COOPERATION AND COMMUNITY DEVELOPMENT
I
COOPERATION THE volume of cooperative credit (short and medium-term) for agricultural purposes increased from Rs. 203 crores in 1960-61 to Rs. 429 crores in 1967-68 and an estimated Rs. 490 crores in 1968-69. Long-term credit increased from Rs. 12 crores in 1960-61 to about Rs. 120 crores in 1968-69. Appreciable progress took place in the cooperatively organised processing of agricultural produce mainly in the sector of sugar factories. which now account for about a third of the total sugar production. The value of agricultural inputs distributed by cooperatives rose from about Rs. 36 crores in 1960-61 to about Rs. 250 crores in 1968-69. Of the inputs, the largest item consists of fertilisers and the value of these distributed by the cooperatives increased from about Rs. 28 crores in 1960-61 to nearly Rs. 200 crores in 1968-69, representing about 60 per cent of the total consumption of fertilisers in the country. The total value of agricultural produce handled by cooperative marketing and processing societies rose from Rs. 174 crores in 1960-61 to an estimated Rs. 583 crores in 1968-69. The value of retail consumer trade undertaken by cooperatives in rural areas recorded an increase from Rs. 17 crores in 1960-61 to Rs. 275 crores in 1968-69. The corresponding figures for turn-over ill urban areas were Rs. 40 crores in 1960-61 and Rs. 270 crores in 1968-69.
9.2. Apart from quantitative progress, there were several organisational developments of significance during this period. One of them was the emergence of national cooperative, federations. The formation of the national federations and the reorganisation of the National Cooperative Union of India at the apex. added a new dimension to the cooperative structure. Another important development was the reorganisation of the cooperative training programme. This had two main aspects. A new stress was laid on instruction in business management. In pursuance of this objective, a Central Institute was started at Bombay in 1964 to impart training in business management to key personnel engaged in consumer cooperation. This was merged in 1967 with the National Cooperative College and Research Institute, Poona thus leading to the establishment of Vaikunth Mehta National Institute of Cooperative Management. Secondly, following the recom- mendations of the study team on Cooperative Training (1961), a decision was taken to transfer responsibility for the management of training centres to the cooperative Unions both at the national and State levels. The National Cooperative Union of India set up a special committee, called the Committee for Cooperative Training on which devolved the task of running the National Institute and the cooperative training colleges. In a number of cases, the State Governments transferred the charge of their cooperative training Centres to State Cooperative Unions.
9.3 The cooperative movement has been uneven in its development in different regions as well as in different sectors of cooperative activity. So far as cooperative credit is concerned, inadequacy of development is particularly marked, though in different degrees, in the eastern States of Assam, West Bengal, Bihar and Orissa, and in Rajasthan. The eastern region, with about 27 per cent of the rural population, accounted for only about 9 per cent of cooperative credit. An informal group, constituted by the Reserve Bank of India, examined the institutional arrangements for agricultural credit in 1964, and in view of the serious gaps which existed particularly in the States mentioned, recommended the establishment of agricultural credit corporations as a transitional arrangement. In pursuance of this recommendation, necessary legislation has recently been enacted by Parliament.
9.4. While, for the country as a whole, cooperative short and medium term agricultural credit nearly doubled during 1960-68, the progress towards development of a viable structure at the level of the primary credit societies and central cooperative banks has been much below expectations. Two factors, have contributed to this situation. The first has been the slow progress in the programme of organising viable primary credit societies, by amalgamation of the non-viable societies. The second has been the increase in overdues. At the level of the primary credit societies, the proportion of over dues to outstandings increased from 20 per cent in 1960-61 to 32 per cent in 1967-68. For central cooperative banks, the increase was from 12.4 per cent to 25 per cent. Of 344 central cooperative banks, as many as 67 accumulated overdues exceeding 50 percent of the outstandings. This has brought in its wake a new problem of rehabilitation and reorganisation of weak central cooperative banks.
9.5. One of the notable developments of the period has been the organisation of a network of consumer cooperatives in urban areas. The impetus
113
114
FOURTH FIVE YEAR PLAN
for this development came from the national emergency in 1962. The programme was accelerated during the period following devaluation. Alongside the organisation of consumer cooperatives, arrangements were also made to facilitate flow of supplies directly from the manufacturers. In order to secure working capital accommodation, the Central Government introduced a guarantee scheme under which central or wholesale consumer cooperatives and consume federations are eligible for financial accommodation against a margin not exceeding 10 per cent. As a result of these measures, the volume of retail trade handled by consumer cooperatives in the urban areas has vastly increased. The expansion has not been free from adverse features. Many consumer stores are heavily dependent for their business on distribution of controlled items.
