UNIT 1 EVOLUTION AND

DEVELOPMENT OF
COOPERATIVES
Structure

1.0 Objectives

I .1 Introduction

1 .2 Concept and Definition

1.3 Evolution of Cooperatives in Developing Countries

1.4 Development of Cooperatives in India

1.4.1 Cooperative Movement in India

1.4.2 Cooperative Policies

1.5 Different Forms of Agricultural and Rural Development Cooperatives

., .
1.5.1 Consumer Cooperatives
.1.5.2 Sugar Cooperatives
1.5.3 Horticulture Cooperatives
1.5.4 Fisheries Cooperatives
<,
1.5.5 Women Cooperatives
1.5.6 Credit Societies

1.5:7 ,. Business Cooperatives

1.6 Strategies for Successful Cooperatives

1.7 Let Us Sum Up

1.8 Key Words

1.9 Some Useful Books/References

1.10 Answers/Hints to Check Your Progress

1.0 OBJECTIVES
i.l:
After going through this unit, you will be in a position to:

• explain the concept, evolution and growth of cooperatives in developing

countries;

• discuss the different forms of agricultural and rural development cooperatives;

and

• explain the strategies fors~cc~s of cooperatives.

1.1 INTRODUCTION.
Cooperation among the group for attaining certain common objectives has been
basic requirement of civilization. We have seen that even very small creature like
7
Cooperatives
ants joirr together in a big way to carry a grain of sugar or food to achieve their
common objective of meeting their food requirements by way of sharing the
efforts and also the fruits. In the same spirit InternationalCooperative Alliance
was formed long back as a structured body to strengthen the cooperative movement
world over which is defined as "an autonomous association of persons, united
voluntarilyto meet their common economic, social and cultural needs and aspirations
through ajointly-owned and democratically-controlled enterprise." Cooperatives
are based on the principles of self-help, self-responsibility; democracy, equality
and solidarity. In the tradition of their founders, cooperatives believe in the ethic
values of honesty, openness, social responsibility and caring for others. Most of
developed countries started the cooperative movement with the poor people so
as to share the benefit with the poor in improving their quality of life.

Agricultural cooperatives have played an important role in the Asian rural landscape
for decades, and have become an integral part of its social structure. Cooperatives
have contributed greatly to the development of modem national and systematized
agricultural production-base, helped enhance self-sufficiency of major staple foods,
and strengthened farmers household economy by facilitating market access and
. competitiveness. Cooperatives have also helped in adapting technological
innovations in agriculture and encouraging democratic decision-making processes,
leadership development and education. However, at the dawn of the 21st century,
new issues and forces have been influencing the external and internal environment
of agricultural cooperatives worldwide. Some of these forces include the
restructuring 0'£ the agricultural sector such as demographic changes and
diversificationof member-farmers; highly advanced technological innovations; large-
scale marketing and changing consumer preferences;shifting internationalagricultural
trade regime; and globalization of the financial market. All these factors have left
many agricultural cooperatives, particularly in the Asian region, gropir.; to find
more efficient business models in an increasingly harsh economy, andwleaving
resource-poor small-scale farmers with no option but to realign their economic
activities and meagre resources to external signals. Specifically, the emergence of
the World Trade Organization (WTO) and other regional trade organizations has
defined the areas and rules of the game for trade in agricultural commodities and
processed produce, which are simply not easy to follow by developing countries.

1.2 CONCEPT AND DEFINITION

Cooperative institutions are democratic people-oriented rather than capital-oriented
organisations. Cooperatives are a universal form of organisation found practically
in all countries and used by people in many ways in their economic and social life:
for marketing the products of their labour; for purchasing supplies for their business
or their households and families, for depositing their savings or for borrowing
money, for providing housing, for securing protection like insurance and health
services, for the development of their regions, for producing together certain
goods and/or services. There is, practically, no end to the ways in which the
cooperative form of organisation can be used to benefit people in their every day
needs.

A cooperative is a 'user-owned' and 'user-controlled' business that distributes

benefits on the basis of use. More specifically, it is distinguished from other
businesses by three basic concepts:
 " r
Evolution and Development
First, the user-owner concept- "Persons who own and finance the cooperative
.of Cooperatives
are those that use it.

Second, the user-control concept- Control of the cooperative is by those who

use tl~e cooperative.

Third, the user-benefits concept- Benefits of the cooperative are distributed to its
users on the basis of their use. The user-benefit concept is often interpreted as
busi ness-at -cost.

A definition of the cooperative, which comes from these three basic concepts, is:
a business organisation that is owned and controlled by those who use its services,
the net income (surplus) of which is divided among the members in proportion to
the use they make of its service.

The definition of a Cooperative, as adopted by the International Cooperative

Congress in 1995, and now universally-accepted, reads as under: "A cooperative
is an autonomous association of persons united voluntarily to meet their
common economic, social and cultural needs and aspirations through a "
jointly-owned and democratically-controlled enterprise."

Cooperation means people doing some of their economic activities together for
their mutual benefit. By uniting their efforts, people gain from one another ideas,
talents, skills and energies. In this way, they are able to achieve results, which they
could not achieve alone.

