Credit for rural India falters as cooperative structures decline despite policy push

In recognition of the importance of institutional credit in boosting the rural economy, the Reserve Bank of India, at the best behest of the government of India, constituted, in 1979, a Committee to Review the Arrangements for Institutional Credit for Agriculture and Development (CRAFICARD). CRAFICARD, in its interim report, recommended the establishment of a new financial institution to focus on credit related issues linked with rural development.

The government of India accepted the recommendations, and an institution, initially to be a subsidy of the RBI and, subsequently, to be fully owned by the government of India, called the National Bank for Agriculture and Rural Development (NABARD), came into being.

It was to perform the functions both of the Agricultural Credit Department of the Reserve Bank of India, as well as the refinance functions of the Agricultural Refinance Development Corporation, which were in existence at that time.

As a Development Bank for the country, NABARD was expected to usher in an era of sustainable and equitable development, of the agriculture and allied sectors and rural development, through participative financial and other interventions, innovations, technology, and institutional development.

In 1981, when I was serving as the Secretary to the Vice President of India, a Cabinet Note was received in the Secretariat, proposing the establishment of NABARD. It was a matter of great personal satisfaction to me to note that development as I had earlier, as the RCS of Andhra Pradesh (AP) state, had been closely associated with the putting in place of the Single Window System for the Cooperative Credit Structure (CCS) in that state.

Time was when the share of agriculture cooperatives, in the total institutional finance purveyed to the agriculture and allied sectors in the country, was as much as 50 per cent. That has come down over time to as little as 9.2 per cent.

A development that speaks volumes about the lack of support to cooperative institutions, the lip service paid to their cause, by successive governments, notwithstanding. That section of the farming community, which requires credit most, remains sadly neglected,

As the years passed, the once vibrant CCS landed in doldrums, on account of several causes, including bureaucratic control, political interference and the repercussions of pernicious waivers. The noble intention of extending support soon degenerated into interference.

One particularly unacceptable manifestation of political interference was the repeated postponement of elections by the central and state governments, and the resort to the practice of appointing persons of their choice as office bearers.

Concerned about that situation, the government of India, in 2004, appointed a Task Force on the revival of the structure, known as the Vaidyanathan Committee, which, in two separate reports, made several sweeping and far-reaching recommendations.

Those recommendations led to a phased and conditional revival package, which covered areas such as financial structuring, legal and institutional reforms, improving governance measures, capacity building, strengthening the regulatory environment and introducing computerisation.

The outcome of the implementation, by NABARD, of that package has, however, been mixed, with financial cleaning up and governance improvement happening, but operational efficiency and autonomy remaining as challenges.

Compared to Commercial Banks and Regional Rural Banks, the other two streams of institutional finance, the CCS continues to receive a somewhat step-motherly treatment, all the hoopla of support to it by the governments notwithstanding.

Reminiscent of the legendary remark by Oscar Wilde about George Bernard Shaw, that Shaw had no enemies but was intensely disliked by his friends!

The arrangement, however, has often proved disastrous for the cooperatives. For one thing, they are used as willing hand maidens of government policy, brought in when required and unceremoniously dumped thereafter. Instead of using them as agents and offering a commission for the services rendered, they are asked to shoulder the responsibility of purchase and sale, responsibilities neither native to their aims and objectives nor to their ability.

Something similar often happened in the AP state. When, in the wake of floods or cyclones, the paddy crop had become discoloured or had sprouted, an organisation called Ricefed, a state-level federation of cooperative rice mills in the state, was forced to step in, undergoing similar travails.

Cooperatives have also been effective instruments of furthering the cause of providing succour to the underprivileged sections of society, such as contract labour, and small and marginal farmers. In the 1980s, an idea was formed to form state-level federations of Labour Contract and Joint Farming societies, in order to revive grassroots level societies lying defunct.

A shining example of what a Multipurpose Primary Agricultural Credit Society can do is provided by the Mulkanoor Cooperative Rural Credit and Marketing Society, situated in the Karimnagar district of Telangana state. A society functioning under the wing of the Cooperative Development Foundation (CDF), also known as Sahavikasa, was initially founded in Hyderabad under the name Samakhya. I remember how, after a visit to the society as the then RCS, I came back with redoubled faith in the future of the cooperative system.

It was also around that time that the first steps were taken in the Andhra Pradesh state, towards promoting the idea of mutually added cooperative societies. M. Ramireddy, representing CDF, participated actively in the preliminary exercise.

In later years, the legislation that resulted proved to be a precursor to similar steps at the national level, such as the amendments to the Multi-State Cooperative Societies Act and the Model Cooperative Act.

Recently, I came across an extremely informative and illuminating article by S. Mahindra Dev, Chairman and K.K. Tripathi, Joint Secretary, of the Economic Advisory Council to the Prime Minister. Titled “Needed, a cluster based cooperative model”, and carried on November 15 by ‘Businessline’, it says “.........economic transformation, not from corporate boardrooms alone, but from the collective strength of cooperatives.......... with vibrant member – base, rooted in democratic ownership........... enormous potential in transforming production into prosperity through active play of local skill and collective will.”

The authors point out that India’s two cooperative majors, Anand Milk Union Limited (AMUL) and Indian Farmers Fertiliser Cooperative Limited (IFFCO), top the global rankings, by turnover relative to GDP per capita, a reflection of the importance of India’s cooperative-led – led model of economic growth.

They go on to recommend ‘a cluster–based cooperative model’, to streamline supply chains and connect producers with processors and global markets. They expect that the National Cooperative Export Limited (NCEL) will enhance the quality of life of small and marginal farmers, by transforming export - oriented clusters into global agri – value chain participants.

With some of the brightest people now serving the country at one of the highest policy bodies, exhibiting such firm faith in the cooperative way of life, one can safely expect the movement to confidently march toward an era of sustainable development and rapid growth.

(The writer was formerly Chief Secretary, Government of Andhra Pradesh)