives became a state subject.
Consequently, all the states enacted their own laws as per their connivance. The
cooperative movement in this country emerged with the blessings of the government,
which also works as an active partner in this enterprise. The laws framed by the
government, however, were restrictive and in certain cases contrary to the principles
of cooperation. The movement did not develop wherever the government equity was
more, but it went well where the government control was minimal. For example, in
the states of Gujarat and Maharashtra, where the governments did not have any
stake in the equity of cooperatives, the movement has shown steady progress and the
government control has been minimized. But in a number of other states, particularly
in the North–East, Bihar, Uttar Pradesh, Rajasthan, Orissa and Madhya Pradesh,
development got restricted. The major reasons for imbalances in the development of
cooperatives are: a) excessive government control exercised through restrictive legal
provisions; and b) the absence of definite policy on cooperatives. The Registrar of
a cooperative society is considered to be the supreme authority empowered to supersede
and suspend the elected board, nominate the board of directors and appoint the
managing director. In absence of autonomy, the cooperatives could not develop
professionalism, enlist the services of professional manpower, and manage the affairs
efficiently. Secondly, the cooperatives were used as agents of governments to
implement their schemes which did not help in achieving the viability of cooperatives
due to the lack of profit margins in most of the activities they engaged in.
43
Rural Development But with the passing of the Reform Act, i.e. the Multi State Cooperative Societies
Administration Act-2002 and the enactment of parallel Acts in 9 states, namely Andhra Pradesh,
Bihar, Chhattisgarh, Delhi, Jammu & Kashmir, Karnataka, Madhya Pradesh, Orissa,
and, Rajasthan, the powers of the Registrar have been limited only to register, audit
and hold timely Annual General Body Meetings. With these reforms, cooperatives
will have more autonomy to function freely, take their own decisions to plan and
mange their business hopefully effectively. Moreover, with the announcement of the
National Cooperative Policy –2002, for the first, the ideology and principles of
cooperatives have been recognized along with their current role in the rural economic
development and also their future role in the overall developmental process. Once
these reforms are implemented by all the states and cooperative policies endorsed by
all of them, the movement will be able to contribute effectively in the development
of rural economy and actualize vast agricultural potential, which should boost rural
employment significantly.

3.8 ASSESSMENT AND EVALUATION

The size and volume of cooperative business during the post-independence period has
shown rapid growth and multiplied many fold. The coverage of villages by cooperatives,
which was 30% in 1950-51, has reached cent percent and by 2001-2002, 75% of the
rural households were brought into the cooperative fold. Cooperatives have entered
into every sphere of economic activity and emerged as one of the significant segments
of Indian economy. Their contributions in shaping the rural economy also are substantial.
The share of cooperatives in rural credit disbursement amounted to 49.3% during the
year 2001-2002, fertilizer distribution was 36.0%, fertiliser production 29.0%, sugar
production 59.0%, branded oil marketing 50%, ice cream production 45%, animal
feed production 50%, spindling 12%, fabrics production 22.0%, handloom cooperatives
55%, wheat procurement 36.0%, jute procurement 21%, fishermen’s cooperatives
11%, rural fair price cooperatives 28%, salt manufacture 7% and employment was
created for 15.1 million people. The contribution of milk cooperatives in milk production,
procurement and distribution is significant. Cooperatives were also organized at grass
roots level for fisheries, forest labour, farm forestry, poultry, weavers, handlooms,
handicrafts, and irrigation to organize the rural people and provide them necessary
services for the development of rural community. The education and training networks
of cooperatives have promoted awareness regarding development, advantages and
techniques of living under the umbrella of cooperatives. This has helped in curbing
the migration of the rural people from rural to urban areas. The cooperative venture
and its programmes have also promoted diversification in crop production; effective
use of chemical fertilizers, insecticides and better seeds; new techniques for improving
the fertility of the land and various ancillary activities. The setting up of marketing
and processing cooperatives has not only helped the farmers in ensuring better prices
for their produce but have also generated significant rural employment.

