3.1. Introduclion 3 4 S u f The Co-operative Societies are the largest organized f m c i a l
intermediaries functioning in the n k l India. The short and medium term
loans are channellised to the farmers and others through Cooperatives. The
Co-operatives are organized into a three-tier structure with State Co-operative
Bank at the apex level in each state. the District Cwperative Cenfral B a t h
at the district and the Primary Agricultural Credit Societies (PACSs) at the
village levels.
The Ccqeratives can be classified accodag to the purpose into two,
viz., Agricultural Credit Co-operatives and Non-agricultual Cndit Co-
operatives. The Agricultural Co-operatives extend three types of cndit
dependency on the period of time, viz., short-term credit, medium-term credit
and long-term credit.
The short-term credit is given for seasonal agricultural operations
directed towards rising of crop on land. Short-term loans are generally made
for 12 months. They are given for purchasing seeds, manure and fertilizers,
for meeting labour charges, etc. The medium-term loans are given for a period
ranging from over 12 months to 5 years for the purposes such as reclamation
of land, building, other improvements, purchase of live-stock, carts, repairs to
old wells, machinery, etc. The long-term credit is given for a period ranging
between 5 and 20 years for the purposes such as redemption of land,
liquidation of debts, purchase of tractors for sinking of wells, permanent
fencing, purchase of land, purchase of heavy agricultural machinery like
tractors etc. as well as for lift irrigation schemes.
Besides these Agricultural Co-operatives, there are, however, certain
other types of Co-operative Societies at regionall national levels for working
for employees of organizations l i e the railways, etc., whose membership
exceeds beyond one state. These societies come under the purview of the
Central Government and .they are governed by the
91 ~ 6 4 ~
Societies Act, 1984 (Earlier there was Multi-Unit Co-operative Societies Act,
1942) which is a Central Act. ihey fall under the purview of entry 44 of the
Union ~ist ' in the Constitution.
The following figure dtpicts the three-tier strucwe uf cooperatives in
~ndia.'
Figure - 3.1
The Organisational Structure of Cooperatives in India
4 4 Agricultural Societies Non-agricultural Societies
Short-term and Medium-tenn
.1 -.. State Co-operative
Banks
Central Co-operative Bank
primary Grain Agricultural Banks
credit soc~eties '
Long-term State Co- State Industrial
1 operative Banks Co-operative
Central land I I Bapks Mortgagd
Development Banks
Primary Land
t Central Industrial I Banks
Mortgage1 Central Co- Development Banks operative Banks
I +
Pimary Non-agricultural Credit Societies
Of I hich
Employer's Co- Urban Co. operative credit operative
societies Banks
The Co-operatives that provide short and medium credit an o@ed
at three levels, namely the State Cb-operative Banks, Central Co-opemlives
Banks and Primary Agricultural Credit Societies (PACSs) and the Grain
Banks. At the top most tien, the state Co-optive Banks (SCBs) are
organized tit the State level. So, SCB forms the apex of the co-operative credit
structure in. each state. At the second tier, ~ i s k c t Central Co-operative Banks
(DCCBs) or Central Co-operative Banks (CCBs) is organized at the district
level. Primary Agricultural Credit Societies (PACS) are at the lowest tier.
These are organized at the village level.
In each state the affairs of all types of Cwpemwes an administered
by a separate department known as Co-operative Department. The mtm and
strength of the staff of the Co-operative Department vary from state to st*.
With the rapid growth of co-operative movement, there has been a
considerable decentralisation of powers in this department. In most of the
states, the Registrar is the Head of Co-operative Department Exchange, the
overall control over the co-operative Sector. The Registrar is assisted by one
or more Additional or Joint Registrars or other officials at state-level, (Chief
Auditors, Financial Advisors, etc). The division of responsibility among them
is on functional basis. In some of the states the Divisional Officers at a level
between the Registrar, and District Officers are also appointed for
administrative convenience. At the branch' level, the Branch Manager looks
after the administration.
3.2. Co-operative Administration at National Level
Co-operation is in the state list included in the Constitution of India.
Accordingly the State Governments have exclusive legislative and executive
jurisdiction over the co-operative sector speciality in the state. Each State
Government has appointed a Registrar of Co-operative Societies who is the
head of the State Co-operative Department. He is responsible for the control,
supervision and co-ordination of 'the Co-operative Societies and their
programmes and also for administration of the State Co-operative Societies
Act.
At present there is no separate Ministry or Department for Co-
operation at the Centre. However, earlier there was a separate Ministry of
~ommuniti Development and co-operation at this level. There was also a
separate Department of Co-operation in that Ministry. 'Later the subject "Co-
operation" was included in the Ministry of Agriculture which consists of
separate department of co-operation. Subsequently, it was renamed as the
Department of Agriculture and Co-operation in the Ministry of Agriculture.
Generally the Ministry of Agriculture discharges the following hnctions
relating to the co-operative sector.
(i) Co-operation in Agriculture Sector, Agricultural Credit and
Indebtedness.
(ii) General policy in the field of Co-operation and coordination of the
co-operative activities in all sectors (The Ministries concerned are
responsible for Co-operatives in the respective fields).
(iii) Matters relating to National Co-operative Drganisations.
(iv) National Co-operative Development Corporation.
(iv) incorporation regulation and winding up of Co-operative Societies
with objects not confined to one State.
(v) To train the personnel of the Co-operative Departments and
Institutions (including education of members, office bearers and
non-officials).*
3.3. National Level Cosperative Organisations
With the diversification of the co-operative movement in various
directions after the acceptance and implementation of various measures
suggested by the All India Rural Credit Survey Report during the Second Five
2 Minbtv of Agrfculhtre, Department of Agriculture and Codperation. Marendl for Parliamentaty
Cornmiltee on the Weljare of Scheduled Cartes and Scheduled Tribes (New Delhi: 1983). Cytlostyled. p. 7.
Year plan, there occurred a myth of co-operative federal organisations and a gradual taking over of the responsibilities by the federal organisations so far
as promotional and supervisory functions are concerned. This has been
necessary and a gratifying development in the direction of the movement
attaining a greater degree of self-reliance and self-regulation. Among the
National Co-operative Organisations important may be mentioned:
1. The National Agricultural Co-operative Marketing Federation, New
Delhi.
