Report of the High Powered Committee on Cooperatives

Transcription

1 Report of the High Powered Committee on Cooperatives May 2009 Ministry of Agricuture Government of India

2 Contents S.No. Particuars Page No. 1. Preface (i) 2. Acknowedgements (iii) 3. Executive Summary (iv) 4. Chapter 1 : Introduction Chapter 2 : The Cooperative Movement in India A Brief History 6. Chapter 3 : Envisioning Cooperatives Chapter 4 : Probems & Chaenges Faced by the Cooperative Sector 8. Chapter 5 : Suggestions with regard to Amendment to the Constitution and MSCS Act, Chapter 6 : Recommendations ANNEXURES Annexure -1(a) : Resoution dated Annexure -1(b) : Resoution dated Annexure - 2 : Meetings of High Powered Committee & Core Group Annexure - 3 : Committees and Commissions on Cooperation Major Recommendations Annexure - 4 : Magnitude of the Cooperative Movement Annexure - 5 : Questionnaire for State Governments/ Cooperators/Academicians and Cooperative Institutions

3 Preface The year 2004 was the centennia year of the Indian cooperative movement. The Word Order, in which cooperatives aong with other business organizations are required to function, has indeed changed since the first cooperative aw in India was enacted in New paradigms and changing contours and structures of the business andscape have their own inexorabe ogic eading to the recommendation of the Conference of State Cooperative Ministers in December, 2004 that a High Powered Committee be constituted by the Government of India for preparing a road map for cooperatives over the coming years. The Committee, duy constituted in 2005 has since been engaged in this task. The task has been daunting, given the vast network of cooperatives in the country and that cooperatives functioning in different sectors face diverse probems. The situation is further compicated by the fact that Cooperatives is a State subject under the Constitution of India and State cooperative aws and their impementation have vasty differed. Changes in poitica authority at State eve have over the years at different times resuted in whoesae supercession of cooperative institutions in many States vitiating their continued functioning as democraticay eected cooperative institutions. The Committee has chosen to ook at the common face of cooperatives as an institutiona form and focused on deving into the mutitudinous components of what ais cooperatives in this regard. In its search, the Committee has drawn upon the recorded wisdom of previous Committees through avaiabe iterature & documents, ooked at success stories, and hed consutations with those who have an interface with the sector in any manner. This, it has done through the written word seeking views from various segments of inteigentsia, cooperators, cooperative institutions at a eves, nationa and State government officias and civi society organizations, via a questionnaire as we as through a series of meetings. Needess to say, its own deiberations have been many and deep. The Committee concuded that cooperatives have not been given due importance, despite the emphasis aid by the Panning Commission and Prime Minister Jawahar La Nehru on deveoping cooperatives as a third important sector of the economy. The Committee s Report has been guided by its vision of Cooperative Identity, true to itsef as a vountary, autonomous and democratic entity of its members and in keeping with what is the common internationa acceptance. Whie there are many probems and chaenges, which the cooperatives face and these have been ooked at in detai to the extent possibe, the root causes appear to converge upon the common probem of governance, which in turn is to a major extent determined by the aws that govern cooperatives. The Committee is convinced of the need for uniformity in cooperative egisation that woud respect the autonomous and democratic nature of cooperatives. It aso fees that there is a need (i)

4 High Powered Committee On Cooperatives for a higher Authority to ensure that State Cooperative Societies Acts foow the Mode Cooperative Act and that any transgression in this regard is judiciabe. Its conviction that cooperative autonomy can ony be ensured through appropriate amendments to the Indian Constitution, which have been detaied in the Report, and which woud in turn ensure that State Cooperative Legisation is brought into conformity with the provisions of the Constitution, has ed to a very major recommendation of this Report. Since ega enabement is an important factor that woud ead to good governance, the Committee has aso suggested to the extent possibe, appropriate amendments in the Muti-State Cooperative Societies Act, State Cooperative Societies Acts and the by-aws of cooperatives in respect of its other Recommendations. In the utimate anaysis, it cannot be ignored that whie the cooperative route is a dignified way of growth for a it is particuary so for the marginaized segments of the country, offering the sma man as it does the chance to enter a word of bigness. Cooperatives have proved their strength in the past. The Committee submits its Report with much hope for a strong and heathy growth of cooperatives in the country in the future. (Shivajirao G. Pati) Chairman (ii)

