Foundation Day Celebrations of Nagpur Nagarik Sahakari Bank

Cooperatives have to effectively address commodity value chain framework in order to have a place in a globalised world: Vice President

Addresses the Foundation Day Celebrations of Nagpur Nagarik Sahakari Bank

The Vice President of India, Shri M. Hamid Ansari has said that the cooperatives have to effectively address commodity value chain framework in order to have a place in a globalised world. He was addressing at the foundation day celebrations of Nagpur Nagarik Sahakari Bank, in Nagpur today. The Union Minister for Road Transport & Highways and Shipping, Shri Nitin Gadkari, the Union Minister of State for Home, Shri Hansraj Ahir, the Energy Minister & Nagpur Guardian Minister, Government of Maharashtra, Shri Chandrashekhar Bawankule, the Mayor of Nagpur, Shri Pravin Datke and others were present on the occasion.

The Vice President said that our founding fathers saw the cooperative movement as an important tool in carrying forward the policy of rapid and equitable economic development. The cooperative movement in India today is the largest in the world, and the sector played a pivotal role in the economy, especially in our primary sector production, he added.

The Vice President said that the cooperative credit societies have clearly not been effective in providing adequate and affordable credit flows to our small-scale farming sector. Identifying some of the reasons for weakness and the correctives, the Vice President said that there has been an over-bearing role and intervention from the Government, the politicization of cooperative leadership, the size of Primary Agricultural Credit Societies has been small, there was lack of professional management of societies and land reform and caste also had an impact.

The Vice President said that given the role that agriculture enjoys in India’s economy, cooperatives remain an important plank in our approach to equitable development and as an important conduit for delivery of goods and services in areas not serviced by Government or private channels. Some of the areas where cooperatives continue to have relevance include - cooperative farming societies, improved access to financial services and Agricultural Insurance business, he added.

Following is the text of Vice President’s address:

“I thank hon’ble Minister for Ministry of Road Transport and Highways, Government of India, Shri Nitin Gadkariji for inviting me here today.

The Nagpur Nagarik Sahakari Bank is one of the oldest and largest cooperative banks in Vidarbha region of Maharashtra. Starting with a capital of Rs. 26000/- in 1962, the bank has grown in size and reach. It today has more than 60,000 members at its 39 branches and a capitalization of almost Rs. 1500 lakh. The growth of this bank is a testimony of the professional competence of its management and the industrious spirit of the people of Nagpur and Vidarbha region.

The bank, and the principle behind it, is a success story.

The principle of cooperation is as old as human society and forms the basis of domestic and social life. The concept of cooperation envisages a group of persons having one or more common economic needs, who voluntarily agreed to pool their resources, both human and material, and use them for mutual benefit, through an enterprise managed by them on democratic lines, guided by the principle of ‘each for all and all for each’.

A few days ago, on 6 July, we marked the International Cooperatives Day. Cooperatives remain a dynamic people centered business model, successfully operating in more than 100 countries in the world. A cooperative offers a range of benefits- enhancing incomes and securing livelihoods- not only for members, but the entire community. While cooperatives do not provide the entire answer to prevailing global poverty and economic injustice, they certainly can be an important tool in redressing some of the challenges.

The Indian cooperative sector is 112 years old. It started off in the colonial era, as part of government initiative to address the issues of farmers’ indebtedness and poverty with the enactment of the Cooperative Credit Societies Act of 1904. Our founding fathers also saw the cooperative movement as an important tool in carrying forward the policy of rapid and equitable economic development. Jawaharlal Nehru visualized an India in which every village was to have a panchayat, a cooperative and a school.

It was, therefore, not surprising that cooperatives became a part of the national development plans efforts. Cooperatives find explicit mention in two places in our Constitution. First, as part of Article 43 as a Directive Principle which enjoins the State to promote cottage industry through individual or cooperative basis in rural areas and second, in schedule 7 as entries 43 and 44 in the Union list and as entry 32 in the State list.

The first 5-Year Plan focused on setting up cooperative marketing societies. Subsequent Plans focused on training of cooperative personnel, expanding cooperative activities to processing and marketing of agricultural commodities, and transforming primary village cooperatives into multipurpose societies with stress on employment generation and poverty alleviation.

The cooperative movement in India today is the largest in the world, with more than 6 lakh individual cooperatives covering sectors such as credit and banking, fertilizer, sugar, dairy, marketing, consumer goods, handloom, handicrafts, fisheries, tribal development, labour and housing catering to over 24 crore members. The total working capital base in the cooperative sector is estimated at about Rs. 73,000 crore.

In the first few decades after independence, the sector played a pivotal role in the economy, especially in our primary sector production. Maharashtra, for example, has been home to some successful cooperative movements- in agriculture, with the strong emergence of sugarcane farming and sugar production cooperative, as well as in consolidation of cooperative credit banking system.

The dairy cooperative is another success story in India. The Anand model for cooperative milk marketing from Gujarat, with its well recognized Amul brand, provided the blueprint for replicating its success elsewhere under the National Dairy Development Board program, contributing to the success of Operation Flood.

In fertilizer production and distribution, the Indian Farmers Fertilizer Cooperative (IFFCO) controls over 35% of the market. In the production of sugar, the cooperative share of the market is 58% while in the marketing and distribution of cotton it is 60%. Cooperative sector accounts for 55% of the production in the hand-woven textiles sector, whereas cooperative marketing and distribution channels account for 50% of the edible oil market in India. Dairy cooperatives in India, operating under the leadership of the National Dairy Development Board, collectively, are the largest producer of milk in the world.