2. National Federation of State Co-operative Banks, Bombay.
3. National Central Land Development Banks' Federation, Bombay.
4. National Federation of Urban Co-operative Banks and Credit Societies
New Delhi.
5. The National Federation of Co-operative Sugar Factories Ltd.,
New Delhi.
6. The National Federation of Industrial Co-operative Ltd., New Delhi.
7. The All India Federation of Co-operative Spinning Mills Ltd.,
Bombay.
8. The Industrial Co-operative Banks Federation, Bombay.
9. The National Co-operative Consumers Federation. New Delhi.
10. The National CoToperative Union of India, New Delhi.
1 1. The All India Handloom Fabric Marketing Co-operative Society,
Bombay.
12. National Federation of Labour Co-operatives Ltd., New Delhi.
13. All India Fishermen Co-operative Federation Ltd., New Delhi.
14. National Co-operative ~ous i& Federation Ltd., New Delhi.
15. National Co-opemfive Dairy Federation.
16. National Heavy Engineering Co-operative Ltd., Pune.
17. India Farmers Fertilizer Co-operative Ltd., New Delhi.
18. Petrofils Co-operatives Ltd., Petrofils Dist., Baroda.
19. The f ishak Bharati Co-operative Ltd., (KRIBHCO), New Delhi.
20. National Co-operative Federation of Tobacco Growers, New Delhi.
3.4. Cooperative Administration at State Level
It is a well known fact that the Co-operative Movement was ushered
into India on the Government's initiative. Eversince the passing of the Co-
operative Societies Act of 1904, the Co-operative Societies were managed by
the Government, both by the Central and State Governments. Thus they
became almost Governmental Institutions. They are allowed some degree of
authority in their working in accordance with the principles of co-operative
aspects.
Generally, the State Governments look after the following aspects of the
movement of Co-operative Societies working the state.
(1) The passing of special legislation for the organisation and working of
Co-operative Institutions in the state.
(2) Protection to Co-operative Societies from the restriciive provisions of
the various debt relief acts and money lender's acts.
(3) The appointment of expert committees from time to time as and when
govemmea felt that something was wrong with the movement and
expert opinion is called for.
(4) The financial commitments by governments in the maintenance of
special co-operative departments with a large staff.
( 5 ) The financial aid given in the form 'of loans, gmts in-aid and
subsidies.
(6) The supply of service pponnel entirely or partly free of charge to
various institutions, which could not other wise afford to employ them.
(7) The moral support in recognising the movement as a sdtable agency
for various activities, particularly during war time, e.g. supply,
procurement and distribution of ration,. conlrolled and other necessary
cominodities, help to cottage industries, etc. and planned economic
development.
(8) Special concessions and privileges such as exemption from income-
tax, stamp W, snd registration fees, execution of awards through
governmeat ag&ies, exemption from a h h e n t of shares of co-
operative Socides, ftee remittance transfer facilities c k ~ ~
3.5. State Co-operative Department:
The systematic maintenance of a Separate Co-operative Department by
State Governments had started in 1904. Separate hnds are earmarked for the
Cosperatives in the State Budgets under the Head, "Co-operation". In course
of time, there had been marked increase in the expenditure incurred by the
State Governments on their Co-operative Departments especially during and
after the Second Five Year Plan. This was necessitated on account of the
corresponding rise in the requirement of. staff in the department for
supervision, inspection and audit of cooperative institutions working at
various levels.
In each state of hdia according to the Co-operative Societies Act, the
Registrar of Co-operative Societies appointed by the Government occupies a
pivotal position in the administrative set up of the Co-operative Department.
He is envisaged not merely as the Registering Oficer as in the case of Joint
Stock Companies, but a captain of the whole team running the co-operative
movement. The success or failure of co-operative movement largely depends
upon the selection of the right type of man as Registrar.
. R e a m Bank of India, Review ofthe Co-opemlive Movement in India 1939-46 (19181. p.89.
According to the Co-operative Societies Acts of several States in India
it is the duty of the Registrar to receive and enquire into appiications for
registrations; to register the bye-laws of the societies to audit the accounts or
cause them to be audited; to make a valuation of assets and liabilities of
society and to prepare a list of overdue loans; to see that the act, rules and
bye-laws are observed; to make special inspections when called upon to do
so; to dissolve or cancel Societies and to cany out their liquidation.
Thus the Registrar occupies a crucial position in thc co-operative
administration at the State level. The Co-operative Department is considered
as "one of the major departments9' in the State. In the words of the
Committee on Co-operative Administration (1964), the Registm is the most
important instrument through which the democratic government has to
translate the social and economic aspirations at the grass root level.
In each state there are Co-operative Banks (SCBs) as the apex level
institutions of the three-tier co-operative short-term credit structure which are
closely linked with the Reserve Bank of India which provide finance to the
District Co-operative Central Banks (DCCBs). They provide liaison between
the Co-operative Societies and the money market. They play a vital role in
mobilizing the financial resources needed by the co-operative movement but
also for deploying them appropriately among the various sectors of the
movement. They establish close contact with their member banks as also with
the Agricultural Credit Societies at the base level. It is observed that "the
State Co-operative Bank is the final link in the chain between the small,
scattered primary societies and the money m k e t as also with the Reserve
Bank of India. It is the Central Banking Authority of the country, which can
be called on for short and medium-term accommodation under certain
condition^"^.
' . Report of the Committee on Co-opera five Administmtion (I%$, p.29. ' Huugh. EM (I 966). The Co.oprraiive Movement in In& (London: Ox/ord University Press). P. 281
The functions of the State Cooperative Banks are to help the State
Governments in formulating development plans with regard to Co-opaative
Institutions; to co-ordinate the po!icies of the co-operatives with the
governments; to formulate and implement uniform credit policies regarding
co-operative development in the state; to act. as bankers bank to DCCBs, to
supervise, control and guide the activities of DCCB; to grant subsidies to
DCCBs for smooth hctioning of Co-operatives and the functions similar to
any Commmial ~ a n k . ~
The State Co-operative Banks finances and controls the workiag of
District Central Co-operative Banks @CCBs) or Central Cooperative Bank
(CCBs) in the State. SCB obtains its working funds from its own share capital
and reserves, deposits from the general public and loans and advances from
NABARD.