The basic human concept has been practiced through out history. Informal types
of cooperatives are as old as human history. But the cooperative movement, as
.we know it today, started in the nursery of modem civilization, that is Europe, in
the context ofthe industrial revolution, the expansion of the money economy and
.ihe growing concentration of power in the hands of the few.

With the introduction of 'Cooperative Credit Societies' Act of 1904, the

Cooperative Movement was started in India. The main objective was 'to encourage
thrift, self-help and cooperation among the agriculturists, artisans and other persons
oflimited means'.

1.3 EVOLUTION OF COOPERATIVES IN

DEVELOPING COUNTRIES
The agriculture and rural developmentin developing countries, in which a large
majority of the total population live in rural areas and depend upon agriculture for
their livelihood, is far from being viable and sustainable. In this sense; the rules of
trade liberalization are aggravating the adverse livelihood conditions of the rural
poor who are mostly small and medium producers, without much market-oriented
organizational and management capacities. Evolution of cooperatives in developing
countries with special reference to agriculture and allied sectors particularly in
India, China, Indonesia and Philippines are as under:

l ) .lndia

In India, the beginning of cooperatives is linked to the Nidhi's, the cooperative

undertaking in the form of indigenous nidhis or mutual loan association in the
9
Cooperatives
Provinces of Madras, in the second half of 19th century. These were quite similar
to Raiffeisen credit cooperatives which were originated in Germany. The German
pioneer, F.W.Raiffeisen established a cooperative credit society in which borrowing
farmers themselves were members. Other types of cooperatives, like consumer
cooperatives, were also organized on the basis ofthe Rochdale model, the opening
of store by Richdale pioneers in U'K, in the last decades of the 19th century.
Seeing these trends and considering the problems of rural agricultural economy,
the First Cooperative Law of India was enacted by the Brirish in 1904, covering
the undivided India. The law covered only credit cooperatives and was repealed
by a new law to cover various types of cooperatives in 1912. The 1912
cooperative law focused on provisional issues and provinces were given powers
to enact their own cooperative laws. Henceforth, all provinces/states introduced
own cooperative laws. To cover the cooperatives that have members in more
than one State, the multi unit Cooperative Societies Act was introduced by the
Government of India in 1942. This Act was an enabling Act and was replaced
by a comprehensive enactmenti.e. Multi State Cooperative Societies Act 1984
and is presently operative.

2) China

After the People's Republic of China was founded, agricultural cooperatives

changed from elementary agricultural producers cooperatives, advanced agricultural
producers cooperatives to People's commune and formed the system combining
cooperatives and govemments, which hurt the enthusiasm of farmers for production,
hindered rural productivity. In 1979, rural reform was carried out in China, People's
commune system was abolished, and the dual management system within the
framework of the household responsibility system was adopted. On above basis,
all kinds of rural cooperatives developed gradually. In some areas, farmers organize
. farmers special cooperatives, such as pig raising cooperatives, chicken raising
cooperatives, plant cooperatives and so on. These cooperatives carry out activities
according to the principle of mutual benefit, voluntaries, organized by farmers,
managed by fanners, benefited by fanners. Some rural cooperatives formulate
their own regulations. Regulations are approved by concerned authorities, and the
cooperatives have therefore practically become state agencies. Ministry of
Agriculture is incharge of the work and develops cooperatives in the way of
guidance and direction.

3) Indonesia

The initiation of the Indonesian cooperative movement can be traced back to the
formation offirst cooperative bank "Hulp en Spaarbank" of savings and assistance
in the year 1895, the first consumer cooperative by Budi Utomo in 1909, and an
organization by Javanese Medical School in Jakarta. Later, since 1·913 Sarekat
Islam, a political organization based on cooperative ideas, played an active role
in promoting cooperatives and is reported to have created hundred of consumer
cooperatives. The cooperatives became legal entities with the introduction byjhe
Dutch Government on April 7, 1915 of Regulations concerning Cooperatives,
based on the Netherlands Cooperative Law of 1876. This law was replaced by
the National Government, first in 1967, and then again in 1992, regulating all
types of cooperatives.

]0
 Evolution and Development
4) Philippines
of Cooperatives

The cooperative movement in the Philippines was sponsored by the civic and
regional groups. The first Cooperation law was introduced in April 1906 followed
by the Rural Credit Cooperatives Associations Act in 1915. The establishment of
cooperatives picked up particularly during the American occupation. Cooperatives
were, registered under the cooperative law No. 1459, enacted on April 1, 1906,
Agricultural Credit Associations Act No. 2508, ylt February 1915 and cooperative
marketing law No. 3425 on 911t December 1927, repealed in April 1973. Said
laws continued to be valid along with sectorial regulations till all of them were
integrated in the "Cooperative code of Philippines" in 1989.

1.4 DEVELOPMENT OF C·OOPERATIVES IN

INDIA
During the British rule, Nicholson a British Officer in India suggested to introduce
Raiffesen model of German agricultural credit cooperatives in India. As a follow-
up of that recommendation, the first Cooperative Society Act of 1904 was enacted
to enable formation of "agricultural credit cooperatives" in villages in India under
Government sponsorship. With the enactment of 1904 Act, Cooperatives were to
get a direct legal identity as every Agricultural Cooperative was to be registered
under that Act only. The Cooperative Societies Act (1904) was repealed by
Cooperative Societies Act (1912) which provided formation of Cooperative
societies other than .credit. Under Administrative Reforms Act (1919) Cooperative
was made a provincial subject making each province responsible for Cooperative
development.

