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The Role of Cooperative Societies in the Economic

Development of India
A. M. Rananavare

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THE ROLE OF COOPERATIVE SOCIETIES IN

THE ECONOMIC DEVELOPMENT OF INDIA
by
A. M. Rananavare

A thesis submitted in partial fulfillment

of the requirements for the degree
of

MASTER OF SCIENCE
in
Economics

UTAH STATE UNIVERSITY

Logan, Utah

1964

PREFACE
The cooperative moveme n t, which sets it se lf the objec tive
of stre ngthe ning the position of economically wea ker groups
in socie ty can make real contri bution to the economic de v elopment of underdeveloped countries .

In an unde rdeve lo pe d

co untry, such as Indi a, grea t attention is given to the ways

an d means of stimulating economic growth, and th e i dea of
cooperation is looked upon as one of the means that contribute
t o this e nd.

This study provides a picture of the cooperative

moveme nt in India as it has developed since the passing of the

First Cooperative Act in 1904 .
I have endeavored to provide the highlights of the Indian
cooperative movement, such as its history and deve l opme nt,
kinds of cooperatives and the ir operations, and weaknesses
and suggested improv eme nts.
To Dr . L. J . Arrington, Professor of Economics, the
author ex presses deep inde btedness for his valuable suggestions,
encouragement, and fri e ndly supervision in the preparation of
this thesis.
Sincere thanks are exte nded to Professors E. B . Murray,

R. P . Collier, V. L . I s r ae lsen, N. S. Cannon, and G. A. Me yer

f o r the ir valuable suggestions and encouragement.

am

thankful to Mr. P . L . Sabnis and the Embassy of India for

sending useful material on this study.

Finally, many thanks to Mrs. Charell Harris who has

patiently typed the manuscr1pt .

A. M. Rana navare

GLOSSARY
1. Rs. = abbreviation for Rupee.
2. Indian Rupee = 219 U. S . money, approximately.
3. One lakh = 100,000
4. One crore = 10,000,000 rupees.
5. A district is a geographical subdivision comparable to a
large county in the United States .

TABLE OF CONTENTS
Chapter
I.

Page
COOPERATIVES
What are Cooperatives?
History and Principles
Difference Between a Cooperative and
Other Types of Business
Aims and Objectives

II.

INDIA

THE ORIGIN AND DEVELOPMENT OF COOPERATIVES

IN INDIA
Early Period
Brit ish Period
Since Independence

IV.

V.

l
2

6
7

General Background
Economic Background
Meaning and Importance of Cooperatives
in India
III.

9
11
14
16
16
16
21

THE KINDS OF COOPERATIVES AND THEIR OPERATIONS

24

Primary Agricult ural Credit Societies

Non-Agricultural Credit Societies
Primary Grain Banks
Primary Land Mortgage Banks
St ate and Central Cooperative
Associations
Non-Credit Cooperative Societies

25
28
29
29

ILLUSTRATIONS AND SIGNIFICANT STATISTICAL

DATA
The Punjab State Land Mortgage Bank
The Alumura Cooperative Rural Bank,
Ltd., Madras
The Gujarat State Cooperative
Marketing Society
The Poona Central Cooperative Bank, Ltd.
The Kudiraichandal Multipurpose Cooperative Rural Credit Society, Madras
State

30
32
36
36
39
40
40
41

TABLE OF CONTENTS CONTINUED

Chapter

Page
The Dooma Un1on Large-Sized Primary
Cooperative Agricultural Credit
Society, Ltd.

VI.

CENTRAL ORGANIZATIONS TO COORDINATE, CONTROL,

AND PROMOTE THE WORK OF COOPERATIVES
Government Agencies
Non-Government Organizations
Observations on the Role of Government

VII.

ACHIEVE~lliNTS

Economic Gains
Some Examples of Achievements
VIII.

DRAWBACKS AND PROBLEMS

Examples of Weaknesses
Management, Structure, and Operations

IX.

SUGGESTED IMPROVEMENTS
Economic Need .
Selection of Members
Management and Perso nnel
The Economic Unit .
The Question of Liability
Financial Operations and Credit Policy
Marketing Problems
Operating Standards
Coordination
Public Relations
The Government and Cooperatives

X.

CONCLUSIONS .
Significance of the Conclusions
LITERATURE CITED

42
51

52
54
55
60
61
64

67
68
77
82
82
83
83
85
85
86
87
88
90
91
92
95
99

100

LIST OF TABLES
Table
l.

Page
The cooperat~ve movemen t in India 1960-61.
Figures at a glance. Amounts in lakhs of
rupees

43

2.

Progress of cooperative so ieties

44

3.

Agricultural credit societies--all

India averages (amounts in rupees)

45

Composi ti.on of working capital of agric ultural credit societies (amounts in

lakhs of rupees) .

46

5.

Operations of non-agri ultural credit

societies during 1959-60 (amounts in
lakhs of rupees) .

47

6.

Position of non-agricultural cre dit

societies (amounts in lakhs of rupees)

48

Working apital of state cooperative

banks ( crores of rupees) .

49

Working capital of ce ntral

banks ( crores of rupees) .

50

4.

7.
8.
9.

10 .
11.

ooperative

Main agencies of rural credit and t heir

contribution to the total borrowing of
cultivators

69

Net result of the operations of cooperative

societies (amounts in lakh s of r u pees)

71

Embezzl emen t cases during 1960- 61

72

CHAPTER I
COOPERATIVES
What are Cooperatives?
The idea of cooperation is not new to man.
as man himself.