3.6. Performance of State Co-operative Banks in different States:
It is clear from table 3.1 that the proportion of owned h d s to the
working capital to the State Co-operative Banks in India decreased from 9.38
per cent in 1960-61 to 8.74 per cent in 1999-2000, indicating the poor
financial resources base. 'However, the own funds increased by 365 times
during 1960-61 to 2002-03. It reflects the poor operational efficiency of State
Co-operative Banks in the country. However, it is a heartening to note that the
ratio of deposits to working capital increased from 32.63 per cent to 84.03 per
cent during the same period. The deposits increased by 5 17 times during the
same period.
6 S u b Red&, S.. and @$urn, P. (2000): "Agricultural Finance and M~(18mun1': Ox/ord and IBH Publishing G m p y Pvt. Lld, New Delhi, pp.18-19.
99
However, it is disappointing that the ratio of borrowings to working
capital which has been 54.42 per cent in 1960-61 has declined to 29.85 per
cent during the same period. The borrowings increased by 100 times during
1960-61 to 2002-03. Borrowings constitute the most important source of the
working capital of the State Co-operative Banks. In most states they form a
major constituent of the working capital. The borrowings increased from
Rs.120.62 crores in 1960-61 to Rs. 120.80 crores in 2002-03. There is large
increase in borrowings during 1960-61 to 2002-03. This shows that the bank's
dependence on borrowings has declined over time.
Table - 3.1
Functioning of State Co-Operative Banks, 1956-57 to 200243
(Rs.in lakh)
Sonrce: RBI Report on Trend and Prokress of Banking in India, Various
issues.
An analysis of table 3.1 shows the paid up share capid of SCBs. The
table reveals that the Share Capital'had increased from Rs.34 lakh 1956-57 to
Rs. 18,910 lakh in 2002-03 showing-an increase of 550 times. The Deposits
increased from Rs.195 lakh to Rs.135963 lakhs during the same period to an
increase of 697 times, the Working Cpital ~incteased from Rs.998 lakh to
Rs.5,28,477 lakh, an increase of 530 times during the same period. The loans
issued increased from Rs.2,440 lakh to Rs.2,38,583 laMn, an inmase of 98
times during the same period. The bans outstanding increased from Rs.849
lakh to Rs.453237 lakh, an increase of 534 times during the same period. The
increase is highest with regard to Deposits, the lowest with regard to loans
issued.
In brief, it can be said that the different types of cooperative
institutions, State Governments, Scheduled Commercial Banks and Regional
Rural Banks (RRBs) provide direct financial assistance to the fanners for
agriculture and allied purposes. It shows the extensive involvement of the Co-
operative Institutions in providing direct fmc ia l assistance to the agriculture
and allied activities. Hence it could be presumed that the contribution of the
Co-operative Institutions is highly significant for the cause of rural
development.
The following table shows progress of State Co-operative Banks in
India during the period from 1960-6 1 to 2002-03.
Table-3.2
Progress of State Co-operntive Banks in India, 1960-61 ta 2002-03 (Rs. in Crores)
Sources : Statistical Statements Relating to Co-operative Movement in India. Reserve Bank of India, Bombay (1960-61 to 1991-92). RBI Report on trend and progress of Banking in India, Various Issues..Statistical Abstract, 2003. Co-operative Credit Structure 2003, NABARD *: The figures in Parentheses are Percentages of Working
Capital. **: the figures in Parentheses are Percentages of Loan
Outstanding.
The above table indicatq that the total advances by the State Co-
operative Banks in India which have stood at Rs.221.65 crore in 1960-61 rose
to Rs.38921.70 crore in 1999-2000. At the same time the percentage of
overdues to the loans outstanding has also been on increase. It has increased
fmin 4.18 per cent in 1960-61 to 81.00 per cent in 200 1-02. This increase in
the overdues indicates the weak recovery performance of these banks.
It can also be observed from the above table that there is an increase in
the amount of deposits of the apex banks. These deposits increased from
Rs.72.33 crore in 1960-61 to Rs.37440 crore in 2002-03.
Regarding the loaning operations of the State Co-operative Banks there
has been a phenomenal increase in the amount of loan operations of the State
Co-operative Banks. The loan amount issued by these banks increased from
Rs. I2 1.65crore in 1960-6 1 to Rs.38320crore in 2002-03. The amount of loan
outstanding overdues moved from Rs.166.67crore in 196M1 to Rs.34860
crore in 2002-03.
The State Co-operative Banks give advance short-term loans for
seasonal agricultural operations and marketing of crops, while medium-term
loans for purchase of cattle and machinery, sinking of well etc.
Table 3.2 further reveals that during the reform period 1992-93 to
2002-03, the loans issued have almost quadrupled. Against these positive
developments, the dues outstanding have almost increased by 39 times since
1975-76 and this accelerated increase is more during the current reform
period. Overdues were not serious problems in the period prior to seventies.
In 1975-76, Rs.4360 crore were the loaned overdues that increased to Rs.29.2
crore by 1985-86. The overdues stood at Rs.133.2 crore in 1995-96, an
increase of 44 per cent over 1992-93. The proportion of overdues to demand
rose from 7 per cent in 1975-76 to an all time high of 84.0 per cent in 2000-
2001 and to fall to 81 per cent in 2001-2002.
On the whole, it can be conclude that the number of SCBs had
increased from 26 in the year 1975-76 to 31 in the year 1%5-86 and declined
to 28 in'the year 1995-96 and again increased to 29 in the year 2002-03.