5 Acknowedgements Over the ast three years, the Committee has had the peasure of interacting with many individuas and institutions, cooperators, cooperative institutions, academicians, government officias, civi society organizations and members of cooperatives. The Committee woud ike to thank them a for their contributions in different ways, which has heped in writing of the Report. The Members of the Committee woud aso ike to thank a those who responded in writing to the questionnaire that was circuated to various cooperative institutions and cooperators, both at the nationa and State eve, government departments and individuas. The Committee is gratefu to the Group of dedicated cooperative thinkers who assembed at Mumbai, Bhopa and Pune on the Committee s invitation and gave their vauabe time and inputs which have shaped many of the Committee s recommendations. The Committee woud speciay ike to thank Dr. R.C. Dwivedi who was co-opted as a Specia Invitee on the Committee. His ong experience of the cooperative sector and the probems and chaenges faced by the sector has been usefu for the Committee s recommendations. The Committee woud ike to particuary acknowedge the inteectua inputs provided by Bhagwati Prasad, Chief Executive, NCUI, Vinay Kumar, Managing Director, Nationa Federation of Cooperative Sugar Factories, D. Krishna, Chief Executive Officer, Nationa Federation of Urban Cooperative Banks & Credit Societies, S.D.Indoria, Chief Director (Cooperation), Department of Agricuture & Cooperation, Anita Manchanda, Executive Director, Nationa Cooperative Union of India, D.P. Neb, Senior Consutant, Nationa Cooperative Union of India, Yashwantha Dongre, Professor PG Centre, Hassan (Karnataka), L.K.Vaswani, Director KSRM, Bhubaneswar, S.L. Kumbhare, Genera Manager, NABARD and B. Jayaraman, Genera Manager, NABARD. Mention deserves to be made of the painstaking work and enthusiasm of Shashi Chhabra, Private Secretary, who has cheerfuy and meticuousy provided various secretaria inputs incuding typing the voumes of materia and administrative back-up to the work of the Committee. The Committee woud aso ike to thank a the staff of NCUI who provided support at different eves, in particuar K.R.Kutty, Ved Prakash and Rakesh. The Committee acknowedges with thanks the institutiona support provided at a stages of the Committee s work by the Nationa Cooperative Deveopment Corporation and the Nationa Cooperative Union of India. NABARD, VAMNICOM and the Secretariat, Raj Bhawan, Bhopa provided abe assistance for various meetings and consutations hed in their premises. Finay, on behaf of the members of the Committee, I wish to aso pace on record a specia recognition of the professiona expertise and inteectua contribution of Veena Nabar, Chief Coordinator, High Powered Committee on Cooperatives, who has indeed worked as the de-facto Member Secretary of this Committee. Her minute attention to detai and dedication despite a odds has heped to take the work to its concusion. (iii) (Shivajirao G. Pati) Chairman

6 Executive Summary Two centuries ago when the Cooperative movement emerged, markets were dominant and unmindfu of the we being of consumers. The Rochdae Pioneers demonstrated the cooperative abiity not ony to hep surviva of the peope but aso of indirecty forcing the market to behave. Today, athough our knowedge, technoogy, goba governance systems, avaiabiity of aternatives and a gobaized production system are very different, the basic issues remain the same - markets that serve ony sectarian interest, arge masses remaining impoverished, capita gaining advantage over abour and a State which, seems to be increasingy supportive of a free market. In the Indian context, it is pertinent to mention that a arge segment of the popuation (65%) continues to depend on agricuture and agricuture reated sectors of the economy. As such cooperatives are today a the more reevant in the current contexts. Cooperatives in India came into being as a resut of the Government taking cognizance of the agricutura conditions that prevaied during the atter part of the nineteenth century and the absence of institutiona arrangements for finance to agricuturists, which had resuted in mounting distress and discontent. Sma, oca, ocay worked institutions, cooperative in form, which woud satisfy the postuates of proximity, security and faciity for providing credit, were seen as the answer to this situation. However, subsequent events during both pre and post Independence period have ed to a vast growth of cooperatives covering various sectors of the Indian economy. The preoccupation of the government with the cooperative sector and its potentia for bringing about deveopment, right up to the nineties, resuted in an increase in the number of cooperatives and their contribution, making the Indian cooperative movement one of the argest movements of its kind in the word. Though we can caim to have the Word s argest and most diverse cooperative movement, barring some exceptions our cooperatives in genera are fraught with a number of probems and chaenges. Apart from certain inherent weaknesses, they are constrained by the overwheming roe of the government as we as prescriptive and restrictive egisation and have been unabe to retain an autonomous and democratic character. Some of the probems and chaenges that cooperatives face today are: Inabiity to ensure active membership, speedy exit of non-user members, ack of member communication and awareness buiding measures Serious inadequacies in governance incuding that reated to Boards roes and responsibiities A genera ack of recognition of cooperatives as economic institutions both amongst the poicy makers and pubic at arge Inabiity to attract and retain competent professionas Lack of efforts for capita formation particuary that concerning enhancing member equity and thus member stake Lack of cost competitiveness arising out of issues such as overstaffing, a genera top-down approach in forming cooperatives incuding the tiered structures Poiticization and excessive roe of the government chiefy arising out of the oop hoes and restrictive provisions in the Cooperative Acts (iv)