Approach to Cooperative Development 9.6. Growth with stability being the key-note of the Fourth Plan, agricultural cooperatives on the one hand and consumer cooperatives on the other will occupy a central position in the strategy of co- operative development. Growth of agriculture is largely dependent on intensive agriculture and this involves a substantial increase in credit, inputs and services. The aim will be to ensure that the services which the farmer requires are institutionalised to the greatest extent possible. In the process of such institutionalisation, which will not be to a set pattern, the cooperative form of organisation will have ample opportunities not only to expand but also to establish itself as viable and efficient. It will be part of policy during the Fourth, Plan to ensure that the opportunities before cooperatives are as large and varied as they can utilise effectively. While it will be for the cooperatives themselves to make the effort involved and reach those standards of efficiency which will enable them to compete with other forms of organisation serving similar purposes, Government for its part will endeavour to assist the cooperatives to equip themselves for the task in important aspects such as finance. Organisation and trained personnel. In regard to agro-industries, preference will continue to be given to cooperatives in the matter of licensing and institutional finance.
9.7. The outlays on cooperative development programmes are:
TABLE 1 : Outlay on Cooperative Development Programmes
sl. outlay
no. (Rs. crores)
(0) (1) (2)
1 states 119.21
2 union territories 4.61
3 centrally sponsored 24.50
4 central sector 30.25
5 Total 178.57
In addition a provision of Rs. 90 crores has been separately made in the Central sector plan for support to the ordinary debentures of land development banks. Furthermore, provisions have been made in the animal husbandry and dairy plan for development of livestock and dairy cooperatives.
Cooperative Credit 9.8. One of the basic weaknesses of the cooperative credit system is the non-viability of a large number of primary agricultural credit societies, During recent years, programmes of rationalisation of the cooperative credit structure, at the primary level, have been under way. As a result, the number of primary agricultural credit societies has gone from 212,000 at the end of 1960-61 to 171,800 at the end of 1967-68. However, a number of nonviable credit cooperatives still continue to clutter up the credit system. it is estimated that as a result of reorganisation, about 120,000 potentially viable societies are likely to emerge and that the rest of the societies would have to be absorbed in the process of amalgamation. One of the most important tasks before the cooperative credit movement is to accelerate the pace of such reorganisation, so, that the cooperative short and medium-term credit structure is placed on a viable footing. It is proposed to accord high priority in the Plan to this reorganisation. Necessary provision has been included in the State Plans for this programme for grant of management subsidy to and share capital contribution in the reorganised society.
9.9. Among the bottlenecks in the flow of adequate cooperative credit is the existence of weak district central cooperative banks in several areas. It is estimated that over one-third of the cooperative banks fall in this category. It is proposed to undertake suitable programmes directed towards rehabilitation and reorganisation of such banks. In the interim period it is proposed to devise measures whereby the primary credit societies within the jurisdiction of such batiks may be financed directly by the concerned apex banks.
9.10. Slackness in recovery of loans. resulting in mounting overdues in cooperative credit institutions is undermining the soundness of cooperative credit structure in many areas and has led to stagnation, if not recession, of cooperative credit. The feature of heavy overdues is prevalent not only in comparatively less developed States but also in relatively advanced States. This points to the deficiencies in loaning policies of cooperatives, inadequate arrange- ments for supervision and weaknesses of internal management of cooperatives. Recurrence of natural calamities in sucessive years has also accentuated the problem of overdues in many areas. Systematic efforts need to be made both by the State Governments and by the cooperative banks towards substantial reduction of overdues. The responsibility
115
COOPERATION AND COMMUNITY DEVELOPMENT
for initiating legal action against wilful defaulters rests with the primary credit societies. To meet situations where the managements of primary Credit Societies do not take prompt action, there is provision in the cooperative societies Acts of some States enabling the central cooperative bank concerned to initiate action on its own against the defaulting members of primary credit societies. Incorporation of similar provisions in other Cooperative Societies Acts as recommended by the All India Rural Credit Review Committee will be helpful in dealing with the problem of overdues. Attention will also be paid to strengthening the recovery staff in the Department and the Central Cooperative Banks. The State Plans include the necessary provision. Where failure to repay the overdues is not wilful but due to natural calamities, conversion of short-term loans into medium-term loans should be taken up expeditiously by having recourse to agricultural credit stabilisation funds maintained by cooperative banks which have been augmented by Government as instance through a Centrally sponsored scheme and to the National Agricultural Credit stabilisation Fund maintained by the Reserve Bank. Along with the collection of past overdues, action should be taken to prevent their recurrence in future through adoption of more rational loaning policies relating to size of credit to production outlay, effective linking of credit with marketing, strict supervision over utilisation of loans and above ill the education of members of cooperatives in the rights and obligations connected with their membership.