There is a marginal decline in the number of SCBs during 1975-76 to 2002-
03. As on 3 I* March 2006, the number of SCBs was 30 with 962 branches.
The membership as on date was 1,54,000. The amount of own funds was
Rs.8,43,675, the amount of deposits was Rs.47,67,221 lakh, the borrowings
Rs. 16,87,166, loans advanced Rs.4880354 lakh, loans outstandings
Rs.38,96,099 lakh and the percentage of overdues to demand was 13.76 as on
3 1 " March, 2006. Number of employees was 14,742.
3.7. Caoperative Administration at District Level
In all states, the Deputy or Assistant Registrar or the District Co-
operative Officer with Gazetted Rank acts as the in-charge of Co-operatives in
the district. Where the number of Societies justifies, more-than-one officer at
the district level will be to tun the administration of this department. This
officer has the primary responsibility of promoting and organising co-
operative societies of various types in his district and ensuring that these
societies discharge their obligations in the manner prescribed by the Bye-
laws. The Non-Gazetted Staff working in the District Co-operative
Department consists of two or three categories of oficials, namely sub-
Assistant Registrars, Senior and Junior Inspectors and other Clerical Staff. In
most states, the Co-operative Extension Officers or Assistant Development
Officers (Co-operative) are appointed to look after the affairs of the
cooperative Societies working in the Commudity Development Blocks.
In several states, it so happened that along with the staff for
administration, w i ~ the growing diversification of co-operative activities, a
few functional specialists are also appointed to provide technical advice to the
Registrar in certain technical fields such as marketing, mortgage, banking,
processing, sugar factories, industrial co-operatives, milk co-operatives etc.
The nature and extent of delegation of powers of the Registrar to the officers
of the Co-operation Department shows considerable variation from State to
State. This variation depends uporisthe stage of development of. the co-
operative movement in the State.
Wi+ the establishment of Panchayat ~ a j Institutions d u h g 1960s in
different states in the country, the responsibility for overall development in
the n d are85 including the promotion of co-operation at the village level has
been entrusted to these institutions in certain states. The consequence of the
transfer of certain functions to the Panchayat-Raj bodies is that of dwlity of
control over the Co-operative Department led to the ineffective supervision
over these institutions. It was found that in some places the District Co-
operative Officers were working under the pressure fmm the politicians of the
Panchayat Raj and are not able to inspect or guide the Primary Co-operative
Societies where the interest of the politicians or local leaders were involved.
The District Central Co-operative Banks are federations of PACSs and
their jurisdiction extends over the entire district. These Banks co-ordinate the
activities of top level State Co-Operative Banks and lower level Primary
Credit Societies. Their main task is to lend to Village Societies and to attract
deposits from the general public
In the co-operative structure, the Central Co-operative Banks occupy
the middle tier i.e. the district level. The area of operations and jurisdiction of
a Central Bank is generally confined to a district. The District Central Co-
operative Banks (DCCBs) have opened branches in different parts of the
districts. This branch arrangement helps them to improve their contacts with
and supervision over Primary Agricultural Credit Societies (PACSs). It is the
way it assists also to tap the savings of rural people through deposits. The
DCCB is meant to be the leader of the Credit Co-operative Movement in the
district of its jurisdiction. '
Finding the structure of the central financing agency as very weak, the
Rurd Credit Survey Committee suggested that each state should draw up
plans for the rationalization i d strengthening of Central Co-operative Banks
in several of their financial and administrative aspects. During the First Plan
Period, the statcs began to follow the process of re-organization and
amalgamation of the Central Co-operative Banks. This process was
vigorously followed during the Second Plan period also. The basic principles
prescribed for the Central Bank in each district were followed in all the States.
All the states adopted the policy that there should be only one Central Co-
operative Bank for each district. However, in some states notably, Assam,
Bihar and West Bengal more than one bank are existing.
The functions assigned to the DGCBs are to supervise and inspect the
activities of PACS and help these societies to run smoothly and to maintain
close and continuous contact with the Primary Societies. It provides
leadership to these societies to undertake non-credit activities like supply of
seeds, fertilizers besides sugar, kerosene and other consumer goods. They are
required to provide requisite fimd to the Societies under their control and to
accept deposits from the Member Societies as well as from public.
Besides, several DCCBs do different societies banking business such
as accepting of deposits of various types from the public on current fixed or
saving accounts; collecting bills, cheques, hundis, dividend warrants and
railway receipts. They issue drafts, provide safe custody of valuable goods.
They also take up the purchase and sale of securities and advancing loans at
times to individual members against the fixed deposit receipts.
The DCCBs provide linkages among the three-tier co-operative
structure in each state. The success of PACSs and the apex banks depends
upon the strength and the efficiency of DCCBs. The DCCBs provide
'necessary financial assistance to the PACSs and also support the apex banks
in ensuring greater flow of credit from the NABARD.
As federal organisations,.the DCCBs have an important role to play in
guiding, supervising and directing the financial operations of PACS. The
responsibility of providing timely and adequate credit to the members through
the PACS, for agricultural purposes and providing storage and marketing
facilities to the farmer rests with 3CCBs- The flow of funds from the
NABARD'~~ the co-operative sector depends primarily on the observation of
financial discipline by the DCCB and their capacity to free the over due
problem. As the success of moperative credit in a district depends on the
success of the DCCBs, it is essential to ensure that the f w c i a l base of these
banks is strong and their operations are efficient. The DCCBs arc also
expected to maintain close and continuous touch with the PACSs, be
sympathetic and responsive to their needs and difficulties, and provide
leadership to them from the policy point of view.
It is increasingly appreciated that the DCCBs are eminently suited for
what is described as the financial supervision, i.e, activities relating to
scrutiny as loan applications, verification of disbursement, and watch over
user of loans, prompt recovery through sale of crop and so on7.
After independence, the reorganization and amalgamation, the number
of Central Banks fell from 505 in 1950-5 1 to 478 in 1955-56 and 380 in 1960-
61. However, the number of these banks again fell from 380 in 1960-61 to
346 in 1965-66. On account of this process of rationalization of Central Co-
operative Banks, their number decreased to 341 in 1974. The number of
DCCBs increased from 344 in the year 1975-76 to 352 in 1985-86, 363 in
1995-96,368 in 2001-02 and declined to 343 in 2002-03. On the whole there
is a marginal increase in the DCCBs during last 5 decades. The progress of
the DCCBs in the country is shown in Table 3.3.