The National Cooperative Union of India (NCUl) was established in 1929 as an

apex promotional organisation for promoting and strengthening of cooperative
sector, providing education and training in cooperative, propagation of cooperative
ideology and research in cooperatives, intemationaI cooperative relatlons,
cooperative planning and information services. Similarly, a National Cooperative
Development and Warehousing Board was set up in 1956, in pursuance to the
recommendations of the All India Rural Credit Survey Committee (1954) under
the aegis of the Reserve.Bank ofIndia. The National Cooperative Development
Corporation (NCDC) was established in March, 1963 by the Government of
a
India under NCDC Act 1962 as successor organisation to the above Board,
with an objective of"planning and promoting programs for production, processing,
marketing, storage, export and import of agricultural produce, foodstuffs and
certain other notified commodities and collection, processing, marketing, storage
and export of minor forest produce on cooperative principles," NCDC .since then
have been playing a very crucial role in promoting the cooperatives on the above
'said objective.

India unlike the developed countries started the cooperative movement with the
poor people so as to share the benefit with the poor in improving their quality of
life. In some countries, we come across very small community based cooperatives
and large industrial cooperative establishment which are, sometimes difficult to
distinguish from other industrial enterprises but their service to members is unique.
In India the industrial cooperatives in the fertiliser sector, milk sector, sugar sector
which have come up a long way to compete with the big industries have maintained
their structure of primarily serving to the poor. Multi-Unit Cooperative Societies
Act, 1942 enacted by the British Govenunent with an objective to cover societies
I
whose operations are extended to more than one state. The impulses of the Indian 11
Cooperatives
freedom movement gave birth to many initiatives and institutions in the post
independence era in India and armed with an experience of 42 years in the
.working of Multi-Unit Cooperative Societies and the Mult-Unit Cooperative
Societies Act, 1942. The Central Government enacted a comprehensive Act
known as Multi State Cooperative Societies Act, 1984, repealing the Act of
1942. An Expert Group constituted by the Government of India in .1990, -
recommended

i) to facilitate building up of integrated co-operative structure;

ii) to make the co-operative federation organisations responsive towards their

members;

iii) to minimise government interference and control in the functioning of co-

operatives; and

iv) to eliminate politicisation.

Based on the recommendations, the central government enacted the Multi State
Cooperative Societies Act, 2002 which provided for democratic and autonomous
working of the Cooperatives, which came into force with effect from August 19,
2002. The Government of India formulated National Policy on Co-operatives
which uphold the values and principles of co-operation recognizing its autonomous
characters and attaching priority to professionalism, human resource development
and to act as preferred instrument for execution ofpublic policy in rural areas and
in sectors where they provide the most effective delivery system. To strengthen
their competitive edge in the market, total quality control initiatives, management
initiatives and cost reduction initiatives will also be taken up. It is now increasingly
recognised that the co-operative system in India has the capacity and potentiality
to neutralise the adverse effects emerging from the process of globalisation and
liberalization, and continue to play an important role in employment promotion
and poverty alleviation,both as production enterprises - mainly ofthe self-employed
- and as providers of services to members. Although cooperatives are not :
instruments of employment promotion, they do effectively create and maintain
employment in both urban and rural areas and thus prov.ide income to both
members and employees in the form of shares of surplus, wages and salaries or
profits depending on the type of cooperative.

1.4.1 Cooperative Movement in India

India has basically an agrarian economy, 71 per cent of its total population reside
in rural areas and 29 per cent in urban areas. The rural people need lot of services
in daily life which are met by village cooperative societies. The village cooperative
societies provide strategic inputs for the agricultural sector, consumer societies
meet their consumption requirements at concessional rates; marketing societies
help the fanner to get remunerative prices and cooperative processing units help
in value additions to the raw products etc. In addition, cooperative societies are
helping in building up of storage godowns including cold storages, rural roads and
in providing- facilities like irrigation, electricity; transport and hea Ith. Thus the
. cooperative societies in India in fact are playing multi-functional roles both in rural
and urban areas. The industrial cooperatives in the fertiliser sector, milk sector,
sugar sector which have come up a long way to compete with the big industries
have maintained their structure of primarily serving to the poor. Cooperation in a
12 vast country like India is of great significance because:
 '\"-
Evolution and Development
• It is an organization for the poor, illiterate and unskilled people.
of Cooperatives

• It is an institution of mutual help and sharing.

• It softens the class conflicts and reduces the social cleavages.

• It reduces ·the bureaucratic evils and follies of political factions.

• It overcomes the constraints of agricultural development.

• It creates conducive environment for small and cottage industries.