7 High Powered Committee On Cooperatives In addition to the above, there is aso a serious probem of a arge number of cooperatives that are sick/non viabe. As regards the probems specific to the credit cooperatives, the same have been deat with in detai in the Vaidyanathan Committee Report. Summary Recommendations The Committee has envisioned cooperatives as primariy, autonomous, economic institutions of user members. It sees them as sef-reiant and sef-sustaining institutions functioning in a free, fair and transparent manner in keeping with the principes and vaues of the cooperative movement. Summary Recommendations of the Committee are given beow: Considering the importance of a progressive and enabing egisation, which provides a eve paying fied for cooperatives with other corporate entities, the aw enacted in each State shoud be amended to truy refect the etter and spirit of the Mode Cooperatives Act proposed by the Choudhary Brahm Perkash Committee Report. Even in States where a Parae aw has been enacted, considering its poor utiity and probems faced, a singe enabing aw be enacted, which is member centric and based on cooperative principes, repacing the existing State Acts. The aws enacted with the Mode Cooperatives Act as the basis shoud aso consider the foowing: With a view to enhance member participation in cooperatives and enabe them to do away with non-user members the Acts must provide for a definition of active member, right to vote and contest ony to active members and an enabing provision for speedy exit of nonuser members In order to improve the effectiveness of Boards particuary their trusteeship roe and fiduciary responsibiities, ensure accountabiity and professionaization of the organization, the aws shoud provide for ceary defined roes and responsibiities of the cooperative s board vis-a-vis that of paid executives/managers and a fair, but enforceabe provision for fiduciary responsibiity as provided in the Companies Act. With a view to buid in professionaism, the Acts shoud provide for cooption of experts/subject matter speciaists, mandate that any person eected as a Director on the Board shoud undergo a set of prescribed training programmes within six months of being eected Considering the need to remove a such oophoes in the aw, which have contributed to the poiticization of cooperatives, it is necessary that the aws aso provide for rotationa retirement of Board members and restriction on contribution to poitica and reigious organizations.* Keeping in view the need to enabe cooperatives, which have aready received equity contribution from the government, the aws shoud aso provide for repatriation of government equity and where cooperatives are unabe to return the government equity, they may enter into an MoU with the cooperative agreeing to such conditions that the government may stipuate. * Dr.Amrita Pate has suggested incusion of restriction on MLAs/MPs to be office bearers (v)

8 Executive Summary In order to enhance competitiveness, the aws shoud enabe cooperatives to decide their Organizationa structure and staffing incuding recruitment poicies, service conditions and remuneration, undertake measures such as formation of joint ventures, partnerships, subsidiaries and strategic aiances with cooperatives and other corporate and operate without any imposed area restrictions and have fexibiity in business decisions, mobiizing funds and aocation of surpus. State Governments shoud put in pace a poicy framework for faciitating the functioning of cooperatives with free and fair means, in no ess equa terms with any other organization engaged in economic activities. States shoud refrain from deputing officers to occupy key positions in cooperatives except on an expicit request from a cooperative and ensure that the officers if deputed to hod key positions are given a minimum tenure of three years. The utiity of various tiers of the cooperative structure be examined in each case and actions be taken for de-ayering wherever the structures are not found to be cost effective. Cooperatives shoud undertake member awareness and education programmes on a continuing basis in order to sensitize members regarding their rights, responsibiities/obigations in respect of the organization to which they beong and make specia efforts to faciitate women and youth participation in cooperatives. A scheme of Centra Government and State Government budgetary provision for soft oans to farmers for share capita participation shoud be considered seriousy. Retained earnings in cooperatives are the most important form of coective capita. However if a substantia portion of retained earnings is taken away in the form of income tax, the rate of accretion to the reserves becomes that much sower affecting the heath of the cooperative and its growth. Fu income tax exemption is therefore recommended for a cooperative societies. This wi be a major incentive for the cooperatives to strengthen their capita base. The share of Cooperative Banks in rura credit has been steadiy decining and is around 18%. Cooperative Banks presenty depend for their activities on their own funds which are very imited and refinance from NABARD. Since adequate refinance through NABARD cannot be reied upon and many of the Cooperative Banks are weak and unabe to raise funds from the market, there is a strong need for an aternative organizationa set up to mobiize funds and to bridge the systematic gap in the cooperative credit and banking structure. Cooperatives in various countries have adopted different strategies to augment their equity. The system of tapping share capita from non-members through different casses of shares or specia purpose vehices is aso found. Depending upon the business of the cooperative, financia instruments need to be deveoped for raising capita. Amendment to the Constitution (vi)

9 High Powered Committee On Cooperatives The Committee endorses the view that ony through certain amendments in the Constitution it wi be possibe to ensure that the State cooperative aws provide for enabing the autonomous functioning of the cooperatives. The Committee reviewed the Constitution Amendment Bi (106th Amendment Bi 2006) and recommends that some more changes as given beow be effected in order to be responsive to the needs of the cooperatives. 1. Apprehending that introducing new Part IX B after Part IX A of the Constitution as the Bi proposes, aong with Panchayati Raj Institutions (PRI) and Municipaities, woud impy that cooperatives are a part of governance, the insertion of this part may be considered at any other appropriate pace in the Constitution to ensure that this construa is dispeed. 2. Insertion of the word cooperative societies after the word associations in sub-cause (c) of cause (1) of Artice 19 and a definition of cooperatives {new sub-cause (h)} to form and run Cooperatives based on principes of vountary, democratic member contro, member economic participation and autonomous functioning ZJ. Number and term of members of Board of Directors and its office bearers (Foowing additions are recommended under this Head) Ony eected members of the Board of Directors sha be eigibe to vote in eection and to be eected as Chairman or Vice Chairman or President or Vice President of the Board. Candidates who have ost in eections to the Board sha not be co-opted on the Board either on casua vacancy or otherwise ZK. Eection of members of Board The Bi recommends that functions reating to, and the conduct of a eections to the cooperative societies, sha vest in the Genera Body of a cooperative society. As it may not be possibe to hod meetings of Genera Body frequenty, the Committee recommends that these functions sha vest in the Board of a cooperative society ZL. Supersession of Board of Directors The Bi provides that no Board of a cooperative society sha be superseded, where there is no Government sharehoding of oan or financia assistance or any guarantee by the Government. Since this woud impy that the Boards of cooperatives even where there is a minor government sharehoding of financia assistance or any guarantee by the government can be superseded, the Committee has suggested that no supercession of the Board of Directors shoud be aowed in any case where government share hoding is ess than 51%. Amendment to the Muti-State Cooperative Societies Act, 2002 The Committee took note of the fact that whie the MSCS Act, 2002 has been in operation for the ast six years there is a need to make the Act more comprehensive to mitigate practica probems being faced by the Muti-State Cooperative Societies due to certain provisions of the Act. Some important recommendations of the Committee are: (vii)