M a r i a , C.B., Op dl. P. 132.
Progress of Central Cooperative Banb in India During ls%o-61 to 2002-03
@.in crires)
India, Reserve Bank of India, Bombay (1960-61 to 199 1-92. RBI Trends and Progress in India, various issues. Co-operative Credit structure 'an overview 2003, NABARD, Mumbai.
2. Statistical Abstract India, 2003, Central Statistical organization, Ministry of Statistics and Programme Implementation, Govt. of India,'New Delhi. * : The figures in Parentheses are Percentages of Working
Capital. **:The figures in Parentheses are Percentages of Loan
Outstanding.
It is clear from the aboye table that the proportion of owned funds to
working capital of DCCBs in India declined from 16.73 per cent in 1960-6 1
to 15.38 per cent in 1999-2000, indicating the p r financial resources base of
these banks. It reflects the operatiod inefficacy of DCCBs.
However, the ratio of deposits to working capital grew from 36.84 per
cent to 82.49 during the same period. At the same time, the ratio of
borrowings to working capital which has been 44.43 per cent in 1960-61 has
deteriorated to 3 1.44 per cent during 1999-2000. This shows that the bank's
dependence on borrowings has declined. The total advances by the DCCBs in
India which have s W at Rs.290.10 c m in 1960-61 hve iwmmd to
Rs.54,820 crore in 2002-03.
The above table indicates that the percentage of overdue to loans
outstanding has been on the increase. It has increased from 14.91 per cent in
1960-61 to 66.00 per cent in 2001-02. This growth in ovcrdues percentage
shows the weak recovery performance of the DCCBs in India.
3.8. Performance of District Central Co-Operative Banks:
The data available on the District Central Co-operative Banks working
in different states show that the number of the District Central Co-operative
Banks (DCCBs) stood at 343 at the end of March, 2003. Similarly the
deposits of DCCBs grew five times between 1975-76 and 1985-86 slightly
more than 2.5 times between 1985-86 and 1992-93. The annual growth in the
deposits of these banks during 1990 decade was to the tune of 40.6 per cent.
The deposits were expected to touch Rs.7298.3 crore by 2003. This growth in
deposits is accompanied by the increased borrowings from the
RBVNABARD. These borrowings were to the tune of Rs.18 15.7 crore in
2002-2003 as against only Rs.570 crore in 1975-76 and rose to Rs.5048.2
crore in 2002-03, an increase of almost 29 times. On the other hand, the loans
outstanding in these banks which stood at R9.142.8 cmfe in 1975-76 rose to
Rs.547.5 crore in 1985-86, indicate 3.8 fold increase. This amount had risen significantly since then and was-Rs.5933.8 crore, an almost I I times increase
since 1985-86. The loans overdue between 1975-76 and 1995-96 grew by 17
times. The proportion of overdues to demand was 25 per cent in 1975-76
which increased to 69 per cent in 199-2000. It rose to the extent of 66 per
cent .in 2001-02 and this kcovery is more significant shce 1995-96. The
volume of business has significantly improved since 1975-76.
3.9. Growth of PACSs in India
The progress of the Primary Agriculture Co-operatives before
independence is shown in the table 3.4.
Table- 3.4
Growth of Co-operative Societies in India during 1906-47
Source: Reserve Bank of India, Review of the Co-operative Movement in India, (Bombay) 1952, P. 1.
Table 3.4 indicates that till the attainment of independence, i.e.
No. (1) 1
1946-47, the Primary Co-operative Societies registered slow progress. There
No. of Societies (In Iakbs)
(3) - 0.02
Year
(2) 1906-10
was a phenomenal increase in the number of these societies, membership and
the working capital. They raised by 85 times, 57 times and 241 times
respectively. No doubt, numerically, the co-operative societies made some
Membership ( in Iakhs)
(4) 1.60
progress but qualitatively it suffered from certain internal as well as external
Working Capital (Rs.in Million)
(5) 6.80
limitations such as illiteracy of the members, willhl default, disloyalty of the
,members, irresponsible administration, mismanagement of funds, irregular
growth, etc.
In spite of all these defiqiencies in the hctioning of the C w p N i v e
Society, they checked the monopoly of money-lenders to certain extent and
also eonsidembly reduced the &rest rates on the loans. Further, the thrift
habit and the spirit of cwperation in&eased urwng the farmers. Commenting
on the role of co-operative sector, a Report of the Reserve Bank of India,
1946 stated: "it had reached a stage where ii could be counted as a factor in
the economic, social and political development of rural ~ndia".
In fact the co-operative movement in India emerged as the largest
movements in the world9. Since independence, the cooperative sector
progressively expanded in tenns of membership, resources and transactous.
The following significant growth of the Indian co-operative movement alter
independence can be seen in table 3.5
Growth and Membership of Primary Agricultural Credit Societies PACS in India from 1975-76 to 200041
2. RBI, Trends and Progress of Banking in India, various issues.
It can be observed from the above data that Co-operatives have made
commendable progress during Five -Year Plans in terms of their membership,
share capifa;l and working capital: Quantitative expansion as measured by the .
number of societies has been stopped by the Reserve Bank since the Third
Plan. It has been the accepted policy of the Reserve Bank since then not to
allow the growth of non-viable and weak societies. Instead, efforts have been
made to merge weak societies with financially strong societies so as to make
the Co-operative Movement stand on its own feet.
It is evident from the table-3.6 that the extent of total loans advanced
by the Primary Agricultural Credit Societies to its members was to the tune of
69807.6 millions in 1992-93 which, has increased to Rs.2,46,388.8 millions in
2000-2001. The short-term loans advanced by the Primary Agricultural Co-
operative Societies accounts for the ajar part, i.e., about 85 per cent out of
total loans advanced, while the medium-term loan form only 15 per cent of
the total advances issued in the year 2000-200 1.