The share of Cooperatives in National economy is as follows:

Rural Network (villages covered) 100%

Agricultural Credit disbursed by Co-operatives 46.15%
Fertilizer disbursed (6.049 million tonnes) 36.22%
Fertilizer production (3.293 M.T. - N&P) Nutrient 27.65%
Sugar produced (10.400 million tonnes) 59.0%
Capacity Utilization of Sugar Mil1s 11l.5%

Wheat Procurement (4.50 million tonnes) 31.8%

Animal Feed Production/Supply 50%

Retail Fair Price Shops (Rural + Urban) 22%
Milk Procurement to Total Production 7.44%

Milk Procurement to Marketable surplus 10.5%

Ice Cream Manufacture 45%
Oil Marketed (Branded) 50%
Spindlage in Co-operatives (3.518 million) 9.5%
Cotton yam/Fabrics Production 23.0%
Handlooms in Cooperatives 55.0%
Fishermen in Cooperatives (Active) 21%
Storage Facility (Village level PACS) 65.0%
Rubber processed and marketed 95.0%
Arecanut processed and marketed 50%
Direct employment generated 1.07 million

Self-Employment generated for persons' 14.39 million

Salt Manufactured (18,266 Metric Tonnes) 7.6%
IJlIlIrce: 'Samantaray. 2004

The statistics here indicates that modem cooperative movement has made'
tremendous progress in every walk of its activities and occupies a major place in
the share of the national economy.
Cooperatives
1.4.2 Cooperative Policies

In the pre-independence era, the policy of the Government, by and large, was
one of laissez-faire towards the cooperatives and Government did not play an
active role for their promotion and development. After independence, the advent
of planned economic development ushered in a new era for the cooperatives.
Cooperation came to be regarded as a preferred instrument of planned economic
development and emerged as a distinct sector ofthe National Economy. It was
specifically stated in the first Five Year Plan document that the success of the Plan
should be judged, among other things, by the extent to which it was implemented
through cooperative organisations. In the sixties, special importance was attached
to achieving increased agricultural production as well as rural development through
cooperatives. A significant development on the agricultural front, during 1966-71,
was the implementation of the new agricultural strategy, aimed at the achievement
of self-sufficiency in food. The introduction of high-yielding and hybrid varieties
of seeds and the allocation of large outlays for the provision of irrigation faci Iities
and adequate application of farm inputs led to a manifold increase in the role of
cooperatives. Thus, the Green Revolution gave a big boost to the activities of the
cooperative societies; increased agricultural production and enhanced productivity
necessitated an emphasis on value-addition in agricultural produce, marketing and
storage and the development of allied sectors. As a result, specialised cooperative
societies in the fields of milk, oilseeds, sugarcane, cotton, agro-processing, etc.
were set up. Many large cooperatives emerged in the fields of fertiliser manufacture
and marketing of agricultural produce. The role of cooperatives, thus, no longer
remained confmed to their traditional activities and expanded to new economic
ventures as in the case of other such enterprises in the public or the private sector.

Check Your Progress 1

Note: a) Use the space given below for writing your answers.
b) Check your answers with those given at the end of the unit.

1) N arne the first Act enacted for cooperati ve in India .

................................................................... .

2) What is the concept of cooperative movement in India?

14
 Evolution and Development
3) Explain the significance of cooperatives in the economic development ofthe
of Cooperatives
country.

............................................................ : .,'.
' .

1.5 DIFFERENT FORMS OF

AGRICULTURAL AND RURAL
DEVELOPMENT COOPERATIVES
Cooperatives are no more limited to the rural credit. It has spread its activities
to the almost all aspects of rural life. This section highlights the important forms
of cooperatives in operation serving interest of their members.

1.5.1 Consumer Cooperatives

The village cooperatives are expected to provide consumption loans to the farmers
to avoid them going to the money lenders. Another aspect is supply of essential
commodities, particularly to the weaker sections of the society. The government
has launched a.nationwide Public Distribution System (PDS), which is being
implemented by the State Govemments. Under this programme, fair price shops
have been allotted to individuals, non-governmental organizations including
cooperatives. Of the total number of fair price shops allotted in the rural areas,
the share of cooperatives is 17.7 per cent. The cooperative fair price shops
supply all the items identified under the PDS. In a few states, only cooperatives
have been assigned the task.

1.5.2 Sugar Cooperatives

India is one of the largest sugar producers in the world based on the sugarcane
and produced 15.5 million ·tons of sugar during 1998-99. The share of sugar
produced through the cooperatives is more than 57 per cent of the total sugar
production of the country ~ompared to 0.5 per cent in 1950-51. The ownership
of these sugar cooperatives are mainly with the sugarcane growers. During 1998-99
the average capacity utilisation in the cooperative sector sugar mills was 104 per
cent compared to 103 per cent overall capacity utilisation of the industry. The
average recovery of sugar in cooperative. sector' was 10.35 per cent compared
to 9.86 per cent in the overall sugar industry.

1.5.3 Horticulture Cooperatives

In the present milieu, cooperatives have a pivotal role to play in shaping and
haosting the export trade of the country, especially with r,espect to those high
value crops such as Fruits and Vegetables. It has been already established that
various horticultural commodities such as banana, grapes, sapota, lychee, onion,
tomato and mushroom etc., of India are highly competitive in the intemational
export market. The potentiality in the export trade ofthese valued crops need
15
Cooperatives
to be exploited further. In fact, it has indeed been only in the last few years that
Indian horticultural exports got a real boost because of more' liberal market
environment. An integrated approach to the post harvest management through
active and joint participation of various organizations such as National Horticulture
Board (NHB), Agricultural and Processed Food Products Export Development
Authority (APEDA), NCDC, etc. will, therefore, be more appropriate to boost
country's net horticultural exports. It has already been established that the growth
prospects of developing countries will be more favourable in the export trade of
F & Vs due mainly to the fact that these countries with abundant labour in relation
to capital or land enjoy a comparative advantage in labour.intensive horticultural
production as compared to cereal productio~.