With the present size and network of the cooperatives, their contribution should have
been much more than what it is today. The major problems that have limited the size
of their contribution are, to name the important ones, the increasing amount of non-
performing assets (NPA), limited resources, lack of infra-structural facilities and
professionalism, absence of modernization and little technology transfer, over
dependence on governments, absence of effective monitoring and poor market
information systems.

3.9 LET US SUM UP

In the introductory part of the unit, we explained the concepts, values and principles
concerning rural cooperatives in order to distinguish them from other cooperative
44
enterprises. Then we moved to the circumstances, which forced us to organize the Rural Credit and Banking
cooperatives, i.e. details about the evolution of cooperatives during the pre-independence
and the post-independence periods were presented. The post-independence
developments were presented sequentially with plan-wise responsibilities assigned to
cooperatives along with the details regarding their progressive stages of development.
Besides, details about the important committees, which were constituted to review
the progress and shortcomings of the cooperatives at various stages, were also
presented. Later on, the development of credit and non-credit cooperatives was
presented with details specifically about their structure, functions and operations.
Here, we described every level of working with facts and figures and also detailed
the extent to which the services of cooperatives have helped in shaping the rural
economy. Some of the problems inhibiting speedy development were also highlighted.

3.10 SUGGESTED READINGS AND REFERENCES

Bedi, R.D., 1983, Theory, History and Practice of Cooperation, International

Publishing House, Meerut.

Daman Perkash, August, 1988, “Cooperative Democracy vis-à-vis Member’s

Education”, The Coop. Times, D-64 Saket, New Delhi.

P.K. Jain, 1992, Marketing Management of Cooperative Sector in India, Kanishka

Publishing House, New Delhi.

Nalwaya, K.L., 2002, Indian Cooperative Movement–A Profile, National Cooperative

Union of India, New Delhi.

3.11 CHECK YOUR PROGRESS – POSSIBLE ANSWERS

Check Your Progress I

1) Both the definitions of cooperatives have certain common elements, such as:
a) association of individuals/persons, b) achieving common goals and c) working
voluntarily on democratic lines. So, we may say that cooperatives are
democratically run institutions managed and controlled by their members.
2) The cooperatives are based on the values of self-help, self-responsibility,
democracy, equality, equity and solidarity.
Check Your Progress II
1) a) iv)
b) ii)
c) iv)
Check Your Progress III
1) Production credit has a three-tier structure, i.e. it operates at the state, the
district and the primary levels, whereas investment credit has a two-tier structure,
i.e. it operates at the state and the primary levels.
2) The name of the cooperative institutions organized for tribals at the village level
is LAMPS, i.e. Large Size Agricultural Multipurpose Cooperative Societies.
3) The non-farm sector is covered by investment credit. Therefore, State Cooperative
Agriculture and Rural Development Banks and Primary Cooperative Agricultural
and Rural Development Banks provide the non-farm credit.

45
Rural Development 4) The National Bank for Agriculture and Rural Development (NABARD) is the
Administration major refinance provider for Cooperative Credit Institutions.
Check Your Progress IV
1) The marketing cooperatives have been established to fulfil various objectives,
namely: a) to ensure that the producers get remunerative prices for their produce,
b) to increase the retention power of producers by storing their produce in
godowns, c) to stabilize the marketing conditions to regularize the supply of
commodities, d) to eliminate the middlemen and moneylenders, e) to stabilize fair
trading practices, and f) to promote value additions to all the products and
services.
2) The processing societies, mostly promoted by marketing cooperatives, are:
paddy processing, rice mills and those for pulses, rubber, coca, copra, isabgol,
etc.
3) The important processing cooperatives are sugar cooperative mills, spinning mills
and dairy cooperatives, which have not only generated significant employment,
but are actively involved in promoting social activities and institutions for the
welfare of their members.

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