Total Loans Advanced by Primary Agricultural Credit Societies (PACS) in India (1992-93 to 2000-2001)
(Rupees in Miiions)
Source: Analytical study of Primary Agricultural Co-operative Societies in India published by 'NCUI'.
112
At end af IMarch 2001, there were approximately 99,000 PACSs with a membership of 9,99,900. The performance of Primary Agriculw
Cradit Societies shows that the number of borrowing memkrs is much lower
statutory at 46.5 million, i.e., the borrawing members constitute arouad 47 per
cent of the total members. The vast size of over dues resulted in making a
large number of the members ineligible for taking fresh loans. At the end of
March 2001, deposits mobilised by PACS stood at Rs. 1348 1 millions that
increased by 119 times over 1975-76. The 1990s decade registered an
increase of 278 per cent in the d&sits. In other words, the deposits of their
Societies in 1975-76 were Rs.29 which increased to Rs.135, a significant
improvement over the years, but still not significant improvement. Most of
the PACS are dependent on the t i i c e provided by CCBs. In case CCBs are
weak, the PACSs are started of finance, which affects the expansion of both
the credit and non-credit functions of PACSs.
The available statistics reveal that the outstanding borrowings of the
PACS as on March 2001 was to the tune of Rs.25,890 millions. The amount
of loan outstanding with all the PACS in the country increased by 48 per cent
by 1995-96 and it reached Rs.2 1,108 miliibns by the end of March 1999. The
proportion of overdues to the demand that had remained as 40 per cent from
1975-76 till 1992-93 fell sharply to 33 per cent by 1995-96. The PACS a vital
link in the short-term co-operative credit structure, have been fmily weak. A
majority of them are too small in size to be economically viable; when many
are dormant. The PACS continue to rely heavily on external support and have
not yet been able to become self-reliant in respect of resources through
deposit mobilisation, share linkage and share capital. These factors affected
their growth and expansion of business activities. The Co-operative sector
laws are largely responsible for this dismal situatiorl.
On the whole it can concluded at the end of March 2006 the number of
PACSs, FSCS (Farmers Service Co-operative Societies) and LAMPS which
together stands at 1,06,384. The membership in these Societies in 2006 was
1,25,197. The number of.borrowers is 4,60,76,000. The amount of own fiuuls
of their deposits were Rs.92,92,901 lakh, while the amount of @its was to
the tune of Rs.19,56,119 I&, the bomwings Rs.41,01,760 lakh, loans
advanccd Rs.92,91,959 lakh, loan outstanding Rs.51,77,866 lakh and the
percentage of overdues to demand was 30.36 as on 3 1' March, 2006. Number
of employees were 2,4 1,609 for the same date.
Growth of Working Capital of Primary Agricultural Cooperative Societies in India, from 1990-91 to 2000-01
(Rs in crores)
Source: Indian Co-operative Movement - A profile - 2002, Pub. NCUI,
P. 19.
Table 317 shows the gradual growth in extent of working capital of
PACSs in India. This table shows the growth of reserves, deposits and capital
of these societies growth during 1991-92 to 2000-01. It reveals that the total
volume of reserves of these societies had increased from Rs.4156.1 crow to
.Rs.16805.9 crores which indicates an increase of 4 times. Similarly the
deposits of these societies went up by 8 times while the borrowings by 4 times
during the same period.
An Expert Committee of the Planning Commission approved the
formulation of the Model Co-operative Law. The committee suggested that
state shall riot interfere with the management and operation of Co-operative
societies. Towards this end, the state shall' recognisc the Co-operatives as
democratic institutions owned, managed and controlled by the members for
their socio-economic and sxial betterment. The Model Law also simplifies
the procedure for registration of a society and does not give rule making
powers to the go~ernment.
3.10.1. Changes in cooperative laws
The proposed Model Law indicates that (a) the essential basic
principles of Constitution and internal governance which Societies must
observe; (b) specifies the governments' role in ehuring that the spirit of the
law is observed, that elections and annual meetings are held regularly and
audited accounts of prescribed standard are presented at these meetings; and
(c) should restrict the state Government from interfering directly or indinctly
in the internal management of societies, especially in matters affecting the
financial health of the societies. It should explicitly recognise the RBI as the
sole authority to use its powers under the BR Act to ensure observance of
prudential norms by Co-operative Credit Societies, in accepting public (i.e.
non-member) deposits.
The Amended Act of 1912 marked the second phase of the co-
operative movement in Andhra Region. Under the Act, 1912 all lcinds of
societies, credit and non-credit could be registered. The societies were divided
into Agriculture and Non-Agriculture Societies. A large number of Non-
Credit Societies existed for sale of produce, supply of milk, cattle insurance1@.
The Madras Government appointed a committee known as Townsend
Committee in 1927 which recommended among other things to have a
10 Rayudu, C.S., Op. tit, p.69
mitable legislation to remedy the faults in the w o w of 19 12 Act. However,
finally the first Madras Co-operative Societies Act was pwedrby the Madras
Legislative Council in 1932". The striking feature of this stage of movement -
was that it witnessed a hunied expansion in Andhra area of composite Madras
State.
3.1 1. Growth of cooperative sector - DIfTerent forms
By and large, the agricultural development in India is a successful
story. There is a symbiotic relationship between the co-operative development
and agricultural growth in this country. The Co-operative sector provides a
supportive culture for ditlbion of technologies in the agricultural sector in
terms of hardware's (for example sligarcane processing) as well as software's
(farm support and extension services). A salient fmture of the Indian co-
operative movement is that it has not only numerically expanded but has
continuously diversified its activities over the years. In fact it has left almost
no sector of the economy untouched. In addition to traditional activities like
credit, marketing, distribution, etc., it is penetrated into several other fields
like the fisheries, housing, handicrafls and hand loom^'^.
The areas which have recorded substantial agricultural development
are also areas which registered a well developed agricultural Co-operative
management at the grass-root level. Higher production of wheat in Punjab,
sugarcane in Maharashtra, milk and cotton in Gujarat where the cooperative
movement is also well developed illustrates this point.