1.504 Fisheries Cooperatives

The Government of India as well as National Cooperative Development

Corporation (NCDC) have evolved several schemes, which inter alias, help the
economic upliftment of poor fishermen and fish fanners through various welfare
schemes like the Fish Fanners Development Agency (FFDA,s) and strengthening
various fish farmers cooperative institutions such as fish drying through fishennenl
women cooperatives. Schemes are implemented by the government, along with
pattem of sharing of budget with respective states. At the initial stage, the coverage
was limited to some infrastructural facilities (such as godowns, diesel pumps, etc.)
and share capital to the cooperative. Subsequently, the coverage widened to
other areas, like facilities of marketing, transportation, processing, cold storage,
retail outlets etc. There is a network of fisheries cooperatives in India with vertical
structure up to the national level (8,372 Primaries, 78 District Federations, 15
State Federations and national federations ofFishennan's Cooperatives). '

1.5.5 Women Cooperatives

For the upliftment of women of weaker sections and rural artisans various schemes
were started on cooperative basis by the central and state government, with the
financial support ofNABARD and other banks along with technical support of
different institutions and NGOs. Women's Cooperative in the field ofprocessing
and marketing of agro products like, 'papad making; preservation of fruit and
vegetables and dairy farming are the some of the successful enterprises runs by
the women on cooperative basis. A survey ofthe existing livelihood ski lis showed
that, after farming, the dairy trade is the most commonly-pursued occupation in
the village. Today, several NGOs are working to change this scenario to be more
inclusive of women. The Self-Employed Women's Association (SEWA),
Ahmedabad, Gujarat was the first one to start the concept of all-women dairy
cooperatives in the Banaskantha district. This scheme is implemented by women
members of SEW A, now organised into the Development of Women and Children
in Rural Areas Association. SEWA has also revived some defunct dairies in
Santhalpur and Radhanpur talukas. Apart from NGOs, govenunental organisations
like the National Dairy Development Board have also organised special training
programmes for women in modem livestock management. Traditionally, India's
dairy cooperative societies have been run by men, but this is gradual1y changing.
According to 'Dairy India' - a publication on the dairy industry - at present, of
an all-India total of9.2 million cooperative members, 1.63 million (18 per cent)
are women. Some 2,476 all-women cooperatives are functioning in the country.
 Evolution and Development
·1.5.6 Credit Societies .of Cooperatives

The Cooperative Movement was introduced into India by the Government as the
only method by which the farmers could overcome their burden of debt and keep
them away from the clutches of the money-lenders. The Cooperative Credit
Societies Act, 1904 was passed by the Government of India and rural credit
societies were formed. Through the appointment of registrars and through vigorous
propaganda, the Government attempted to popularize the Movement in the rural
areas. Within a short period, the Government realized some of the shortcomings
of the 1904 Act and, therefore, passed a more comprehensive Act, known as the
Cooperative Societies Act of 1912. This Act recognized non-credit societies also.
But the rural credit societies have continued to be predominant till now. The
agricultural cooperative credit structure is broadly divided into two sectors, one
dealing with the short-terms and medium-terms finance and the other with the
long-term credit. The short-term and medium-term credit structure is based on a
three-tier system, i.e., the Apex Cooperative Bank at the State level, the Central
Cooperative Bank at the districtltehsillevel and the Primary Agricultural Credit
Societies at the village level.

Primary Agricultural Credit Societies (PACS): The Primary Agricultural Credit

Societies constitute the 'hub' ofthe Indian cooperative movement. Every fourth.
co-operative in India is a primary credit society. The main objectives of a PACS
are:

• to raise capital for the purpose of giving loans and supporting the essential
activities of the members,

• to collect deposits from members with the objective of improving their savings
habit,

• to supply agricultural inputs and services to members at remunerative prices,

• to arrange for supply and development of improved breeds of livestock for

the members,

• to make all necessary arrangements for improving irrigation on land owned by

members, and

• to encourage various income-augmenting activities such as horticulture, animal

husbandry, poultry, bee-keeping, pisciculture and cottage industries among
the members through supply of necessary inputs and services.

District Central Cooperative Banks (DCCB): The PACS are affiliated to the
DCCBs who perform the following functions.

• Serve as balancing centre in the district central financing agencies.

• Organise credit to primaries.

• Carry out banking business.

•. Sanction, monitor and control implementation of policies.

State Cooperative Banks (SCB): The DCCBs in turn are affiliated to SCBs,
which perform the following functions. 17
Cooperatives
• Serve as balancing centre in the States.

• Organise provision of credit for credit worthy fanners.

• Carry out banking business.

• .Leader ofthe Cooperatives in the States.

The National Federation of State Cooperative Banks: At the national level

is the National Federation of State Cooperative Banks. It performs the following
functions:

• Provides a common forum to the member banks.

• Promotes and protects the interests ofthe member banks.

• 'Co-ordinates and liaison with GOI, RBI, National Banks and others.

