By Dr. Amrit Patel:
Agricultural Cooperatives: With the theme of the World Food Day for 2012 as “Agricultural cooperatives – key to feeding the world” India in this year must accelerate process of implementation of revival package for short-term cooperatives already approved in 2006, approve revival package for long-term cooperatives pending since February 2010 and State Governments commit to create facilitating environment to harness potential of agricultural cooperatives to contribute to socio-economic development, particularly inclusive growth, employment generation and poverty reduction during the Twelfth Plan period. It is in this context necessary to appreciate exemplary achievements of cooperatives, India’s initiatives in establishing cooperatives, NABARD’s role to help cooperative banks implement institution-specific Development Action Plans[DAP] since 1990s and implementation of Revival Package for short-term cooperatives by the Government since 2006 to empower cooperatives to provide financial services, viz. savings, credit, insurance, remittances, payments etc. to rural households that can minimize regional imbalances, generate employment and income to directly attack on rural poverty.
Exemplary Achievements: Across the world cooperative form of organizations plays immense role in financial inclusion and agricultural development and has contributed significantly to the growth of economy in developing and developed countries. This organizational form has sustainably enabled small farmers and producers to access various markets and thereby benefit from overall growth in the economy. For example, 40% of individuals in the United States are members of cooperatives, 3400 farmer- owned cooperatives market 30% of farm produce and nearly 10,000 Credit Unions have 84 million members and assets in excess of US$ 600 billion. In Brazil, cooperatives produce 72% of wheat, 44% of barley, 39% of milk and 38% of cotton. In Europe, cooperative banks had over 150 million clients, accounting for 33% of the EU population in 2004. In Kenya, cooperatives share 95% of cotton and 76% of dairy market and contribute 45% to the GDP with 31% of national savings and deposits. In Canada Credit Unions meeting financial needs of small farmers have doubled their market share in farm debt outstanding from 5.3% in 1993 to 10.9% in 2008. The World Council of Credit Unions helps developing economies establish financially viable Credit Unions for the sustainable growth of rural economy. Creditagricole in France and Amul patterned milk cooperatives and sugar cooperatives in some states of India can be role model for other States for farm and non-farm economic activities.
India’s Initiative: In 1885, Government of India advised Sir Frederick Nicholson to study the working of the Land Bank system and cooperative village banks in Germany and make recommendations to introduce an appropriate system for providing institutional credit to the poor peasants and save them from the clutches of the moneylenders. Pursuant to his recommendations, the Raiffeisen models of Primary Agricultural Credit Societies [PACS] were organized under the Cooperative Societies Act of 1904. Since 1904 efforts to build the institutional financing system for agriculture commenced and ‘cooperation’ became a provincial subject by 1919. Rural credit cooperatives were primarily envisaged as intermediaries to mobilize savings from rural households of small means and provide them access to credit. Democratic in features, the cooperatives were perceived to make investment to develop agricultural land and increase productivity, provide livelihoods and food security, generate employment opportunities in rural areas and ensure social and economic justice to the poor and vulnerable
Present Status: As on 31 March 2010, India has 94,647 PACS. This means
a. Country’s 14.82% villages have PACS as against 4.86% by commercial banks and RRBs
b. population per credit outlet of existing RFIs including cooperatives is 4,393 and excluding cooperatives 14,893
c. cooperatives have significant presence in hilly, tribal and desert terrains
d. cooperatives serve 12.64 million members.
e. cooperatives have more accounts than commercial banks including RRBs, of which 70% are small and marginal farmers
f. cooperatives share 37% outstanding crop loans of RFIs and more than 50% share in hilly, tribal and desert districts
g. since 70% borrowers are small and marginal farmers average loan size of cooperatives is Rs.6,637 as against Rs.31,585 for commercial banks
h. cooperatives have nearly 64,000 rural godowns to help farmers store farm products under a warehouse receipt system.