It is as old

Cooperatives are an almost universal form of

organization today found in practically all coun tries and used

by people in many ways.

The cooperatives are formed to

secure low cost credit, to purchase supplies and equipment for

farming and household needs, to market products, even to
secure many services, like electric power, irrigation, health,
and i nsurance.

Cooperatives can be used in many ways to

benefit people in the e veryday needs of lif e.

The meaning of cooperation is that isolated and powerless
individuals can, by combining with one another, achieve advantages available to the rich and the powerful so that they
may advance not only materially but also morally.

In other

words a cooperative is a business organization that is owned

by those who use its services, the control of which rests
equally with all the members.

It is voluntary and democratic

and the moral eleme nt is as important as the material one.

Furthermore, it recognizes social, educational, and community
values.
It is easier to understand the concept of the cooperat1ve
by know1ng its specific objectives.

They can be summed as

follows:
l) They aim to provide goods and services.
2) They aim to eliminate the unnecessary profits of
middlemen in trade and commerce.
3) They seek to prevent the exploitation of the weaker
members of society.
4) They atm to protect the

r~ghts

of people both as

produ ers and consumers .

5) They promote mutual understanding and education among
their members and people in general.
Mr. W. P. Watkins of International Cooperative Alliance
defines cooperation as :

"A system of social organization based

on the principles of unity, economy, democracy, e quity, and

liberty."

History and Principles2

England is the birth place of modern cooperatives.

The

weavers and other workers in the English textile industry were

1 united Nations, Food and Agricultural Organization,

Training and Extension in the Cooperative Movement (Rome,
1959), pp. 12.
2 This and the following section on Aims and Objectives
are based on the following references :
Irbid., pp. l-20.
IlK. K. Dewett and G. C. Singh, Indian Economics (12th
ed.; Delhi: Premier Publishing Co., 1962), pp. 163-189.
IIIM. A. Abrahamsen, and C. H. Scruggs, Agricultural
Cooperation (Minneapolis: University of Minnesota Press,
1957), Chapters l-3.
IVvera Anstey, The Economic Development of India (4th
ed.; London, Longman's Green and Co., Ltd., 1952), pp. 185-198.

among the first to organize cooperatives for the purpose of

improving their economic and social condi tions.

The mov e ment,

in its present form, dates from the founding of the Rochdale

Society of Equitable Pioneers by a group of twenty-eight
English workmen, c hiefly flannel workers.

They started on

December 21, 1844, a small shop in Rochdale, Lancashire, with

a small stock of flour, oatmeal , butter, sugar, and candles,
purchased with a capital of 28 pounds sterling.

This was a

success and it grew into a strong national movement.

It gave

the town's name to the basic rules, the Rochdale Principles,

which are known throughout the world.
These basic principles, although not actually enumerated
by Rochdale, were based upon the practice of the pioneers:
l) Open membership without restriction to race, religion,
sex, or political or other affiliations.
2) Democratic control, with one vote per member irrespective of the amount invested.
3) Limited return on the share capital, the value of the
share never to rise above par.
4) Savings made from the business to be distributed
periodically on the basis of the member's patronage.
5) Neutrality on the part of the association in political,
religious, and other related matters.
6) Business carried on by cash basis.
7) Goods and products handled at current market prices.
8) Education for continuous expansion.

4
The cooperative move ment based upon these principles,
with some modifications, started to spread out in Europe.

At

about the same, particularly in Germany, F . W. Raiff eisen

Associations and Schulze-Delitzsch "People's Banks" were
started .

From Germany the principles of cooperat ive credit

spread to many other countries--again, with some modifications

in form and method.
The growth and development of the cooperative movement
is noteworthy .

In Argentina, Denmark, and Norway the cooperative

marketing of farm products and the purchase of farm supplies

flourished.

In other countries, such as India, Pakistan, and

Rumania, numerous credit societies are found.

In Soviet

Russi a and other Communistic countries the cooperat ive movemen t was taken over as an instrumentality of the state and
used to serve its purpose.

The prime essential in these

countries, so that they could hardly be call e d true cooperatives.

In the United States the first known instance of consumer
cooperation occurre d in 1845, only one year after its beginning
in England.

A tailor in Boston, John Kaubach, started a

cooperative for joint buying and distribution of household

supplies for his labor union.

In relation to the population

and total retail and wholesale trade, the coope rative movement
in the United States has not attained the importance it has
gained in many other countries.

The most important group of

cooperatives in the United States consists of farmers' marketing and purchasing associations and credit uni ons .

5
During the World War II most of the cooperatives in
Europe suffered severe losses of facilities and members.
There has been a resurgence in recent years and it has not
only regained its prewar strength but has surpassed its
previous achievements.

According to a 1959 survey by the

International Cooperative Alliance, there are 153.3 million

members in half a million societies in 49 countries.
A few words should be said about this International
Cooperative Alliance.

It was founded in 1895 as an associ-

a ti on of national unions of cooperative societies to promote

cooperation based upon voluntary and mutual help .

At present

it has 100 national federations of cooperatives in about 50

countries with a total membership of 150 million people.
The cooperative type of organization is playing an
important role in the economic development of many countries.
The main features of the expansion of modern cooperatives are:
1) New forms and many varieties of cooperative societies
are developing.

There is practically no kind of useful

business that is not being done somewhere by a cooperative.