It is a fact that promotional activities in agriculture, small scale
industry marketing and processing, distribution and supplies are now carried
on through the Co-operatives. The Co-operatives in almost all the states have
made an all-round progress and their role and contribution to agricultural
progress has parti~~~larly been significant. The schemes taken up for the
construction of godowns and the conversion of villages into model villages
, have assumed.greatimpatance in the wake of the green revolution.
--
" hid, P.jSO. I2
~awum. K. Karnra , Op. cit, P.28.
The Co-operative farming is a compmmise between the collective
fanning and the p+s.nt pmprietoikhip and offer all the advantages of l ap
scale fanoing without abolishing the private pmpsny. It implies m
organization of the farmers on the basis of common efforts for common
interests. Under this system, all landowners.in a village form a co-operative
society for tilling the land. The land is pooled, but each farmer retains the
right of property. The produce is distributed by each. They are allowed to
withdraw from the co-operative farm whenever they desire. In India, the
exceedingly small size of holdings is perhaps the most serious defect in our
a&ture. If agriculture has to be impved, the size of tk k d d u g s a k
enlarged. Several types of Co-operatives were formed to serve diffbmt
purpose. Some of them are discussed briefly in the following pages.
3.1 1.1. Commodity Cooperatives
The Commodity Co-operatives have emerged as powehl instruments
for bringing about socio-economic transformation of the rural areas. They are
Milk and Sugarcane Co-operatives whose socio-economic impact on the mi
economy and the people is phenomenal. These societies have accelerated the
pace of rural development in different societies by placing technology and
management in the hands of farmers. The Anand Milk Producers' Union Ltd.,
popularly known as the Amul is a household name in India. It pursues the
famous 'Anand pattern'. i.e., an integrated production oriented system that
enables the rural milk producers to develop scientific temper, thereby
enabling the rural milk producer to lead life of dignity, free from the shaklts
of social and economic exploitation.
The sugar production in India largely occurs in the cooperative sector
(60 per cent), processing of cotton (30 per cent) and Jute (30 per cent) art the
other areas where the Co-operative sectors societies share in the total business
substantial over the years. Apart from the above area, the Co-operative sector
is gaining popularity in several other fields like rice milling, oil seeds
crushing, processing of fruits and vegetables, production and distribution of
chemical fertilisers and pesticides, and distribution of consumer goods. Since
1972, more than 1,000 villages have been covered under the IFFCO's
adoption programmes. Over 2000 seeds-cum-fertiliser drills and over 5000
plant protection equipment5 have been supplied free of costs to the fanners.
Of late, IFFCO has embarked on waste land development though farm
forestry project by establishing Co-operatives for this purpose to enlist
people's participation.
The important goal of a welfare state is to promote and bring about an
element of equality in the society. The mixed-economic model adopted by
planners at the time of independence has led to distortions in income and
employment avenues resulting in skewed pattern of income distribution. It has
become necessary to ensure that rural ~roducers are not unduly exploited by
the market forces controlled by manufacturers and traders. Hence, it is argued
that there is a need to develop a production mechanism controlled by the
producers and the distribution mechanism controlled by the consumers.
Further, it will be desirable for the co-operative sector to come up with sector-
wise vertically and horizontally coordinated plans for development based on a
concept of potentials rather than just economic responsibilities for the weaker
sections and areasI3.
As a sector between the private and public sectors, the cooperative
sector has made remarkable success in the above mentioned fields in recent
years. Its contribution to several productive enterprises, viz., sugar, milk,
cotton, fertilizer, etc., has assigned this sector for bigger role in the socio-
economic development of the country. ow ever, the success of cooperative
sector in the field of agricultural credit was not rated in the past. But in the
recent past, the share of co-operative sector in this field accounts for more
than 60 per cent in a number of states.
IJ M.V. ~Vmjoshi, O.P. Cit, p.549.
There are S~veral ~ W s s e s existing in the worlring of tfie Co-
operatives in the above fields 'which can be attributed mon to the
inadequacies in their operating systems and management system, rather than
the cooperative organisational fmework itself, Their activities their
participatory character, leadership structure p ~ d management systems are of
critical importance to make the Co-operatives function as a living dynamic
entity. The potential of Co-operatives as instruments for rural transformation
have been demonstrated beyond doubt through the outstanding success stories
of the Mulukanoor multi-Co-operative in Andhra Pradesh and the
Warnanagar Sugar Co-operative in Maharashtra. k e m-rpmti~~~.haxc
been evolved on sound organisational principles of co-operation and
management ethos, such as right product-mix committed professionals,
dedicated leadership and application of appropriate management systems.
3.1 1.2. Co-operative Marketing
Apart from providing financial assistance to the farmers, the Co-
operative Societies provide marketing facilities to the farmers to sell away
their produce. The main object of the Co-operative marketing bodies is that
the farmer should get fair value for his produce, his produce should be
measwed in a correct maper and that he should get his payments on time.
3.11.3. Agricultural Processing Co-operative Societies
After the farmer is provided with credit for agricultural activity, by the
network Co-operative societies they require proper processing of produce
them. The Co-operatives step in this process also. The agricultural processing
Societies provide necessary rural capital and labour and thereby secure
reasonable returns to the primary producets. These societies are given
financial assistance for setting up of processing units of agricultural produce
like the Ginning and Pressing in case of the Cotton Growers, Oil Mills, Rice
Mills, Fruit and Vegetable units etc.
3.11.4. Consumers Co-operntive Movement
The consumer co-operative movement gained prominence in the recent
post. These Co-operatives became popular because they help the consumers
get to various essential commodities at fair price, fair weight and fair quality.
The State Co-operative Consumers Federation stands at the top of the
consumers cooperative movement. The federation controls the working of the
Co-operative Consumer Societies which supply goods in wholesale and are
organised district-wise. These wholesale consumer societies distribute the
goods to Primary Co-operative Consumer Societies whose outlets supply
goods to local consumers. Thus the marketing chain is completed.