After independence the Government made attempts to institutionalize cooperative credit structure to promote thrift and relieve farmers from the traditional burden of debt. The All-India Rural Credit Survey Committee in 1951-52 laid strong foundation for institutional finance for agriculture and recommended that from a long-term perspective, cooperatives should be developed and strengthened continuously to meet credit for production and investment purpose.
PACS at village level are perceived as the appropriate agencies to inculcate habit of thrift, self-help and mutual help among members. Their primary functions include supply of short and medium-term agricultural credit and collection of agricultural produce for sale through marketing society. PACS are expected to formulate village credit plans to increase agricultural production. PACS to be financially viable were to be reorganized into economically and operationally efficient units. In the context of Integrated Rural Development, CRAFICARD recommended to transform reorganized PACS into a single contact point to provide all types of credit required by farmers and other rural producers viz. village artisans, craftsmen, handloom weavers, handicrafts, agricultural labourers pursuing income generating economic activities, and offer package of services like production inputs, technical guidance and marketing support to members. These functions can be undertaken directly or establishing links with other agencies viz. input suppliers, agricultural universities and marketing organizations.
Subsequently, National Commission on Agriculture recommended converting a group of PACS into full-fledged Farmers’ Cooperative Society to perform all these functions in an integrated manner. To address specific requirements of tribal population, establishment of large-size Adivasis Multipurpose Societies was recommended. Increased and diversified business can make PACS financially viable which qualified, trained and professional staff can manage efficiently. To accomplish this, NABARD in November 1982 initiated implementing the program of transforming the reorganized PACS into multipurpose service institutions. Beginning from 1982-83 all reorganized PACS with necessary infrastructure support were to be brought under the program by the end of the Sixth Plan.
NABARD also initiated other measures to
a. improve resource position of PACS
b. rehabilitate and revive financially weak/loss making DCCBs
c. professionalize management in PACS and DCCBs
d. restructure organizational structure and strengthen staffing arrangements with qualified and competent persons in DCCBs and
e. train staff for capacity building in PACS and DCCBs.
Weaknesses: The studies in early 1990s revealed that inefficient personnel management, unsatisfactory governance and management of cooperatives impaired their financial health. The studies also identified weaknesses viz. inadequate coverage, increasing regional imbalances, declining deposits and business, mounting over dues and losses, rising transaction costs, declining lending rates and financial margin, declining profitability and financial viability etc.
Reforms: The financial sector reforms initiated in 1991-92 aimed at improving the efficiency and productivity of the rural credit delivery system. The reforms in cooperatives focused to:
a. make cooperatives competitive by removing external constraints inhibiting their operations
b. improve their financial health
c. ensure transparency in their business operations
d. improve their profitability
e. strengthen institutional capacity.
To help cooperatives achieve objectives of the reform process NABARD initiated measures viz.
i. it facilitated cooperative banks to formulate and implement DAPs that can improve gross and net margin on advances, exploit business potential, optimize management cost, increase recovery, arrest NPAs and accumulated loss. Banks were guided to analyze various parameters affecting organizational effectiveness, financial management, procedures and systems, HRD and training policy
ii. since 1994-95 formulation of institution specific DAP and execution of Memorandum of Understanding [MoU] has been an on-going exercise to improve working of cooperatives seeking commitments of all the stakeholders. The revised fourth phase of DAP/MoU for cooperatives [2007- 2012] is institution specific and seeks participation of the Board of Directors and repositions NABARD, RBI and Registrar of Cooperatives [RCS] as external facilitators. As on 31 December 2010, 21 SCBs and 10 SCARDBs and State Governments concerned have executed DAP/MoU with NABARD
iii. it has established the Cooperative Development Fund in 1993 to make soft loans/grants available to cooperatives for resource mobilization, human resource development, capacity building, streamlining operations, developing MIS etc. which can improve operational efficiency
iv. since 1994-95 NABARD has been conducting Organizational Development Initiatives to facilitate cooperatives to achieve sustainable viability
v. it supports cooperatives to implement Core Banking Solution
vi. Standard Audit Manual for PACS is being prepared.