2) Special types of cooperatives within a region or a
country are organized at two or more levels.

For example,

in the United Kingdom early consumer cooperatives have joined

together to form a wholesale society.
3) Cooperative societies are spreading in all parts of
the world.
ence.

Very few countries do not have cooperatives influ-

Difference Between a Cooperative and

Other Type of Business
Befo r e en tering into a detailed discussion of Indian
cooperatives it is essential to know the difference between
a cooperative and other types of business organization.

The

major differences can be summed up as follows:

l) An ordinary business organization is essentially a
union of capital but a coope rative is a union of persons.
2) The main purpose of a business organization is to
maximize profits but a cooperat ive is organ ized to provide
service to its members at cost.
3) There may be a tendency for some corporations to limit
the number of owners, while cooperatives almost invariably
adopt an open membezship policy.
4) The control of a corporation is based upon the number
of shares held by an individual ( one vote for each share, so
that the one who has the most shares controls a corporation).
But in a cooperative society every member has one vote irrespective of the shares he has .
5) The dividend on a share depends upon the amount of
profit made by a corporation and the dividend policy of the
management.

In a cooperative, share capital is paid a fixed

and modest rate of dividend.

6) In a corporation surplus earnings belong to the
corporation, but in a cooperative society they belong to the
members.
7) A corporation divides its profits according to the
shares held; but a cooperat ive distributes its profit

according to patronage.
8) Corporation shares are traded in open market operation,
and are subject to spe c ulation; but cooperative shares are
held in the name of members, and are not traded for speculation.
Aims and Objectives
The principal aims and objectives of the cooperative
movement are :
1. Economic improvement:

Cooperatives seek to prevent

the exploitation of the weaker members of society.

2. Instrument of education:

Cooperatives are a continuous

source of education for the members.

For example, a credit

society teaches the proper use of money; a consumer cooperative

trains the members in what to buy, and the true value of goods;
a marketing society educates the producers in better methods
of production.
3. School of democratic living :

Cooperative organizations

use democratic procedures in their meetings, selection of

officers, and other matters of control.
4. Center for social harmony:

Cooperatives tend to

lessen the tensions of modern life and help people find a

common ground on which they can work together.
5 . Age of international understanding :

Cooperatives all

over the world understand one another easily becau se of their

belief in the same principles of justice and humanity.
6. Cultural, spiritual improvement :

Many people have

never known anything but poverty and insecurity.

Cooperation

can remove barriers that stand in the way of a better life .

CHAPTER II
INDIA
"Unity in diversity" is the keynote of Indian
l1ie. Multilingual, multiracial, multicultural,
and multireligious, India through the years has
woven into its life pattern multidimensional
values based on a belief in fundamental unity.
In the race-mix and the culture-mix that modern
India represents, rich contributions have been
made by different racial and cultural elements
of history. The Dravadian, the Aryan, the Mongolian, the Saka, the Hun , the Greek, the Semittic ,
the Western European, such as the British, the
French--all at one time or another, have added to
the "mixture" that is Indi an ci vilization .l
Many people do not take the trouble to go beyond
"Kipling's Indi a" and still think of Indi.a as a land of Sadhus ,
tigers, and snake charmers.

Modern India with all its poverty

aims at something quite different.

Changes in the economic ,

social, cultural, political, religious, and other aspects of

life are quietly being made, but with firmness and by a
de mocratic method, without any publicity and fanfare.

Let us

briefly look into India's general background--her history ,

culture, and religion--because Indian economic developme nt
depends to a considerable extent upon these factors.

1
William N. Loucks, Comparative Economic Systems (6th
ed . , New York: Harper and Brothers, P ublishers, 1961), p .
646.

General Bac kground2

India is a sub-continent with an area of 1,226,210 square
miles.

This area h as been divided into fifteen states, six

t erri t ories, and four special administrative areas.

A variety

of c limate ex ists in India from scorching heat to freezing

col d.

The Monsoon is the dominant f e ature of Ind ian c limate ,

which is unpredictabl e, and most of the farming land depends

upon it.
Historically Indian c ivilization is one of the oldest
and most highly developed civ ilizations of the world--dating
back to 3000 B . C.

The arts, crafts, a nd economic life in

those days were well deve loped.

The arc heological remains of

the Indus Valley and Mohe njodaro and Har appa are c lassic
exampl es.

During her history India has been repeat e dly invaded

by Aryans, Gree ks , Scy thians, Huns, Afghans, Turks, Moguls ,

Port ugu e se, French, Dut ch, and Britons.

With these invasions

new customs and traditions were brought in.

This is one of

the major reasons one finds in India a variety of separate

2Ge neral Background and Economic Background Sections are

bas e d on the following references:
Ip_ B. Lamb, Introduc ti on to India (Washington, D . C .:
Ameri can Association of Univers~ty Women, 1960).
IIThe Government of India, A Reference Annual 1962,
(Delhi, 1962) .
IIIThe Governme nt of India, India Today (Delhi, 1962 ).
IVM. B. Nanavati, and J. J. Anjaria, The India Ru ral
Problem (3 rd ed . ; Bombay : Vora and Company Publishers , Ltd .,
1947) , p. 175 .

10
societies with their own ways of life.
Modern India's history really starts when she won her
independence from Great Britain in 1947.
old India but a divided one.

