Role of cooperatives in Indian economy

24 Sep 2021

Opinion: Saurabh Bandyopadhyay and Anupma Mehta 

The NCAER recently undertook a study on cooperative agro-processing and identification of institutional financial lacunae in the cooperative movement

The cooperative movement in India has regained focus after the Union Government recently created a Ministry of Cooperation to provide a separate administrative legal and policy framework for streamlining the cooperatives. The move is expected to cascade the movement down to the grassroots level for facilitating the growth of a people-based economic development model. It envisages an environment that would enable ‘sahkar se samriddhi’ (prosperity through cooperation) and promote ‘ease of doing business’ for cooperatives through various proactive measures including the development of Multi-State Cooperatives (MSCs).

The genesis of the current movement can be traced to the enactment of the Cooperative Credit Societies Act by the British in 1904. Subsequently Prime Minister Jawaharlal Nehru gave it a fillip by integrating cooperatives into the Five-Year Plans. His vision of “convulsing India with the cooperative movement…to make it broadly speaking the basic activity of India in every village as well as elsewhere indeed to make the cooperative approach the common thinking of India” was a precursor for the establishment of cooperative societies especially in rural India thus laying the foundation for the largest cooperative movement in the world.

The institution of cooperative marketing societies by the National Development Council (NDC) coupled with the passage of the Multi-State Cooperative Societies Act by the Parliament in 1984 enhanced the importance of the movement. By definition therefore cooperative societies were envisioned as a combined agglomerate of persons voluntarily coming together to meet their common economic social and cultural needs through a jointly-owned and democratically-controlled enterprise.

It was anticipated that the cooperative movement would largely be concentrated in the agricultural sector playing a significant role across operations spanning production distribution and consumption. Two of the most conspicuous success stories emerging from the implementation of this model were the White Revolutionand the Green Revolution. As per data from the National Dairy Development Board in 2019-20 dairy cooperatives had procured 4.80 crore litres of milk from 1.7 crore memberswhile selling 3.7 crore litres of liquid milk per day. Farm sector experts point out that cooperatives have also positively impacted post-harvest processing storage transportation trade and input procurement for a range of activities in the agricultural sector.

The movement has reportedly fostered 5.03 lakh cooperatives a membership of 210 million and a network stretching through the entire breadth of rural India while accounting for 46.31 per cent of the total agricultural creditand 23.5 per cent of the total fertiliser production across the country. These milestones have been achieved through the institution of 21 national-level 361 State-level and 2572 district-level cooperative federations in the country. Hence every sphere of national and local economic activity has literally been brought under the ambit of the cooperative movement.

But is the picture as rosy as these statistics apparently indicate? Rumblings of discontent among farmers in particular and the farm sector in general suggest that the contribution of cooperatives to actual growth in the agricultural sector is significantly lower than expectations. Despite the need for substantial investments in the form of plant machinery tools and equipment in farming the outcomes reflect low capital and low productivity linkages along with the need for augmenting an under-performing marketing infrastructure.

In order to identify the ground-level roadblocks and suggest measures to overcome them the National Council of Applied Economic Research (NCAER) recently undertook a study on cooperative agro-processing and identification of institutional financial lacunae in the cooperative movement with special attention on the role of the National Cooperative Development Corporation (NCDC). The NCAER study covering 304 cooperative units in Assam Chhattisgarh Gujarat Himachal Pradesh Kerala Maharashtra and West Bengal found that marginal and small farmers sell a major part of their agricultural commodities to private traders which prevents them from reaping the profits of their produce even during a bumper harvest. Their small quantity transactions translate into meagre cooperative shares and weak bargaining power in the market. Lack of adequate storage facilities also compromises the processing of paddy grains and fruits and vegetables which in turn adversely impacts the shelf life of products and compromises employment outcomes. Further the study showed a decadal decline in the share of agro-processing in the total value of the manufacturing output from 32.31 per cent in 2000-2001 to 22.9 per cent in 2011-12.

The NCAER estimations based on analysis of the 70th Round unit-level data from the National Sample Survey Office (NSSO) also highlight the need for providing cooperative support for marketing penetration and storage to smallholders who constituted 86 per cent of the total share of landholdings in 2015-16 according to the Tenth Agricultural Census. In this context NCDC which has been at the forefront of the cooperative movement in the country can offer pivotal support to the agriculture sector through the development of sustainable supply chains linking farmers to processing centres and markets. Critical funding from NCDC towards cooperative sector schemes comprising fisheries dairy and livestock water conservation micro irrigation agricultural insurance and credit among others constitutedover 49 per cent of the cumulative lending for the period 2008-13. Yet the corporation is not being offered concessional finance under priority sector lending. Compelled to source its funds from the market NCDC faces constraints in offering loans to cooperatives at competitive rates which has a deterrent impact on post-harvest agricultural activities.

An assessment of the capacity utilisation of the surveyed units revealed that nearly 34 per cent of them were under-utilising their capacities in the range of 25 to 75 per cent due to various reasons such as inadequate supply of products for processing shortage of skilled manpower funds crunch lack of demand and non-availability of advanced machinery. In addition most States exhibit poor urban and rural representation of self-help groups and cooperatives in the sphere of foodgrain disbursal under the Public Distribution System (PDS) through the network of Fair Price Shops (FPS). Notwithstanding the policy for issuance of FPS licences to women’s self-help groups village panchayats urban local bodies and cooperatives the combined percentage of their FPS presence in India is merely about 26 per cent with the rest going to private individual ownership.

It is obvious that despite its monumental potential the cooperative model in the country is facing numerous policy hurdles. Since the administration of cooperatives has traditionally fallen under the purview of the respective State governments the establishment of a Central Ministry to oversee their functioning may also have certain political repercussions and revive the national debate on collaborative federalism. The immediate priority before the new Ministry therefore is to revamp the nation-wide cooperative strategy to ensure access to cost-effective institutional sources of credit capital equipment and state-of-the-art technology for producers especially in agriculture. Another vital mandate for it would be fulfilment of the fundamental objective of cooperativesof lifting the illiterate and unskilled workers out of poverty by providing them comprehensive infrastructural and marketing support for livelihood. There is no denying the fact that cooperatives have always signified viable solutions even in a failing market. It remains to be seen if the renewed political and economic focus on cooperatives can actually metamorphose into a truly people-based movement at the grassroots level to usher in prosperity through people’s participation.

Saurabh Bandyopadhyay is Fellow and Anupma Mehta is Editor at NCAER. The views expressed are personal.

Published in: The Pioneer, 24 Sep 2021