• Provides research and consultancy inputs to the member banks.

• Organises conferences/seminarslworkshops/meetings.

1.5.7 Business Cooperatives

Today, the cooperative movement has really come of age in this country. The
major thrust of the cooperative sector today is towards supporting agricultural
production through supply of necessary inputs, providing post-harvest support
facilities, and facilitating export trade of agricultural produce. The success of
IFFCO, KRIBHCO, cooperative sugar factories, large-sized dairies establish
the fact that cooperative have the potential and experience to venture into large .
industrial enterprises in the field of agro, horticultural and food processing. They
not only provided gainful employment to the rural masses but increase the income
of fanners in particular and rural masses in general. Cooperatives have played a
major role in integrating the village and national market to the international market
in the present scenario of globalization and liberalization of market. Major business
cooperative in agricultural sector are:

a) Krishak Bharati Cooperative Limited (KRIBHCO): It is a premier

Cooperative Society for manufacturing of fertilizer, registered under Multi-State
Cooperative Societies Act-1985, was promoted by the Govt. oflndia, IFFCO,
NCDC and other agricultural Cooperative societies spread all over the country.
KRIBHCO has setup a Fertilizer Complex to manufacture Urea, Ammonia and
Bio-fertilizers at Hazira in Gujarat State.

b) Indian Farmers Fertilisers Cooperative Limited (IFFCO): The objectives

ofIFFCO shall be to promote the economic interest of its members by conducting
tts affairs in professional, democratic and autonomous manner through selfhelp
and mutual cooperation. It undertake manufacture/production/development of
chemical fertilisers, bio-fertilisers, petrochemicals, refining industrial chemicals,
and hydrocarbon, their inputs and technologies and allied products/by-products
and conversion, storage, transportation and marketing. It also undertake
manufacture/processing/conversion 'of farm and forestry products, bio-
technology, pisciculture and aqua-farming, agriculture machinery and implements
and other agricultural inputs/outputs and their conversion, storage, transportation
18.
 Evolution and Development
and marketing, activities. IFFCO extend to. undertake trading, shipping,
of Coop~ratives
transportation, communication and telecommunication, informationtechnology,
power generation and distribution from conventional or non-conventional energy
sources, housing, real estate, construction, banking and insurance. It undertakes
such other activities which are conducive and incidental thereto.

c) National Agricultural Co- perative Marketing Federation of India

(NAFED): The objectives of the NAFED shall be to. organise, promote and
develop marketing, processing and storage of agricultural, horticultural and forest
produce, distribution of agrici l.ural machinery, implements and other inputs. It
also undertake inter-State, impart and export trade, wholesale or retail as the
case may be and to.act and assist far technical advice in agricultural production
for the promotion and the working of its members and cooperative marketing,
processing and supply societies in India.

d) National Dairy Development Board (NDDB): The National Dairy

Development Board (NDDB) was founded to. replace exploitation with
empowerment, tradition with modernity, stagnation with growth, transforming
dairying into an instrument far the drveloprnent ofIndia's rural people. The
National Dairy Development Board 1.as been constituted as a body corporate
and declared an institution of national importance by an Act of India's Parliament.
The National Dairy Development Board - n .itially registered as a society under
the Societies Act 1860 - was merged with the erstwhile Indian Dairy
Corporation, a compa: ,j formed and registered under the Companies Act 1956,
by an Act of lndia's Parliament - the NDDB Act 1987 (37 ofl987), with effect
from October 12, 1987.

1.6 STRATEGIES FOR SUCCESS:FUL

COOPERATIVES
In a protected econon y the functioning of enterprises be it cooperative or otherwise,
used to be a different affair, but with the opening up of the economy and lifting
of quantitative restrictions on imports, the cooperatives face a great challenge to
compete with the Multi National Companies (MNC) who have a strong financial
backup, efficient marketing network, professional management and high technology
Research and Development. Most ofthe cooperatives in India lack in all these
areas, If the cooperatives do not wake up at the right time to strengthen their
systems and management, they are prone to become sick and may die in the stiff
competition, Some of the parameters where innovations are essential for success
are discussed below:

• Paradigm Shift in Governance of Cooperatives: The cooperatives need to

be governed in a participative manner by its members having common business
interest. The Cooperative Laws need to be reformed to provide environment
for growth, adequate autonomy for its management and encourage members'
participation. The cooperative societies of various sectors should be allowed to
integrate at primary levels to provide a number of services/products under one
roofin the true spirit of cooperation.

• Professionalism in Management: Cooperative societies basically consist of

the members and they elect their committee which manages the administration
of the society as well as the business of the society. When there is a competition
19
Cooperatives in the market, the cooperative societies need professional managers in the.
areas of its core business and financial management etc., so as to make the
society a profitable entity.Prefit by the Society will not only benefit its members
but also necessary for its sustenance.

• Technologies in Manufacturing and Quality Control: The manufacturing

areas of the cooperative societies need to adopt the latest technologies for
competitive quality and economy" of scale so as to provide a product with
added value at competitive prices. Many ofthe cooperative ventures in the
areas of sugar manufacturing or textile manufacturing have become sick in
absence of technological upgradations, product innovations and competitive
prices. The success ofIFFCO and KRIBHCO in fertiliser sector and Amul
in milk/dairy sector for adoption of latest innovative technologies and
professionalism in management are good examples of successful cooperative
societies.