But this was not

Since her independence India

has adopted a democratic form of government and has been one

of the stablest governments among the newly developing
countries of Asia, Africa, and Latin America.
a complex task of economic development.

She is attempting

Her aim is to raise

the standard of living of her teeming poverty-stricken millions,

to expand literacy, education, and greater equality of opportunity, and to establish an independent position in t he world.
One should remember that her means are democratic where the
value of dignity and freedom of the individual are recognized.
In a land of illiterates, the constitution provides for adult
suffrage.

Indian democracy is still in its infancy and she

has passed through many trials and tribulations.

No o ne can understand India without knowing about her
culture, religion, and society.

The et hnic history of India

is ext r e mely complex and racially distinct divisions between

people cannot be drawn .

The r e ligion of 85 percent of the

people is Hinduism, 10 percent are Moslems, 1.74 pe rcent are

Sikhs, and the r es t are Christians, Buddhists, Pars ees, and
Jains.

Hinduism plays the greater role in the social and

political life, and in the formation of basic attitudes.

The caste system is the distinct feature of Hinduism , but
after independence a vigorous program of social , political,
and economic reforms has caused o ld ideas to wither away.

ll
It is an important characteristic of Hinduism that it tends
to overcome competing religions by absorbing them and granting
their beliefs a place within its wide, heterogeneous scheme.
In this sense, it is amazingly and confusingly tolerant.3
These different ethnic and religious groups speak about
14 different languages with 200 dialects.

Hindi has been

adopted as the official language even thoug English will still

play an important role in the years to come .
Economic Background
Agriculture is the predominant component of the Indian
economy.

Fifty percent of the national income is derived

from agriculture and almost 75 percent of the people depend

upon it as their main source of livelihood.

The amount of

arable land per person is very small, and this land is

div i ded into uneconomic tiny fragmented pieces of land.
met h ods of cult ivation are stil l primitive.
s i mple iron p l ow is still used.
very limited.

The

A wooden or a

The use of ferti lizer is

Water and soil conservation, transportation

and communication, and marketing faci li ties are very poor.

Both agric ultural and industrial labor are c h aracterized by
l ow income and low living standards.
The Indi an standard of living is one of the lowest in
t h e world.

An average Indian has $68 per year to provide for

a ll his yearly wants .

The second most populous country in

the world, Indi a has a total population estimated to be

3Lou cks, op. cit. , p. 646.

12
450,000,000.
The average density of population is 312 per square mile.
The rate of population growth is 8 million per year.

This

tremendous increase in population is one of the greatest

obstacles to India's economic development.

Most of the

Indian people live in 558,089 rural agricultural villages

(those with less than 5,000 population).

Thus, rural develop-

ment is the key to India's prosperity.

Since her independence in 1947, India has attacked her
problems vigourously, even though the results are not up to
expectations.

The program for economic development has

included three plans designed to raise substantially the

social and economic conditions of the Indian people.

These

plans are intended to more than double the per capita income
by 1977.
In the first five year plan (1951-56), the emphasis was
put on agricultural and rural development, along with irrigation and electric power generation, and development of
transportation and communication.

During the second plan

(1956-61) emphasis was placed on industrialization, especially

the basic industries, education, and health.
The achievements of her first and second five plans
covering the period between 1951-60 were mixed.

National

income rose 40 percent, per capita income increased 19 percent,

industrial production jumped 70 percent, and agricultural
production increased 33 percent.
present time is about 40 percent.

The literacy rate at the

13
During the first plan, income r ose from $19.1 billion
to $22.7 billion, and investment constituted 7.3 p e rcent of
the net income.

Financia l difficulties, particularly the

balance of payments, were ex pe rienc ed during the second plan

and thus inves tment had to b e reduc e d.
The present third five year plan is in effect with the
total investment of $24.4 billion, but the lack of developme ntal capital and low level of consumer inc ome hamper more
rapid economic growth.

Inadequate transportation facilities,

e xpensive and limited power supplies, lack of skilled technicians and experienced management, and above all her population growth rate make the developmental task much more
complicated and hard.
Although a socialistic pattern of society is the stated
goal of the government, India does not want all her economic
life to be controlled by the government.

She has chosen,

rather a mixe d eco nomy with planned development and regulation.

Railways, radio, post, and telegraph facilities, arms and
ammunition factories, river development programs, insurance,
airlines, are nationalized, but 80 percent of the business
still remains in private hands.
The problems of India today can be summarized as follows:
1) The immensity of population growth is not controlled
all her plans will be futile.
2) Extreme poverty even judged by the standard of the
less developed countries of the world.

14
3) The attainment of economic and social development by
democratic methods.

This is an extreme ly difficult task

because of low income and the strong hold of religious

customs and traditions.
B. P . Lamb says with respect t o the Indian problem :
Though her problems are great her achievements are great. She contains elements of
strength, which are readily visible. But she
also has invisible assets of immeasurable value :
the enduring inner r es ilie ncy which Indian
civilization has shown throughout the ages.
Underlying the diversity of her diff ere nt
religions is a common cultural heritage.
Pricked and chall e nged by China, Indians may
come increasingly to realize that the bonds
which unit e Indi ans o f all religions are more
fundame ntal than the j eal o usies that divide,4
Meaning and Importanc e of Cooperatives in India
The meaning of coope ration in India is different because
of the extent to which government participates in the promotion
and control of cooperative societies .
The Indian economy is predominantly an agricultural one
with 75 percent of her population living with $68 per capita
income to spend on the wants for the whole year .