3.1 1.5. Warehousing facilities by the Co-operatives:
The Agriculture Co-operatives also provide for the storage facilities to
the members under the provisions of the National Grid of Godowns and the
NCDC (National Co-operative Development Corporation) Godowns
Schemes. The Government of India has sanctioned a scheme for
establishment of National Grid Godowns. The main objective of the scheme is
to meet the storage needs of particularly small and marginal fanners. These
godowns are made available to the Agricultural Co-operative Societies,
Agricultural Produce Marketing.
3.12. Contribution by various Cooperative Societies
Over the Last 5 decades the Co-operative sectors have made substantial
contribution to the economic development of country in several ways
particularly t i the rural sector. The folloking table depicts the impressive
progress achieved by the cooperative societies in various fields of the Indian
Economy.
Table-3.8
Share of Different types of Ckperatives in the National Economy
Source: The Co-operator, June 2004
Agricultural Credit Disbursed by ~ & o ~ e m t i v ~ ~ .
Fertilizer Disbursed (6.049 Million Tonne)
Fertilizer Production (3.293 MT- N&P) Nutriknt
Sugar Production (10.400 Million Tonnes)
Wheat Procurement (4.501 Million Tonne)
Animal Feed Production1 Supply
Retail Fair Price Shops (Rurai+Utban)
Milk Procurement to Total Production
Milk Procurement to Marketable Surplus
Ice Cream Manufacture : 45 per cent
Oil Marketed (branded) : 50 per cent
Spindle age in Coops (3.5 18 Million)
Cotton Yarn1 Fabrics Production
Handlooms in Co-operatives
Fishermen in Cg-operatives (active)
Storage Facility (Village Level PACS) '
Direct Employment Generated
Self- Employment Generated for Persons
Self Manufarhlred (18266 Metric Towes)
3.13. Reforms in Co-operative Sector
46.15 per cent
36.22 per cent
27.65 per cent
59.00 per cent
3 1.8 per cent
50 per cent
22 per ccat
7.44 per cent
10.5 per cent
45 per cent
50 per cent
9.5 per cent
23.0 per cent
55.0 per cent
21 .O per cent
65.0 per cent
1.07 Million
14.39 Million
7.6 per cent
The objective of the National Policy on Co-operatives. 2002, is to
facilitate all-round development of Co-operatives in the Counhy. Under this
Policy, the Co-operative Societies would be provided necessary support,
encouragement and assistance to enable them to wok as autonomous, d f -
reliant and democratically managed institutions, which will be accountable to
their members. The policy seeks to achieve hctioning of Co-operatives
based on Co-operative principles and values, reduction of regional
imhalances, professionalisation and greater participation of members in the
management, removal of restrictive regulatory regime and development of an
integrated co-operative stmture etc.
The Central Government has enacted the Multi-State Co-operative
Societies (MSCS) Act, 2002, replacing it's Act passed in 1984. The new Act
removed various restrictive provisions and ensure full hctional autonomy
and democratic management to the Co-operative Societies. The Centre is now
taking up with the State Governments the implementation of legislative and
policy reforms in the co-operative sector."
The Government of India constituted a Task Force under the
Chairmanship of Prof. A. Vaidyanathan in August 2004 to evolve an action
plan for the revival of cooperative credit movement in the country. The Task
Force submitted its Report in 2005, which was accepted by the Government
of India. The important recommendations made by the Task Force are:
(2) Legal and administrative reforms cover the following:
a) Ensuring full voting rights to borrowers and depositors;
b) Removing state intervention in administrative and financial
matters in Co-operatives;
c) Professionalisation of Managements of DCCBs and State Co-
operative Bank,
d) Permitting Co-operatives freedom to take loans from any
financial institution and not necessarily from only the upper tier
and similarly placing their deposits with any financial institution
of their choice;
e) Permitting Co-operatives under the parallel ~ c t s to be members
of upper tiers under the existing Cooperative Societies Acts and
vice versa;
f) Limiting powers of State Governments to supercede Boards
.g) Ensuring timely elections befok the expiry of the term of the
existing Boards;
h) Facilitating fill regulatory powers for RBIMABARD in case of
Co-operative Banks.
After 2004, the extent of cosperative credit to the agricultun was
doubled. Credit Culture, in the effective credit delivery and appropriate credit
pricing were streamlined through necessary steps. The system of credit cards
and no-fiills accounts was initiated. The ~icro-financcprogramme was
intensified and new guidelines for the business facilitator model were issued.
Use of modern technology for rural banking is being encouraged.
3.13.1. Kisan Credit Cards (KCCs)
The newly initiated Kisan Credit Cards System (KCCS) was initiated.
They provide a revolving cash credit facility to the farmers enabling frequent
withdrawals and repayment at the convenienie of the f m r s , which leads to
reduction in the interest burden. It also provides flexibility in the purchase of
inputs from any approved source of fanner's choice; and rescheduling of
loans in case of damage to crops due to natural calamities. This scheme has
been in operation since 1998-99 and 6.45 crore cards have been issued till the
end of 2006. Further, this scheme has extended to the borrowers of the long-
term co-operative credit to meet the requirements of borrowers of the State
Cooperative Agriculture Rural Development Banks (SCARDBs). Under the
KCC system short term/ medium term and long term credit is provided to the
borrowers.
3.13.2. Task Force for Strengthening of Co-operative Credit System:
Under the changed context, the urgent revitalisation of the co-operative
credit structure became an imperative. Towards this end, a Task Force on the
revivcl of Co-operative Credit institutions was constituted under the
chairmanship of A. Vaidhyanathan, to examine the reforms required in the co-
operative banking system. The Task Force recommended
(i) Special financial assistance to wipe out accumulated losses and
strengthen the capital base of Co-operative Credit Institutions;
(ii) Institutional restructuring to ensure democratic institutions; and
(iii) Changes in the legal framework to empower the Reserve Bank of
India (RBI) to enforce prudent financial management.
The Government has accepted the recommendations of the Task Force
in principle and is now working on the modalities for implementation of its
recommendations.
Package for the revival of short-term rural co-operative credit
involving financial assistance of ' Rs. 13,596 crore was announced. The
NABARD is made as the implementing agency. The State Governments are
required to implement the legal, institutional and other reforms as envisaged
in the revival package.