Notwithstanding the significant gains made by the cooperative movement, the sector is showing signs of fatigue. Even the notable successes have remained limited to apex bodies, while grass-root cooperatives continue to remain weak. The story of credit cooperatives in particular, its rise and decline, is well-known to this audience.

The growth of cooperative movement, in part, was facilitated by financial support and protection against the private sector afforded by the Government’s policy interventions. In many cases, the success of cooperatives was not because they were the best alternative but rather because they were the only available alternative.

With the government adopting liberal economic policies from early 1990s, more sectors of the economy were opened to private players. Cooperatives have generally found this transition challenging.

Credit Cooperatives have lost their central position in agricultural credit scene. In the early 1990s, cooperatives provided almost 62% of the agricultural credit in the country with commercial banks providing little more than 30%. Data shows that the share of cooperatives fell to less than 17% in the year 2011-12, even as the total quantum of agricultural credit on offer continued to rise.

The fall in credit share of cooperatives came even as the numbers of small and marginal farmers increased significantly. The average size of operational land holdings has reduced by half, from 2.28 hectares in 1970-71 to 1.16 hectares in 2010-11. Consequently, the number of land holdings in the marginal and small categories grew by 67 million during the same period.

Today, the area cultivated by small and marginal farmers constitutes 85 percent in terms of number of operational holdings and 44 percent of the operated area in the country.The size of the land holdings has implications for investments in agriculture, its productivity, farm mechanization and sustaining farm incomes. The Cooperative credit societies have clearly not been effective in providing adequate and affordable credit flows to our small-scale farming sector.

There is also great variation in the quality and strength of the cooperative movement in regional and sectoral terms in India. Some of the reasons for weakness and the correctives that suggest themselves include:

First, there has been an over-bearing role and intervention from the Government as cooperatives become instruments for delivery of goals set by the Government rather than a people’s movement of self help.
Second, the politicization of cooperative leadership eroded the welfare aspect of the movement. Cooperatives are often seen as a stepping stone for their political objectives and as vote banks, often to detriment of the economic interests of the members.
A third weakness has been the small size, the poor resource base and the low participation in the Primary Agricultural Credit Societies (PACS), which has been a significant barrier to increasing the efficiency and volume of credit flows through them. There is, therefore, a need for consolidation and reorganization of the smaller primary societies into larger societies which will allow them to mobilize greater resource and have a stronger voice.
A fourth reason has been the lack of professional management of societies to improve governance. Thus, despite the Reserve Bank of India stipulation, only a few State Credit Banks have appointed professional Directors. For the same reason, the governing body should have autonomy to take decisions and have a system of checks and balances built into the organizational system.
Fifth; looking at the variations in the regional intensity of the cooperative movement, it becomes apparent that cooperatives have done well in areas where land reform had met with a greater degree of success. This would indicate that sovereign control of farmers over land, the primary factor of production in agriculture, remains an essential prerequisite for the success of cooperatives. At the same time, the limited success of cooperative movement in some of the most fertile and populous regions of the country also raises questions about the possible link of the cooperative movement’s success to the prevalent demographic and cultural factors. Some workers have pointed to the impact of caste matrix on the access of people to trade and other means of production, as well as to political power.

The Government has made several efforts to address the issues confronting the cooperative sector. A number of Committees were set up between 1990 -2005. They advocated replacement of the existing government dominated cooperative laws by a new people centric legislation. Based on some of these recommendations, the Government of India enacted the Multi-State Co-operative Societies Act in 2002 and announced a National Policy on Cooperatives, which provides for democratic and autonomous working of the cooperatives, to give the movement a progressive slant. Several new sectors have been opened up to cooperatives, including procurement of food grains and insurance and a revival package announced. The Reserve Bank of India has also been active in prescribing norms for and supervising the cooperative credit sector to promote a healthy disbursement mechanism.

The United Nations General Assembly had declared the year 2012 as the International Year of Cooperatives. This recognized the contribution that Cooperatives make to social and economic development through poverty reduction, employment generation and social integration. The World Food and Agriculture Organization (FAO), has similarly, recognized Agricultural Cooperatives as an essential ingredient in ensuring global food security.

Given the role that agriculture enjoys in India’s economy, cooperatives have an inherent strength as a form of business organization. They remain an important plank in our approach to equitable development and as an important conduit for delivery of goods and services in areas not serviced by Government or private channels.

The movement, however, will have to match its vast outreach with market orientation to stay relevant. Some of the areas where cooperatives continue to have relevance include the following;

The exceedingly small size of land holdings is a serious bottleneck in the expansion of our agriculture sector. In this regard cooperative farming societies provide a medium for cultivators to enjoy the economies of large-scale farming through pooling of land and management resources.
The increase in connectivity and the expansion of the telecom infrastructure provides the Cooperatives with means to increase their outreach and have better feedback. Improved connectivity between members and management of the Cooperatives will play a significant role in reducing the response time and opens up tremendous possibilities for improved access to financial services.
Developments like the Unique Identification (UID) project which provides biometric identity and the focus on financial inclusion agenda by the government provide an avenue for cooperative societies to regain their relevance by becoming active partners in these programmes.
With the passage of the Insurance Act, Cooperatives have been allowed entry into the insurance, including Agricultural Insurance business. This is a field where Cooperatives have tremendous potential for success, especially if they develop partnerships with other service providers.

In the current economic system context, the cooperative is but one of the aggregation tool that is available to the producers and consumers. For their growth and survival, cooperatives have to behave as ‘for-profit’ corporations and effectively address commodity value chain framework in order to have a place in a globalised world.

I once again thank the organizers for inviting me here today and I wish all the members and workers of the Nagpur Nagarik Sahakari Bank all the very best for the future.

Jai Hind.”