As indi-

victuals, they are weak econom i cally, with tiny fragmental

lands.

These people are not very susceptible to new ideas .

They have little desire to improve their standard of living.

The attitudes and outlook o f the people, their divergence in

Lamb, op. c it ., p. 48.

15
tradition, c ustoms, a nd habits hamper a r apid de v e lopme nt. 5
These illiterate and passive people must b e e nthused.
The private se tor does not want to

~nvest

in "social capital"

because it does not b ring any immediate profits in dollars

and cents.

Thus, in r u ral India where small farmers and

artisans are financially weak the gov er nme nt has joined as a

part ner.

On the other hand, the urban sector which is com-

paratively l ess weak , has been allowed to follow an independent

policy.

The main purpose of this rural and urban discrimination

is
to accelerate the pace of rural development by
providing outside stimu l a nt, so that the distinction betwe e n the two sectors is minimized .
This approach doe s not tamper with the bas ic
principles of cooperation but seeks to meet the
probl e m which confronts the underdeveloped
world.6
Cooperation would seem t o be one of the principal means
of bringing a change in the present econom ic and social
structure in India.

Its basic purpose is not only to improve

the mat eria l lot of the people but also it represents a source
of e du c ation for the members.

It emphasizes democratic living,

social harmony, international understanding, and cultural ,

spiritual improve ment s.

Ind ia n society whi h is so poor and

passive, dive rsified in traditio ns a nd

ustoms nee ds the kind

of training whi c h cooperation can prov ide .

5
G. M. Laud, Cooperat~ve Banking in India (1st e d .;
Bomb ay : The Cooperat~v~ Depot, 1956), pp. ix, x.

Ibid.

CHAPTER III
THE ORIGIN AND DEVELOPAffiNT OF COOPERATIVES IN INDIA
In the previous chapter the importance of cooperatives
in India was discussed, and it was intimated that cooperatives
can become an important tool for providing a balanced and
practical approach to the rural problem of India.

Now it is

necessary to take a look at the historical highlights of the

Indian cooperative movement and study the central organizations
involved in promoting the growth of cooperatives.

This study

will h elp in understanding the whole cooperative structure in

India.
The history and development can be discussed under three
major sections:

1) Early period, 2) British period, and 3)

Since independence.
Early Period
The origin of cooperatives can be traced back to the days
of the Moghul Emperors who used to make state loans to limited
agriculturalists.

In this early period attempts were made to

solve the problems of indebtedness, usury, and scarcity of

capital, even though there was not any coope rative society in
the modern sense.
British Period
Sir Frederick Nicholson of Madras Province is consi dered

17
to be the father of the Indian cooperative movement.

Even

before he was asked to look into the rural credit problem,

the British made state loans to cultivators.

This system was

inadequate and various attempts were made between 1871 and

1884 to improve the situation.

The most significant acts were

"The Land Improvement Loans Act of 1883" and "Agriculturalist

Loans Act of 1884," which provided loans for land improvement,
purchase of seeds and cattle, and miscel l aneous other agricultural purposes.

Since these measures were a ls o inadequate

to meet the challenge of growi ng indebtedness o n the part of

the rural population, the Madras Government asked Sir Fredrick
to look into the future of the rural credit problem and
recommend steps to be taken.

Hi s monumental report which was

published in 1895 was considered a Bible for Indi an cooperatives.

Sir Frederick recommended a s mall village b ank with
unlimit e d lia bility, to provide rural cre dit to the thousands
o f villages who were in need of loans for agricultural production.

Afte r a careful stu d y, the government of India

accepted th e recomme ndation, and the first Cooperative Socie ties Act was passed in 1904.

This was the real beginning of

the Indian cooperative mo v emen t .

This Act emphasized not only

the provision of credit but also thrift, self-help, and

reliance among cultivators and ot h e rs with limited income.
The rural societies were based o n the principles of Raiff e ison ,
and the urb an societies were to be based on Schulze de litzsch
mode ls.

This means village socie ti es had unlimit ed liability

18
and urban societies had limited liability.

A special govern-

ment official called the " Registrar of Cooperative Credit

Societies" was appointed in each province to organize and
control the new credit societies established under the new
law.
At the beginning, forty-one model societies were formed.
By 1911 the number had risen to 8,177, with a share capital
of Rs. 50.88 lakhs and a membership of 403,318.

This first cooperative law patterned after the German

credit societies was not adequate to cure India's rural ills
because it neglected to establish a central agency to supervise both these cooperatives and the supply of capital.
Furthermore, the division of the credit societies into rural
and urban was inconvenient.
In 1912 the second cooperative Act was passed to remove
deficiencies in the Act of 1904.
vided:

This new Act of 1912 pro-

l) The formation of banking unions and central and

provincial banks for supervision, audit, and supply of credit;

2) other forms of cooperative societies (production, sales,
insurance, housing, etc .) were recognized; 3) the previous
rural and urban classification was omitted and the new
classification was based upon whether liability was l im ited
or unlimited.
This new law stimulated the growth of cooperative
societies in India.

Up to this time loans had been granted

lvera Anstey, The Economi Development of India (4th ed.;

London, Longman's Green and Co., Ltd., 1952), p. 190 .

19
only for produ tion purposes, but the new policy allowed
granting loans to the members to

onsolidate their d bts.

Both agricultural and industrial societies sprang up, even

though the dominance of rural credit societies still preva1l d.
The new societies were established for the purpose of sell1ng,
production, insurance, purc hasing, et .