10 1. The internationay accepted definition of Cooperative Society refecting its vountary, autonomous and democratic nature may be introduced in the Act. 2. To ensure that the cooperatives are user owned and user controed, a concept of active member may be introduced in the Act and accordingy, a definition of active member be incuded. The Act shoud provide that ony active members sha have the right to vote/ contest eections. 3. A fair, but enforceabe provision for fiduciary responsibiity as provided in the Companies Act shoud be introduced. It shoud be mandatory for the directors on cooperative boards aso to discose certain information in order to avoid confict of interests. A provision be aso made for cooption of experts on the Board. 4. Provisions may be introduced putting restriction on contribution to poitica and reigious organizations.* 5. Provisions for raising of capita through issue of non voting shares and IPO may be incuded 6. Deetion of Rue making powers. Executive Summary * Dr.Amrita Pate has suggested the retention of a cause at this juncture restricting Ministers/MLAs/MPs to be office bearers, which was dropped by the Committee. (viii)

11 1 Introduction 1. In 2004, the Cooperative Movement of India competed a hundred years of its existence. Over the years, it has severa achievements to its credit in amost a sectors of the economy. However, the probems and chaenges resuting from years of contro by Government, growing out of initia support and partnership by the state as we as arising out of the economic reaities thrown up by the opening up of the economy and consequentia impacts of gobaization in the economy, have been many. 2. The Conference of State Cooperative Ministers hed on 7th December, 2004 at New Dehi, resoved that the Government of India may constitute a High Powered Committee to review the achievements of cooperative movement during the ast one hundred years and to prepare a road map recommending steps to be taken to address chaenges being faced by the movement in the changing socio-economic environment. Accordingy, a High Powered Committee on Cooperatives (HPC) was constituted by the Government of India, Ministry of Agricuture vide Resoution No. L-11012/4/2004-L&M dated 10th May, 2005 (Annexure-1(a). 3. The origina composition of the Committee was as foows: 1. Shri Shivajirao G. Pati Chairman 2. Dr. S.S.Sisodia, President, NCUI, New Dehi Member* 3. Shri H.K.Pati,Chairman, NAFCUB, New Dehi Member 4. Dr.Amrita Pate, Chairman NDDB,Gujarat Member 5. Dr. Y.S.P. Thorat, MD, NABARD, Mumbai Member 6. Shri Satish Chander, Joint Secy.(Coop.), DOAC, Member Secretary New Dehi (Succeeded by Shri R.K. Tiwari, J.S.) *Unti March, Shri G.H. Amin, President, NCUI has been member since. 4. Terms of Reference The Terms of Reference of the Committee are as foows: (i) (ii) To review the achievements of the cooperatives during the ast one hundred years. To identify the chaenges being faced by the cooperative sector and to suggest measures to address them to enabe the movement to keep pace with the changing socio-economic environment. (iii) To suggest an appropriate poicy and egisative framework and changes required 1

12 High Powered Committee On Cooperatives in the cooperative egisation in the country with a view to ensure the democratic, autonomous and professiona functioning of cooperatives and amendments to the Muti-State Cooperative Societies Act, (iv) Any other incidenta or consequentia issue as deemed necessary by the Committee for its consideration. 5.1 The Committee in its first meeting resoved to invite Dr. R.C. Dwivedi, OSD to H.E. Shri Baram Jakhar, Governor of Madhya Pradesh, Bhopa as a Specia Invitee on the Committee. 5.2 Smt. Veena Nabar, Chief Director (Retd.), NCDC was appointed as Chief Coordinator, Government of India High Powered Committee on Cooperatives. 5.3 The Committee has been assisted in its deiberations by a Core Group constituted by the Ministry of Agricuture vide Order No.L /2004-L&M dated 14th September, 2005 comprising Shri Bhagwati Prasad, Chief Executive, NCUI, Shri Vinay Kumar, Managing Director, Nationa Federation of Cooperative Sugar Factories, Shri D. Krishna, Chief Executive Officer, Nationa Federation of Urban Coop. Banks & Credit Societies, ShriS.D.Indoria, Chief Director (Coopn.), DOAC and Smt.Veena Nabar, Chief Coordinator, HPC. 6. Since the constitution of the Committee, Shri H.K. Pati ceased to be Chairman, NAFCUB, New Dehi and Shri Y.S.P.Thorat took over as Chairman, NABARD. However, Shri Pati and Shri Thorat continued to be members of the Committee. After the sad and untimey demise of Dr.S.S.Sisodia in March 2007, the Committee co-opted Shri G.H.Amin, President, NCUI on the Committee. This was officiay confirmed by Government Notification No.L-11011/4/2004-L&M dated 20th June, 2007 (Annexure-1(b). Shri Thorat superannuated on November 30, 2008 and Shri Satish Chander on Apri 30, Shri H.K. Pati again took over as Chairman, NAFCUB in January In view of their ong association with the Committee, they however continued to be invoved in the deiberations of the Committee for finaizing its Report. 7. Work done by the Committee 7.1 The HPC and the Core Group each hed twenty and twenty four meetings respectivey. The dates and venues of meetings are given in Annexure Coection and Compiation of Main Recommendations of Various Committees and Commissions on Cooperation Set Up Since In its first meeting, the HPC took note of the fact that a arge number of Committees and Commissions appointed by the Government from time to time ever since the inception of the cooperative movement in the country, had considered and made recommendations on various issues and facets of the cooperative movement. It was agreed that the major recommendations of various Committees shoud be compied and anayzed. The compiation of the recommendations of major Committees has been presented in Annexure Coection and Compiation of Sector wise Achievements of Cooperatives - Starting with credit cooperatives, the cooperative movement has expanded in a gargantuan manner to incude cooperatives in a major sectors of the economy. The sector wise achievements of cooperatives have been compied and presented in Annexure Coection and Compiation of State Reports on the Status and Growth of Cooperatives with 2

