ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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cooperatives: Recipe for Revival

Recipe for Revival The common minimum programme of the UPA government promised several measures to redress the perceived neglect of agriculture. Important among them was a large expansion in rural credit. The cooperative credit structure was expected to play a significant role in this undertaking. However, the structure was in too weak and debilitated a state to do so.

COOPERATIVES

Recipe for Revival

T
he common minimum programme of the UPA government promised several measures to redress the perceived neglect of agriculture. Important among them was a large expansion in rural credit. The cooperative credit structure was expected to play a significant role in this undertaking. However, the structure was in too weak and debilitated a state to do so.

Nearly half of the primary agricultural cooperative societies and a third of the district central cooperative banks are incurring losses; recovery rates are very low; accumulated losses are huge and the incidence of “non-performing assets” high. The share of cooperatives in total ground level credit flow has declined from 62 per cent in the early 1990s to barely a third in 2003-04. The level of fresh lending has tapered off and has shown little or no growth since 2000.

The financial weaknesses of the cooperative credit structure are no recent phenomenon. These and the underlying deficiencies in the way they are organised, managed and supervised have been widely noted and commented on by several committees in the past. They have argued the case for financial restructuring with government funding and also pointed to the need to make them democratic, function without governmental and political interference, and accountable for prudent management of their resources. But these did not lead to any action for lack of agreement on the sharing of costs of financial restructuring between the centre and the states. Moreover, politicians – across the entire spectrum of parties –arereluctant to give up control over cooperatives which have been used everywhere as instruments of patronage and political mobilisation. On the contrary, governments have actively contributed to politicising the movement and eroding what little credit discipline there was in sanctioning and recovery of loans.

Concerned at this state of affairs, the government constituted a special task force to suggest an “implementable action programme” for the revival of cooperatives. While its diagnosis of the weaknesses and the remedies were not very different from earlier committees, it broke new ground in several important respects.

It has come out strongly in favour of revival and revitalisation of the cooperative credit system at public cost on the ground that other financial institutions are neither capable of nor interested in providing adequate credit at reasonable cost to millions of asset-less and asset-poor people in rural areas. The only hope for these classes lies in genuinely democratic and self-governing cooperatives based on the principles of mutual help and thrift. Therefore, while justifying large public funding for financial restructuring, the task force recommended that both eligibility for assistance and its release to state governments and through them to the individual cooperatives should be conditional on their agreeing to a set of specific legal and institutional reforms and their implementation in a phased manner.

The government promptly announced acceptance of the whole package in principle and then proceeded quickly to discuss it with state chief ministers. It took three rounds of these intensive discussions to allay doubts and reservations and arrive at a broad national consensus accepting, with some modifications, the reform package proposed by the task force. It is truly remarkable that agreement on such a far-reaching and complex reform in a sector with deeply entrenched political interests has been forged in such a smooth and expeditious way. Several factors have contributed.

One, all stakeholders realise that the system is in a state of near collapse. Unless it is revived as also enabled and induced to function efficiently, the ambitious targets of credit expansion cannot be reached. Successful revitalisation would directly benefit a large segment of the rural population, contribute to more rapid rural transformation and thereby give political credibility to the reformers. Two, there is a strong if silent constituency for such reform within the cooperative movement and among the more thoughtful and far-sighted civil servants and politicians. Three, these favourable objective conditions have been reinforced by the transparency of the task force in holding extensive consultations with stakeholders from all over the country, publishing the draft for public comments and responding to them in finalising their recommendations. That it spells out all key elements of the package in specific detail leaves relatively little room for ambiguity on what is to be done and how. Four, insistence that central assistance for financial restructuring should be conditional on carrying out major institutional changes builds in a strong incentive for the states to implement reforms.

There is of course a long way to travel from arriving at a consensus package and ensuring that states actually implement it. The scale and complexity of the administrative and political effort cannot be underestimated. Difficulties there will be. The centre, which is to foot the bulk of the bill, must resist the temptation to let short-term political expediency soften the terms and remain strict in insisting that states opting to participate in the reform agree and abide by the terms spelt out in the consensus in letter and spirit. At stake is its ability to demonstrate and set an example of how major internal institutional and structural reforms can be engineered.

EPW

Economic and Political Weekly February 25, 2006

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