There were 15,000

so i et ies, and 700,000 members with working capital of Rs.

7.5 crore s.

A committee under the direction of Si

Edward Maclagan

was appointed in 1915 to review the progress of the cooperati ve

movement.

It found that people looked at the cooperative as

another government agency and took it for granted that the

government was a guarantor of the movement even though th
purpose was to make these societies independent.

It also

found that, with the exception of the Punjab Agric ultural

Societies , there was little success in obtaining deposits.
The committee recommended the elimination of those
societies which did not live up to the principles of cooperation and make repayments on time.

Under new reforms (1919)

cooperation became a matter for the provincial government .

Under the provin ial minister the cooperatives made rapid
strides in the 1920's because of greater flexibility.

Still,

the financing was done by the government, and cooperatives

were almost force d upon villages without the support of local
people.

This rise in cooperatives was not accompanied by

2Anstey, op. cit., pp. 191-192.

20
improvement in the quality of the cooperatives.

According

to a Royal Commission in 1928, societies were registered

fre ely, but members were lacking in understanding of cooperative principles.

It was not recognized that efficiency

depended upon the zeal and skill of the officials and members
of the societies.
Again the great economic depression of the 1930's was a
serious setback to cooperative development in India.

Accord-

ing to the 1931 census, 106,000 societies existed, with 4.3

million members and Rs. 92 crores of working capital.

But the

depression left productive assets frozen; repayments were slow

and debts mounted.

Twenty-four percent of the societies were

liquidated and 28 . 9 were unfit to carry on operations.

Only

80,118 primary societies managed to live through the crisis .

The government of India, when cooperatives became a state
concern under the 1919 reform, took an active interest in promoting the growth of the cooperative section.

The Agricultural

Credit Department was established in the Reserve Bank of India

in 1935 to provide greater assistance to cooperatives.

During

and after the war period the cooperative movement recovered

from its setback.

In fact, it embrace d such activities as

food production, distribution, marketing, housing, land

colonization, small scale industries, and rural rehabilitation.
High agricultural prices due to the war improved the
financial positions of cooperative societies.

At the end of

June 1940, 1,17,000 societies were registered with 105 crores

21
of working capital and 5.1 million members.3
Since Independence
When India became a free country in 1947, its government
embarked on new ways and means to bring a rapid economic
development.

Cooperation was considered to be one of the

principal means for bringing about changes in the social and

economic structure.

Cooperation in India was something more

than a series of activities organized on cooperative lines . .

Its main purpose was to evolve a scheme of cooperative community organization which would touch upon all aspects of life.
In a country whose economic structure has its roots in the
village, cooperation was and is still considered one of the
primary means for raising the level of productivity, extending
improvement in technology, and expanding employment. 4
Thus, since 1947 cooperatives were given an important
place in national planning.

The cooperative movement made

further progress during the 1950's, particularly in the field

of credit where the Reserve Bank of India was asked to provide
greater assistance,

At the beginning of the first plan

(1950-51) there were 181,000 cooperative societies with working

capital of Rs. 2,800 million and memberships eighty-four times
as great as in 1906. 5

4"Third Plan in Outline-XVII, Cooperation," India News.

December 7, 1962, p. 4.
5The Government of India, Planning Commission, The New
India (1st ed.; 1958), p. 203.

22
Agricultural type soc i e ti e s were more than 70 pe rcent
of the total but there we r e consumer cooperatives, housing
s ocie ties, and processing factories.
creased in number.

Urban banks als o in-

The total allocation of the second plan

was Rs. 47 crores, as against Rs. 7 crores in the first plan.

The third plan makes a pr ovision of Rs. 80 crores for the
development of the cooperative sector. 6
Both the central gove rnment and state government took
active part in the promotion of cooperatives.

The Committee

of Direction appointed by the Re serve Bank of India in 1951

surveyed the rural cre dit structure and published its report
in 1959 .

This study r e v e aled that only an insignificant 3

p e rc e nt of the money borrowed was furnished by these cooperativ e s.

It recommended a series of steps to improve cooper-

ative efficiency.

In 1956 the Agricultural Produce and Ware-

housing Corporation Act was passed to promote cooperative

activities in general and assist in processing, marketing,
7
and warehousing.
In 1958, the National Development Council recommended
that cooperatives should be organized on the basis of the
village community as primary unit, and responsibility for
the social and economic development was placed at the local
level.

Nearly 38 percent of the population was served by

6 Ibid., pp. 205-206.

7 The Government of India, The Ministry of Information and
Broadcasting, India, 1962 (Delhi, 1962) , p . 256.

23
cooperative societies in 1959-60.
cooperatives.

By 1961 the r e were 3,32,488

Membership grew to 352 lakhs, working capital

to Rs. 1312 crores .

Loans advance d Rs. 380 crores.

Primary

agricultural credi t societies grew to 212,129, primary nonagricultural credit societies to 11 , 995, and non-cre dit
societies numbered 98,060.

CHAPTER IV
THE KINDS OF COOPERATIVES AND THEIR OPERATIONS
Since the passing of the first Cooperative Act of 1904,
Indian cooperatives have widened in variety and content.

At

present one can find every type from a simple village society,
to a multi-purpose large scale society, and federated associations of complex nature.

Since more than 80 percent of the

Indian population lives in agricultural villages, it is

logical for agricultural cooperative societies to occupy a
major segment of the cooperative sector.