13 Introduction Specia Reference to Growth of Leadership - Cooperation is a state subject under the Constitution of India and state wise variations have been known to exist in terms of poicies and practices, impacting upon the growth of cooperatives. The Committee took note of differentia trends in the growth of cooperatives in different States, focusing on eadership as a vita factor in cooperative growth and the same have informed its recommendations. 7.5 Compiation of Research Findings on Various Aspects of the Terms of Reference of the Committee - The Committee compied and took note of the findings of various research papers and artices on cooperatives during its deiberations and the same have informed its Recommendations. 7.6 Finaization of a Questionnaire to seek the Views of State Government and its Functionaries, Cooperators, Academicians and Cooperative Institutions (Annexure-5). 7.7 Compiation and Anaysis of the Responses Received to the Questionnaire - Athough around 1000 questionnaires were addressed to a concerned, ony 250 repies were received. The repies were anayzed, tabuated and considered by the Committee during its deiberations. 7.8 Zona Consutation in Mumbai - A Zona Consutation was hed with senior cooperative eaders from Goa, Gujarat, Karnataka and Maharashtra in the NABARD office, Mumbai on 14th September, Zona Consutation in Bhopa - A Zona Consutation was hed with senior cooperators from Madhya Pradesh and Chhattisgarh in Raj Bhawan, Bhopa on 14th December, The Committee aso met with the Governor of Madhya Pradesh, His Exceency, Shri Baram Jakhar who had a ong stint as Union Minister for Agricuture & Cooperation and has considerabe experience in the fied of cooperation On the request of the Cooperative Deveopment Foundation (CDF), a reputed civi society organisation working for the cooperative cause, the Committee gave them an opportunity to make a presentation on the Constitutiona Amendment Bi. Accordingy, Shri L.C.Jain and CDF members made a presentation to the Committee on 27th November, The Committee deiberated upon and finaized its recommendations for amendment of the Constitution to ensure autonomous, free and democratic functioning of cooperatives It aso deiberated upon and finaized various suggestions to further amend the Muti-State Cooperative Societies Act, The Committee commissioned Prof. Yashwantha Dongre, PG Centre, Hassan (Karnataka) to submit a paper on Vision for Cooperatives for consideration of the Committee. Accordingy, the vision paper prepared by Prof. Dongre was presented by him to the Core Group and then paced before the Committee members The Committee aso requested Prof. L.K.Vaswani, Director KSRM, Bhubaneswar to submit inputs in respect of Probems and Chaenges Affecting the Cooperative Sector. A brief presentation on the subject was made by Prof. Vaswani to the Core Group and his paper was paced before the Committee members. 3

14 High Powered Committee On Cooperatives 7.15 Keeping in view that the Standing Committee of Pariament was ooking into the Constitutiona Amendment Bi, the Committee presented an Interim Report to the Hon be Union Minister for Agricuture on 7th June, 2007 on the foowing: (i) (ii) Recommendations on proposed amendments to the Constitution Recommendations on further amendments to the Muti-State Cooperative Societies Act The Committee requested to appear before the Pariamentary Standing Committee on Agricuture ooking into the 106th Constitution Amendment Bi introduced in the Lok Sabha to give evidence and did so on 15th June, The Core Group of the HPC hed consutations with senior cooperators and academicians in the VAMNICOM, Pune to discuss the recommendations proposed to overcome the chaenges and probems of the cooperative sector and set forth the Vision for cooperatives of the future Based on a number of deiberations and the above mentioned consutations and inputs received, the Report of the Committee is presented for consideration of the Government of India. 4

