Context

The article delved into the past of the cooperative movement and give some suggestions to resolve the issues facing cooperatives in India.

Background of cooperatives

• Friedrich Raiffeisen, who along with compatriot Schulze-Delitzsch in Germany, and Luzzatti of Italy, pioneered cooperatives in Europe.
• Cooperatives in India: The Governor of the Madras Presidency, Lord Wenlock, was the first to seriously attempt replicating European cooperatives in India.
• Principles: Raiffeisen based them on the principles of self-help, self-governance, and self-responsibility.
• Nicholson wrote that the ‘future of rural credit lies with those who being of the people, live among the people, and yet by their intelligence, prescience and energy, are above the people’.
•  Plunkett, in his foreword to Eleanor Hough’s The Cooperative Movement in India (1932), commented that what India had was not a movement, but a policy.
• It was ‘created by ‘resolutions of the Central Government’ unlike Europe.
• Increasing government control: John Matthai wrote in 1925 that the challenge was to loosen government grip on cooperation over the years.
• But, government control has only increased, violating a core cooperative principle of political neutrality.
• This reflects a collective failure of the political class.

Challenges facing cooperatives

• After Independence, cooperative institutions became an instrument of planning and state action.
• Not surprisingly, successful Indian cooperatives such as the Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF)/Amul, Indian Farmers Fertiliser Cooperative Limited (IFFCO) and Krishak Bharati Cooperative Limited (KRIBHCO), are outside government control.
• Globally, seven of the top 10 cooperatives by asset size are from the financial sector.
• The Indian financial sector is nowhere in the picture going by asset size.
•  Cooperatives have also become avenues for regulatory arbitrage, circumventing lending and anti-money laundering regulations.
•  The committees which examined cooperative banking suffered from the top-down quality that Plunkett and others frowned upon.
• Recent initiatives such as an umbrella organisation for urban cooperatives and a new Ministry of Cooperation at the Centre threaten to further this approach in the absence of safeguards.

Suggestions

• First, the powers of the RCS need to be scaled back.
•  In almost all States, the RCS has become an instrument of inspection and domination, one which imposes uniform by-laws, and amends them when individual societies do not fall in line.
•  There is a need to transfer work from the RCS to cooperative federations — as in Singapore.
• Second, the rural-urban dichotomy in the regulatory treatment of cooperatives is specious and outdated.
• Such differences are immaterial when regulation is to be based on the cooperative nature of organisations.
• Third, the regulation and the supervision of cooperative banks should move to a new body from the Reserve Bank of India (RBI) for urban banks and the National Bank for Agriculture and Rural Development (NABARD) for rural banks.
• Fourth, lessons from the Netherlands, where cooperative banks owe their success to a segmented market, are pertinent.
• In India, adopting a multi-agency approach, especially after bank nationalisation, has affected the efficiency of both commercial and cooperative banks.
• Commercial bank-cooperative sector linkages at various levels could alternatively provide better synergies.

Conclusion

The cooperative sector in India faces challenges on various fronts. There is a need for implementing the changes suggested above to play an important role expected from it in the economy.

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