For the sake of

discussion, coope rative societies will be divided into two

main categories:

1) Credit societies, and 2) non-credit

societies.
Credit has been always a serious problem to millions of
Indians, especially to rural populations.

Since the passing

of the Cooperative Act of 1904, many attempts h ave been made

by the government of India and all the state governments to
provide credit through cooperative and other means.

Most of

the cooperative credit is channeled directly and indirectly,

through primary, central, and state cooperative societies.
Let us examine first the primary credit societies which come
under four headings :

1) Agricultural, 2) non-agricultural,

3) grain banks, and 4) primary land mortgage banks .

25
Primary Agricultural Credit Societies
This village society is the most important society in
India's cooperative structure.

When Raiffeisen started his

first village bank in Germany, its operation was confined to

a village.

Everybody stood on the same footing and joined

together to promote the common purpose of encouraging thrift

and provide finance for needy people.

In his monumental

report of 1895 Sir Frederick Nicholson recommended village

banks to promote thrift and credit, and at the present time
the village bank is still considered to be an important
instrument in planning agricultural development and village
prosperity.
A primary society, like all other cooperative societies,
is registered under the law relating to cooperative societies
as it prevails in the state where the society is established.
Its organization and functioning are governed by the state
cooperative laws.

Its consti tution, aims, functions, procedures,

method of working, source of funds, manner of utilizing earnings,

and deposits, etc., are all laid down in the society's by-laws.
The by-laws are framed at the time of its registration and
approved by the Regist rar of Cooperative Societies.

The

changes in by-laws have to be passed by the general body and

again approved by the Registrar of Cooperative Societies.
As a cooperative society , a primary cre dit society has
to satisfy certain cooperative principles.

It should conform

to the community interest motto of mutaul service, democratic

management, and one man one vote and should promote thrift and

26
savings.

Constitutionally, a primary society has a general

body, co nsisting of it s members, a managing committ ee electe d

by the general body , and the paid or honorary secretary.
Al though final authority rests with the general body, the dayto-day opera tions are carried on by the managing committee and
the secretary.
A primary society is usua lly formed by 10 to 100 persons
and its operations are limite d to a village.

The liability

of members is usually unlimited, thus inspiring confidence in

the minds of outs iders.

Mutual control and supervision are

easier because of the close r association among its me mbe rs.

The working capital is compr is e d of entrance fees , depos its,
and share capital, if a ny . The loans and deposits are o btainable from the governments and other federal cooperative
ass oc iations .
A recent analysis of the ratio of de posits to working
capital was less than 6 percent in ll states.

This shows

utt er dependence on outside finance, especially from the

government .

Loans are usually short-term given on security

of property.

A limited number of societies furnish medium-

term credit, and some supply seeds and insecticides.

The

loans are usually for productive purposes but moderat e amounts

are grant e d for personal expenses like marriages and old debts.
The rate of interest varies from ll percent to 12 perce nt, and
in some places 21 percent .

A society without share capital

has to c r edit all of its profits to its reserve funds and

others with s hare capital credit 15 perce nt of their profit

27
to the reserve fund.l
At the end of 1960-61 primary agricultural credit
societies numbered 212 , 129 , with a working capital of more
than Rs . 273 cro res and membership of 170 lakhs.
pertinent dat a for 1960-61 is as follows:

Other

Average number of

members , 80 ; average share capital, Rs. 2,722; average

deposits, Rs. 688; average working capital, Rs. 12,913 ;
average loans advanced per member Rs. 119; average loans
advanced per society, Rs. 10,000; and average overdues as a
percent of loans, 20.3 percent.2
Another development was the formation of large scale
primary credit societies which draw membership from a wider
area.

The purpose was to eliminate weak and inefficient

societies .

But in 1959 the government of India went back to

single village societies on the grounds that local interest

disappears with the large scale societies.

The primary

objective of such a large scale society is to mobilize and

pool rural saving for productive purposes.

These types of

societies still exist in India even though the number of such

societies decreased to 7,943 by 1961.

But membership and

operations showed an increase in the same period.

The total

membership increased to 33.20 lakhs with working capital of

1 K . K. Dewett and G. C. Singh, Indian Economics (12th ed. ;

Premier Publishing Co., 1962), p . io9.

Delhi:

2
Reserv e Bank of India, Statistical Statements Relating
to the Cooperative Movement in India (Bombay, 1962), p. iii.

28
Rs. 83.01 crores.

Also there is a trend towards the multi-

purpose society. 3
Both primary and large scale agricultural credit societies
compr is e about 80 percent of all cooperative societies .

This

indicates that short-term and medium-term loans are wanted

by agriculturalists.
Non-Agricultural Credit Societies
Non-agricultural credit cooperatives are generally formed
in urban areas with large membership, limited liability , and
high dividends.

The most common of these are urban credit

cooperatives, suc h as cooperative banks , housing societies,

consumer stores, employees societies, and life insurance
societies.

Their primary purpose is to provide thrift and

to grant loans to members at reasonable interest rates .

More th an 12,300 credit cooperatives in the non-agricultural section are in operation covering about a third of
the urban popu lation.
progress since 1957.

These societies have recorde d a steady

They have a membership of 50 lakhs with

working capital of Rs. 1648 crores and loans advanced Rs . 161 . 6

crores.

The total deposits in the non-agricultural sector

rose from Rs . 35 crores in 1950-51 to Rs. 103 crores in 196162.