15 2 The Cooperative Movement in India - A Brief History 1. Preambe 1.1 The history of cooperatives in India is more than a hundred years od. The canvas of events is far too vast to give it the space it deserves in a Report of this nature. The foowing is ony a brief attempt to recapture the major events that ed to the cooperatives as we see them today. 2. Background 2.1 Even before forma cooperative structures came into being through the passing of a aw, the practice of the concept of cooperation and cooperative activities were prevaent in severa parts of India. Viage communities coectivey creating permanent assets ike viage tanks or viage forests caed Devarai or Vanarai was fairy common. Simiary, instances of pooing of resources by groups, ike foodgrains after harvest to end to needy members of the group before the next harvest, or coecting sma contributions in cash at reguar intervas to end to members of the group viz., Chit Funds, in the erstwhie Madras Presidency, Kuries in Travancore, Bhishies in Kohapur etc. were to be found. The Phads of Kohapur where farmers impounded water by putting up bunds and agreed to ensure equitabe distribution of water, as we as harvesting and transporting of produce of members to the market, and the Lanas which were yeary partnerships of peasants to cutivate jointy, and distribute the harvested produce in proportion to the abour and buock power contributed by their partners, were simiar instances of cooperation. 2.2 The agricutura conditions and absence of institutiona arrangements to provide finance to agricuturists during the atter part of the nineteenth century ed to mounting distress and discontent. The Famine Commission of 1880 and 20 years ater, the Famine Commission 1901 both highighted the deep indebtedness of the Indian farmer, resuting in many cases in his and passing into the possession of the money ending casses. The Deccan Riots and the prevaiing environment of discontent resuted in the government taking various initiatives but the egisative measures did not substantiay improve the situation. 2.3 The proposa for agricutura banks was first mooted in 1858 and again in 1881 by Mr.Wiiam Wedderburn the District Judge of Ahmednagar, in consutation with Justice M.G. Ranade, but was not accepted. In March 1892, Mr. Frederick Nichoson was paced by the Governor of Madras Presidency (for enquiring into the possibiity) of introducing in this Presidency, a system of agricutura or other and banks and submitted his report in two voumes in 1895 and In 1901 the Famine Commission recommended the estabishment of Rura Agricutura Banks through the estabishment of Mutua Credit Associations, and such steps as were taken 5

16 High Powered Committee On Cooperatives by the Government of North Western provinces and Oudh. The underying idea of a number of persons combining together was the vountary creation of a new and vauabe security. A strong association competent to offer guarantees and advantages of ending to groups instead of individuas were major advantages. The Commission aso suggested the principes underying Agricutura Banks. 3. Cooperative Credit Societies Act, The First Incorporation 3.1 Taking cognizance of these deveopments and to provide a ega basis for cooperative societies, the Edward Law Committee with Mr. Nichoson as one of the members was appointed by the Government to examine and recommend a course of action. The Cooperative Societies Bi, based on the recommendations of this Committee, was enacted on 25th March, As its name suggests, the Cooperative Credit Societies Act was restricted to credit cooperatives. By 1911, there were 5,300 societies in existence with a membership of over 3 akhs. The first few cooperative societies registered in India under the 1904 Act in the first 5-6 years are as foows: Rajahaui Viage Bank, Jorhat, Jorhat Cooperative Town Bank and Charigaon Viage Bank, Jorhat, Assam (1904), Tirur Primary Agricutura Cooperative Bank Ltd., Tami Nadu (1904), Agricuture Service Cooperative Society Ltd., Devgaon, Piparia, MP (1905), Bains Cooperative Thrift & Credit Society Ltd., Punjab (1905), Biipada Service Cooperative Society Ltd., Orissa (1905), Government of India, Sectt. Cooperative Thrift & Credit Society (1905), Kanginha Vyvasaya Seva Sahakari Bank Ltd., Karnataka (1905), Kasabe Tadvae Cooperative Muti-Purpose Society, Maharashtra (1905), Premier Urban Credit Society of Cacutta, West Benga (1905), Chittoor Cooperative Town Bank, Andhra Pradesh (1907), Rohika Union of Cooperative Credit Societies Ltd., Bihar (1909). Under this Act, severa non credit initiatives aso came up such as the Tripicane society in Madras which ran a consumer store, weaver credit cooperatives in Dharwar and Hubi, which gave credit in the form of yarn etc. However, these were registered as Urban Credit Societies. 3.2 The 1904 Act provided for constitution of societies, eigibiity for membership, registration, iabiities on members, disposa of profits, shares and interests of members, privieges of societies, caims against members, audit, inspection and enquiry, dissoution, exemption from taxation and rue making power. A other operationa and manageria issues were eft to the oca governments namey to formuate suitabe rues and mode bye-aws of the cooperative societies. The institution of the Registrar, visuaized as a specia officia mechanism to be manned by officers with specia training and appropriate attitudina traits to prompt and catayze cooperative deveopment was the resut of the Cooperative Societies Act of Cooperative Societies Act, With the deveopments in terms of growth in the number of cooperatives, far exceeding anticipation, the Cooperative Societies Act of 1912 became a necessity and cooperatives coud be organized under this Act for providing non-credit services to their members. The Act aso provided for Federations of cooperatives. 6