• Innovative Marketing: The competitive marketing needs evolving a system

to include various channels of distribution. In the competitive environment,
cooperative societies may require to join hands with other strategic partners
for distribution, export and other products. It may need even strategic alliance
with the MNC's and vice-versa for marketing.

• Joint Ventures in Strategic Areas: The cooperative also need to join hands
with MNC's for joint ventures abroad to source certain vital raw materials or
products which are not available in the country so as to remain competitive
with others in the market and also vice-versa for export of Indian produce.
Therefore, to grow competitively in a business environment, the cooperatives
have to keep its eyes and ears open and be innovative to join hands with
MNC's at the appropriate time. That is how IFFCO is an example of innovative
cooperati ve society.

• Information Technology: The cooperative societies need to be networked

with the computer system for information flow and to be put on e-commerce
route of business for fast decision taking and marketing. This area needs a lot
of education and support to bring the cooperative ventures and the cooperative
network competitive in the economic liberalisation process. Basically for
carrying out a particular business a multi unit cooperative society is formed
with the membership of a number of primary cooperative societies at the
grassroots level. Therefore, for dissemination, sharing and adoption of latest
information technology is essential for the success ofthe cooperative movement.
All the primary cooperative societies should be provided with computer system
linked network with the apex cooperative society as well as with the internet
and other relevant agencies. The sharing of knowledge through networking of
cooperative will be a move in right direction and will be conducive to
cooperative principle. The cooperative societies will have to think for adopting
e-commerce system of business as well. With the economic liberalisation and
opening up of the markets under WTO provisions, the localised production!
marketing willnot suffice.

• Operational Transparency: Most of the Cooperatives today suffer from

charges of corruption, malfunctioning and non-transparent decision making.
The computerized system of working will have operational transparency of
business. Every member of the society will be able to know the status of their
20
 Evolution and Development
societies business, trend etc., and to give his suggestions to the society instantly.
of Cooperatives
The transparency in operation will also attract greater support from members
in decision making and increase the operational efficiency. The cooperative
ventures need to follow strict financial discipline and strong financial management
for not only profitability but also for its credibility in the financial market for
mobilisation of financial resources and decision making.

• Value Addition to Agri-Produce: Agro processing plants in cooperative

sector are needed a lot to minimise the wastages of perishable commodities
and improve its packaging and marketing for remunerative prices. A network
of cold storages along with food processing plants needs to be developed in
cooperative sector to avoid the losses of agriculture produce. It will be
worthwhile to note that because of the infrastructural and other constraints,
million of tonnes of perishable agricultural products in India are wasted every
year. Avoidance ofthese wastages will not only boost the economy but also
provide food to a large number of underfed human beings. Also in the season
of harvesting, they are sold at throwaway prices which at times do not bring
even the input prices for these items to the farmers. Therefore, ifthese produce
are kept in cold storages or proper warehouses the wastages could be minimised
and by selling it in off-season and also by adding value.through agro-proeessing,
better retums shall be achieved':

• Diversification: The cooperative societies in India need to come forward in

the health, insurance, irrigation sectors etc. These sectors are still not exploited
by the cooperatives where a lot of people are affected and could be utilised
for the well being of the members. For example, with the opening up ofthe
insurance sector in India, IFFCO is diversifying into insurance business which
will include providing insurance services to the farmers for their crops and
agricultural products etc. in addition to other areas,

Check Your Progress 2

Note: a) Use the space given below for your answers.

b) Check your answers with those given at the end of the unit.

I) Explain the cooperative credit structure in India.

2) Name the successful cooperatives in India which are closely linked to the
growth of livestock and agricultural sector.

21
Cooperatives
3) Explain the role of different forms of agriculture and rural cooperatives in the
economic developme t.

1.7 LET US SUM UP

I Lpe after reading this unit, you have understood the evolution of cooperatives
in developing countries, different forms of agricultural and rural development
cooperatives, successful cooperatives institutions in agriculture and rural sector.

Cooperatives have contributed greatly to the development of modem and

systematized agricultural production-base, helped enhance self-sufficiency of major
staple foods, and strengthened farmers household economy by facilitating market
access and competitiveness, adapting their operations to agricultural technological
innovations and encouraging democratic decision-making processes, leadership
development and educai.on. However, at the dawn of the 21 st century, new
issues and forces have been influencing the external and internal environment of
agricultural cooperatives worldwide. Some of these forces include: the restructuring
of the agricultural sector such as demographic changes and diversi fication of
member-farmers; highly advanced technological innovations; large-scale marketing
and changing consumer preferences; shifting intemational agricultural trade regime;
and globalization ofthe financial market.