9.11 It is needless to stress the importance of bringing about a substantial increase in deposits at various levels. The urgency of this task arises from a number of considerations increasing the, deposit resources would help to absorb overdues and keep up the flow of credit in an uninterrupted manner. It will also facilitate increase in loanable resources for meeting the growing demand for credit in areas of intensive agriculture. Deposit mobilisation is necessary to mop up a part of the increased income in the rural areas for productive investment. The cooperative credit structure, therefore, has to make effective measures to increase its deposits. There would also be need for State Governments to undertake necessary enabling legislation to amend the Cooperative Societies Act, so that the Deposit Insurance Scheme could be extended to the deposits of cooperative banks. Cooperative banks will be encouraged and assisted to open more branches in rural areas for facilitating the flow of credit, for rendering services more efficiently and for tipping larger resources.
9.12. The ability of the cooperative short and medium-term credit structure to expand loan operations is dependent on the viability of the structure, the progress in the rationalisation of primary credit societies, reduction in overdues, mobilisation of deposits and liberalisation of loan policies. If the programmes mentioned are effectively implemented, it should be possible for the cooperatives to aim at disbursing short and medium-term credit of the order of Rs. 750 crores in 1973-74.
9.13 One of the striking developments has been the progress of land development banks which handle long-term credit. These banks new function in all the States through a network of 1250 primary banks and branches. It is proposed to accelerate the pace of expansion of land development banking so that adequate support may be forthcoming for schemes of basic importance to agriculture throughout the country such as land reclamation soil conservation land shaping and construction of surface works, tubewells and other works of minor irrigation. Organisationally and administratively land development banks are equipped to handle loan operation of over Rs 1000 crores. However, in the light of available resources, a loaning target of Rs 700 crores has been fixed for the Plan. This may subsequently be reviewed in case increased resources become available. For a large number of schemes distributed in different States, constituting in each case a sizeable and integrated project and satisfying the criterion of economic viability, the Agricultural Refinance Corporation will be able to provide refinance of the order of Rs. 200 crores during the Plan period. Provision has been made for lending support to the ordinary debentures and the special debentures of land development banks.
9.14 As recommended by the All India Rural Credit Review Committee, the present lending policies and procedures of the Land Development Banks have to be reviewed in a comprehensive manner so as to bring them in line with the requirement of sound investment credit and to ensure the optimum use of scarce long-term resources. In the formulation of these policies, account should be taken of the special problems of small farmers. Under intensely supervised credit programmes, they should be helped in certain lines of investment either by undertaking such operations on a group basis or by their being enabled to make the repayment over a fairly being enabled to make the repayment over a fairly long period.
9.15 There is need for increasing coordination between the normal lending operations of the Land Development Banks with those pertaining to the Agricultural Refinance Corporation on the one hand and with the operations of the cooperative banks on the other. There should be close collaboration between the Land Development Banks and the Central Cooperative Banks. Together they should ensure that inputs for production are accessible to the long-term borrower adequately and in time. Coordination should also be ensured in regard to credit for purposes such as the sinking of wells which depending on the repaying capacity of the borrower may quality either for a medium-term loan or a long-term one.
116
FOURTH FIVE YEAR PLAN
9.16. Long-term cooperative credit has hitherto been disbursed to the individual borrowers either by primary land development banks or by branches of central land development batiks. In the Fourth Plan, it is proposed to try out on a pilot basis, how far primary credit societies could act as agents of the central land development bank for scrutiny of applications, disbursement of credit. supervision and recovery of instalments. In each State, a limited number of societies satisfying appropriate criteria pertaining to financial strength and operational efficiency will be selected for functioning as agencies of the land development banks in their respective areas. This type of arrangement may be gradually expanded to an increasing number of societies after experience has been gained as a result of this experiment. The bulk of the loans issued by cooperatives is in small amounts of less than Rs. 500 each Even so, farmers with relatively larger holdings are the main beneficiaries of cooperative credit. The traditional emphasis on linking of credit to security offered by a borrower in the form of land and other tangible assets, exclusion of small farmers from the membership of cooperatives, domination of cooperatives by the more affluent and powerful section of the rural community, absence of tenancy records and prevalence of the system, of oral tenancies are among the major factors that have led to denial of adequate credit to small farmers. The crop loan system, recommended for adoption, aims at shifting the emphasis in loaning operations from assets nexus to production potential. The system needs to be implemented in full in all the areas.
9.17. Since 1961, Government has been giving grants to cooperative banks and societies as an inducement to them to give larger loans to small cultivators for production purposes. These amounts are credited to special bad debt reserves of cooperatives. Following a review in 1964, the basis for Government contribution to the bad debt reserve fund has been changed and is now related to additional loans given from year to year to small cultivators. So far, a sum of about Rs. 7 crores has been granted by Government for this purpose and a further sum of Rs. 5 crores is expected to be given in the Fourth Plan.
9.18. In the Fourth Plan, one of the main endeavours will be to orient the policies and procedures of credit cooperatives, and land development barks in favour of small cultivators. The All India Rural Credit Review Committee has made a number of recommendations in this direction. These will be sought to be implemented, the more important changes being in the following directions :
(1) If the resources available to a particular society are inadequate to meet the requirements of all its members, it will seek to ensure that the needs of the small cultivators are adequately met on a priority basis.