17 The Cooperative Movement in India - A Brief History 4.2 With this enactment, in the credit sector, urban cooperative banks converted themseves into Centra Cooperative Banks with primary cooperatives and individuas as their members. Simiary, non-credit activities were aso cooperativey organized such as purchase and saes unions, marketing societies, and in the non agricutura sector, cooperatives of handoom weavers and other artisans. 5. Macagen Committee on Cooperation (1914) 5.1 The Banking Crisis and the First Word War both affected the growth of cooperatives. Athough member deposits in cooperatives increased sharpy, the war affected the export and prices of cash crops adversey, resuting in increased over-dues of oans of primary agricutura societies. To take stock of the situation, in October, 1914 a Committee on Cooperation under Sir Edward Macagen was appointed by the Government, in October 1914, to study the state of, and make recommendations for the future, of cooperatives. The Committee s recommendations, which are detaied in Annexure-3, are basicay reated to credit cooperatives. It recommended buiding up a strong three-tier structure in every province with primaries at the base, the Centra Cooperative Banks at the midde tier and the Provincia Cooperative Bank at the apex, basicay to provide short-term and medium-term finance. Considerabe emphasis was aid on ensuring the cooperative character of these institutions and training and member education, incuding training of the Registrar and his staff. 6. After the 1912 Act, the first Cooperative Housing Society, the Madras Cooperative Union in 1914, the Bombay Centra Cooperative Institute in 1918 and simiar institutions in Benga, Bihar, Orissa, Punjab etc. came up. Other than consumer cooperatives and weavers cooperatives, other non-agricutura credit cooperatives generay performed we and grew in strength and operations during this period. 7. Government of India Act, 1919 In 1919, with the passing of the Reforms Act, Cooperation as a subject was transferred to the provinces. The Bombay Cooperative Societies Act of 1925, the first provincia Act to be passed, among others, introduced the principe of one-man one-vote. 8. The agricutura credit scenario was a matter of concern and various committees ooked into the probems of cooperative banks in various provinces. The Roya Commission on Agricuture in 1928 aso reviewed the cooperative sector and among others recommended the setting up of and mortgage banks. 7

18 High Powered Committee On Cooperatives 9. In both agricutura and non agricutura non-credit sectors, societies were organized, but most faced difficuties in operation as a resut of opposition by private marketing agencies and aso the inexperience of their office bearers. This focused attention on strengthening of cooperative institutes and unions for education and training. A prominent deveopment of this time was the setting up of the A India Association of Cooperative Institutes in The setting up of the Reserve Bank of India (RBI) in 1934 was a major deveopment in the thrust for agricutura credit. The Reserve Bank of India Act, 1934 itsef required the RBI to set up an Agricutura Credit Department. As cooperatives were to be channes for rura deveopment, with the estabishment of popuary eected governments in 1935, programmes were drawn up in which rura indebtedness received priority. The Mehta Committee appointed in 1937 specificay recommended reorganization of Cooperative Credit Societies as muti-purpose cooperatives. 11. The Second Word War boosted the prices of agricutura commodities eading to increased returns to farmers and consequenty reduction in over-dues to the cooperatives. To counter shortages of essentia commodities for domestic consumption as we as raw materias, the Government resorted to procurement of commodities from producers and rationing, for which it decided to utiize the cooperatives. This provided a momentum to the growth of muti-purpose cooperatives. 12. The period between provided a further stimuus to the growth of the Urban Cooperative Credit structure. Many societies had started banking functions and had grown in size and operations over a period of time, with substantia diversification of activities. 13. Muti-Unit Cooperative Societies Act, 1942 With the emergence of cooperatives having a membership from more than one state such as the Centra Government sponsored saary earners credit societies, a need was fet for an enabing cooperative aw for such muti-unit or muti-state cooperatives. Accordingy, the Muti-Unit Cooperative Societies Act was passed in 1942, which deegated the power of the Centra Registrar of Cooperatives to the State Registrars for a practica purposes. 14. In 1944, the Gadgi Committee recommended compusory adjustment of debts and setting up of Agricutura Credit Corporations, wherever cooperative agencies were not strong enough. 15. Cooperative Panning Committee (1945) The Cooperative Panning Committee under the chairmanship of Shri R.G. Saraiya was set up in The Committee found cooperative societies to be the most suitabe medium for democratization of economic panning and examined each area of economic deveopment. 8

19 The Cooperative Movement in India - A Brief History 16. Pre-Independence Deveopment 16.1 In 1946, inspired by Sardar Vaabh Bhai Pate and ed by Shri Morarji Desai and Shri Tribhuvan Das Pate, the mik producers of Khera District of Gujarat went on a fifteen day strike. Their refusa to suppy mik forced the Bombay Government to withdraw its order granting monopoy procurement rights to Poson, a private dairy. History was made when two Primary Viage Mik Producer Societies were registered in October Soon after on 14th December 1946, the Khera District Cooperative Mik Producers Mik Union known as Amu was registered The Registrars Conference in 1947 recommended that the Provincia Cooperative Banks be re-organized to give greater assistance to primary societies through Centra Banks. For the first time an effective inking of credit with marketing, and providing assistance by way of ibera oans and subsidies for estabishment of a arge number of godowns and processing pants was considered It woud be appropriate to mention here some deveopments in Bombay vis-à-vis cooperatives, which had an impact on the cooperative sector. Shri Vaikunth Bhai Mehta took over as Minister, In-charge of Cooperation in the Bombay Government after which the cooperative movement in the province received a boost. A Committee on Cooperative Education and Training under the chairmanship of Sir Janardan Madan, made recommendations for cooperative education programmes and the setting up of an Education Fund. The Agricutura Credit Organization Committee, with Sir Mania Nanavati as Chairman recommended State assistance in agricutura finance and conversion of a credit cooperatives into muti-purpose cooperatives. It aso recommended a three-tier cooperative credit banking system, and various subsidies etc. 17. Deveopments in the Post-Independence Era 17.1 After India attained Independence in 1947, cooperative deveopment received a boost, with cooperatives being given a vita roe in the various pans formuated by the Panning Commission The First Five Year Pan ( ), outined in detai the vision of the cooperative movement in India and the rationae for emphasizing cooperatives and panchayats as preferred organizations for economic and poitica deveopment. The Pan emphasized the adoption of the cooperative method of organization to cover a aspects of community deveopment. It provided for setting up of urban cooperative banks, industria cooperatives of workers, consumer cooperatives, housing cooperatives, diffusion of knowedge through cooperative training and education and recommended that every government department foow the poicy of buiding up cooperatives A India Rura Credit Survey Committee (1951) A major watershed initiative at this time was the appointment by Government of the Gorwaa Committee, popuary known as the A India Rura Credit Survey 9