The Cooperative Movement was introduced into India by tile Govemment as the
only method by which the farmers could overcome their burden of debt and keep
them away from the clutches of the money-lenders. The Cooperative Credit
Societies Act, 1904 was passed by the Government of India and rural creJit
societies were formed. Within a short period, the Govemment realized some of
the shortcomings of the 1904 Act and, therefore, passed a more comprehensive
Act, known as the Cooperative Societies Act of 1912. This Act recognized non-
credit societies also. But the rural credit societies have continued to be predominant
till now. Today, the cooperative movement has really come of age in this country.
Cooperatives like consumer cooperative, sugar cooperatives, horticulture
cooperatives, fishermen cooperatives, women cooperatives, credit cooperatives
and some of the business cooperatives have played significant role in the
transformation of agricultural and rural economy of the country. The success of
IFFCO, KRIBHCO, cooperative sugar factories, large-sized dairies establish
the fact that cooperative have the potential and experience to venture into large
industrial enterprises in the field of agro, horticultural and food processing. They
not only provided gainful employment to the rural masses but increase the income
of farmers in particular and rural masses in general. Cooperatives have played a
major role in integrating the village and national market to the international market
in the present scenario of globalization and liberalization of market.

1.8 KEY WORDS

22 APEDA Agricultural and Processed Food Products Export

Development Authority.
 Evolution and Development
Cooperative A form of organization where in persons voluntarily
of Cooperatives
associate together as human beings on the basis of
equality for promotion oftheir economic interest.

Liberalization of Opening of national economy at international market

Economy for free trade.

Management The task of the managers and the managing process in

the effective achievement ofpredetennined objectives
of an organization.

NABARD National Bank for Agriculture and Rural Development.

NCDC National Cooperative Development Corporation.

1.9 SOME USEFUL BOOKS/REFERENCES

Chengappa, P.G. and B. M. Shashidhara (1998). 'Impact of New Economic
Policy on Cooperatives' in 'India s Rural Cooperatives'. Gursharan Singh
Kainth (ed.), Regency Publications,New Delhi.

Deb, Alok Kumar (2006). World Cooperative Movement, WWW. Cooperative

Movement India. Corn

Dwivedi, R.e. (1996). 'Role of Cooperatives in Rural Economy'. Indian Journal

of Agricultural Economics, Vol. 51, No. 4, Oct.-Dec., pp. 713-727.

Eleanor, Margaret Hough, K. Madhava Das (1967). Cooperative Movement in

India (Ed). Oxford University Press ,506p

Kaith GS (1998). India's Rural Cooperatives/(Ed). Vedam Books, Delhi, 456 p.

Mukherjee, R. (1998). 'Credit Cooperatives in India s Rural Economy' in

'India s Rural Cooperatives', op. cit. pp. 147-158.

Paranjothi, T. (1984). 'Committee and Commissions on Cooperation'. Rainbow

Publications, Coimbatore, November, pp.79-90.

Samantaray, P.e.(2004). Hundred Years of Cooperative Movement: Emerging

issues and Challenges, Orissa Review, Dec. 2004, P. 7-12. (http://orissa.gov.nic.inl
e-magagine/orissreview/deczouq )

Thorat, Y.S.P. (2005). Key note address, Centenary of Indian Cooperative

Movement, Round Table on Cooperative Banking, Pune.

1.10 ANSWERSIHINTS TO CHECK YOUR

PROGRESS
Check Your Progress 1

I) Cooperative Society Act, 1904

2) The rural people need lot of services in daily life, which are met by village co-
operative societies. The village cooperative societies provide strategic inputs 23
Cooperatives
for the agricultural sector, consumer societies meet their consumption
requirements at concessional rates; marketing societies help the farmer to get
remunerative prices and cooperative processing units help in value additions
to the raw products etc. The cooperative societies in India in fact are playing
multi-functional roles both in rural and mucinareas. The industrial cooperatives
in the fertiliser sector, milk sector, sugar sector which have come up a long
way to compete with the big industries have maintained their structure of
primarily serving to the poor. -

3) After independence, the advent of planned economic development ushered in

a new era for the cooperatives. Cooperation came to be regarded as a
preferred instrument of planned economic development and emerged as a
distinct sector of the National Economy. It was specifically stated in the first
Five Year Plan document that the success of the Plan should be judged,
among other things, by the extent to which it was implemented through
cooperative organisations. In the sixties, special importance was attached to
achieving increased agriculturalproduction as well as rural development through
cooperatives.

Check Your Progress 2

1) The agricultural cooperative credit structure is broadly divided into two, one
dealing with the short-terms and medium-terms finance and the other with the
long-term credit. The short-term and medium-term credit structure is based
on a three-tier system, i.e., the Apex Cooperative Bank at the State level, the
Central Cooperative Bank at the districtltehsillevel and the Primary Agricultural
Credit Societies at the village level.

2) Cooperative institutions like Krishak Bharati Cooperative Limited

(KRIBHCO), Indian Farmers Fertilisers Cooperative Limited (IFFCO),
National Agricultural Cooperative Marketing Federation of India (NAFED)
and National Dairy Development Board (NDDB) etc., helped in transforming
the agricultural and rural sector into an instrument for the development of
India.

3) The rural people need lot of services in daily life which are met by village
cooperative societies. The village cooperative societies provide strategic inputs
for the agricultural sector, consumer societies meet their consumption
requirements at concessional rates; marketing societies help the farmer to get
remunerative prices and cooperative processing units help in value additions
to -the raw products etc. In addition, cooperative societies are helping in
building up of storage god owns including cold storages, rural roads and in
providing facilities like irrigation, electricity, transport and health. Thus, the
cooperative societies in India in fact are playing multi-functional roles both in
rural and urban areas.

24