20 High Powered Committee On Cooperatives Committee. The Committee was appointed in 1951 and submitted its report in It observed that arge parts of the country were not covered by cooperatives and in such areas where it had been covered, a arge segment of the agricutura popuation remained outside its membership. Even where membership did exist, the buk of the credit requirement (75.2%) was met from other sources. The Committee recommended introducing an integrated system of rura credit, partnership of the government in the share capita of the cooperatives and aso appointment of government nominees on their boards, thus participating in their management. The Committee emphasized the importance of training. The creation of the State Bank of India was aso a major recommendation. Detaied recommendations of the Committee have been presented in Annexure The Government and the eected representatives accepted the basic approach and the major recommendations of the Gorwaa Committee. The Union Government acquired a major interest in the Imperia Bank which was converted into the State Bank of India. A Nationa Cooperative Deveopment and Warehousing Board was set up. The Reserve Bank of India Act was amended to enabe it to pay an active roe in buiding up of cooperative credit institutions The A India Cooperative Congress, hed at Patna in 1956, accepted the principe of state participation and government representation on the Board of Directors of cooperatives. It resoved that the number of such nominees shoud not exceed one-third of the tota number of Directors or three, whichever is ess and appicabe even to cooperatives having government share capita in excess of 50% of tota share capita. This recommendation was accepted by the Centra Government In 1953, the Government of India and the Reserve Bank jointy constituted a Centra Committee for Cooperative Training to estabish necessary training faciities for cooperative personne. The A India Cooperative Union and the State Cooperative Unions were entrusted with training of members and office bearers of cooperative organizations The Second Five-Year Pan ( ), emphasized buiding up a cooperative sector as part of a scheme of panned deveopment as being one of the centra aims of Nationa Poicy. It aimed at enabing cooperatives to increasingy become the principa basis for organization of economic activity. The Pan drew up programmes of cooperative deveopment based on the recommendations of the A India Rura Credit Survey Committee (AIRCS). It was envisaged that every famiy in a viage shoud be a member of at east one cooperative society. Linking of credit and non-credit societies to provide better services to the farmers was aso targeted. State partnership with cooperative institutions at various eves, the essentia basis of which was to be assistance and not interference or contro, was recommended and for faciitating State partnership in cooperatives, the Pan aso recommended the estabishment of a Nationa Agricutura Credit Long-term Operations Fund. The Nationa Cooperative Deveopment Fund was aso estabished by the Centra Government, during this period, to enabe states to borrow for the purpose of subscribing share capita of non credit cooperative institutions in the country. 10

21 The Cooperative Movement in India - A Brief History 17.7 The Industria Poicy Resoution of 1956 emphasized the need for State assistance to enterprises, organized on a cooperative basis for industria and agricutura purposes, and to buid up a arge and growing cooperative sector The Committee on Cooperative Law under the chairmanship of Shri S.T.Raja in 1956 recommended a Mode Bi for consideration of State Governments. Another important deveopment, at this time, which affected the cooperative sector, was the Nationa Deveopment Counci Resoution (1958). The Resoution on Cooperative Poicy stressed that cooperatives shoud be organized on the basis of the viage community as the primary unit and that there shoud be cose coordination between the viage cooperative and the Panchayat. The Resoution aso recommended that the restrictive features of existing cooperative egisation shoud be removed. Many State Governments amended their Acts, as a resut of the recommendations of the Mode Bi 17.9 Cooperative marketing and processing of agricutura produce formed an important part of the Integrated Scheme of Cooperative Deveopment in the Second Pan. About 1900 primary marketing societies were set up and State Marketing Federations were estabished in a the States, as we as the Nationa Cooperative Marketing Federation at the Centre. Marketing cooperatives aong with the agricutura cooperatives payed a major roe in promoting the Green Revoution by providing credit and inputs to farmers as we as processing their increased outputs The Third Five Year Pan ( ) stressed that Cooperation shoud become, progressivey, the principa basis of organization in branches of economic ife, notaby agricuture, minor irrigation, sma industries and processing, marketing, distribution, rura eectrification, housing and construction and provision of essentia amenities for oca communities. Even the medium and arge industries and in transport an increasing range of activities can be undertaken on cooperative ines From the mid-sixties onwards agro processing cooperatives, particuary in the sugar and spinning sector grew in number and contribution, driven primariy by the government s poicy of encouraging arge scae industries in the cooperative sector and term oan assistance from financia institutions With the setting up of NDDB to repicate the Anand pattern of cooperatives in mik, the Indian dairy cooperative movement received a spurt. Later on NDDB aso ventured into the fied of edibe ois After the Indo-China war in 1962, both the Consumer Cooperative Structure and the Pubic Distribution System (PDS) was strengthened. The government as a matter of poicy decided to give preference to consumer or other cooperatives in the aotment of fair price shops and certain States aotted new fair price shops ony to cooperatives With the growth of pubic deposits in Urban Cooperative Credit Societies, it was fet necessary to insure these under the Deposit Insurance Scheme of Reserve Bank of India. Seective 11