Deposits during the same pe riod formed 62 percent of the

working capital as compared t o 6 perce nt of the agricultural

3Ibid., iii, 15 .

29
credit societies. 4

This s hows the strength and independence

of the non-agricultural credit societies.

The cooperative

movement in the urban sector shows much strength because of

stable incomes, and people are more educated and responsive
to the principles of cooperation.
Primary Grain Banks
This is another type of primary credit society which is
organized to provide loans to members until next harvest, to
accep t deposits of grains, and arrange for its storage.

Most

of the grain banks were operating only in four states-Maharastra, Adhra Prades h, Mysore, and Orrisa.

During the

year 1960-61 there we r e 9,412 societi e s with a membership of

12.49 lakhs, and a working capital of Rs. 5.35 crores.

Loans

advanced by them during 1960-61 amounted toRs. 2.03 crores

while those outstanding were of the order of Rs . 359 crores.
The overdues at Rs. 1.79 crores constituted 50 percent of
the outstanding.

Primary Land Mortgage Banks

The first land mortgage bank was organized in 1920 in
the state of Punjab.

The main purpose of such a bank is to

provide long-term loans to purchase land and help cultivators

liquidate the old debts.

There has not been a substantial

4 newett and Singh, op. cit., p. 167.

5

Reserve Bank of India, op . cit., pp. VI, VII .

30
increase in the primary land mortgage banks since 1957 because
of lack of accurate assessment of the value of the land
offered as security, annual repaying capacity, and uncertainty
of crops.

This type of society enjoys a number of concessio ns

and privileges in the way of reduction in registration fees,

staff to help chec k loan applications a nd evaluate property,
etc .

In 1959-60 only 33 more primary land mortgage b anks were

added , bringing the total to 339. 6

State and Central Coo pe rative Credit Associations
Central cooperative banks and banking unions , ce nt ra l
land mortgage banks, and state banks are incl uded in t his
section.
Ban king uni ons
The membership is open only to the soc i e ti es.

This

federal society is forme d to organize, supervise, and finan ce

primary societies.
membe r societies.

These federations are managed by the

They usually act as a guarantor for loans

made by central banks to the member societies.

the membe r societies.

Some supervise

They also act as an intermediary agent

between the primary societies and central financing institutions.

During the year 1960-61 138 district unions were

functioning.

31
Central cooperative banks
The membership is open to the societies and to individuals.

Usually the operation is confined to a district

(large U. S. county) and primary credit societies and largescale credit societies are federated into a distinct cooperative bank.

The central banks have been organized since 1912

to finance and supervise the primary credit society members.

They also accept deposits, collect bills, etc .

In 1960-61,

there were 390 central banks and banking unions with a working
capital of Rs. 304.05 crores and membership of 388 lakhs .
Loans advanced by central cooperative banks rose to Rs. 354.88
crores, representing a 19.3 percent increase.

Overdues in

1961 formed 12.5 percent of the outstanding loans. 7

Central land mortgage banks
The purpose of the central land mortgage society is
similar to that of a primary land mortgage bank-to help
finance purchase of land.

The number of central land mortgage

banks during 1961 was 18, with share capital of Rs. 4 . 33 crores
and working capital of Rs. 47.60 crores.

The long-term loans

outstanding during the same period were Rs . 36.61 crores. 8

State cooperative banks
There were 21 state cooperative ban ks in 1961.

Apex

banks, finance, coordinate, and control the working of the

Ibid., p. 1.

8Ibid.

32
central banks in each state.

These b an ks are finance d both

by the Reserve Ban k of India and state government 1n eac h

state .

They act as central banking agency of t he cooperati v e

financing.

In 1961 there were 21 b an ks with a working ca pital

of Rs. 221 . 65

rores.

Th e advances of the state

ooperative

banks in 1961 were Rs . 258. 20 crores , s hort - term loans and

long-term loans amounted to Rs . 246.97 crores and Rs . 11 . 25
crores, respectively .

Overdues were Rs. 6 . 97 crores .

Non-Credit Cooperative Societies

Non-credit societi es occupy an important place in the
coopera tive sector of the economy eve n though dominance of
agricultural credit cooperati ves prevails .
Marketing and supply socie ti es
Bombay was a pioneer in orga nizing cooperative marketing
societies, with the cotton sale societies of Gujarat and
Karnatak occupying first place.

During the period 1960-61

3,108 marketing societies were registered with a membership

of 1,467 , 622.

Share capital Rs. 7.49 crores and working

capital of Rs. 28.21 crores, loans advanced amounted to Rs .

20.76 crores, purchases of Rs. 63 . 81.

Their sales as owners

and agent were at Rs. 41 . 21 crores and Rs. 4292 crores, respectively.

(Besides there were 24 and 171 state and regional

marketing societies.)lO

9 Ibid .
lOibid . , IV .

These societies market such items as

33
dairy products, specialized food grains, cotton, var1ous
fruits, vegetables, fertilizers, etc.
Processing societies
These societies usually engage in processing such products
as cotton, sugar, peanuts, rice, and coffee.

One will find

cotton ginning in Maharastra, Mysore, and Kerala ; sugar

refining factories in Maharastra and other states; peanut
processing, paddy (rice) husking; and coffee curing in Madras
and Madhya Pradesh.

In 1961 there were 66 cooperative sugar

factories, 128 cotton ginning and processing societies, and

about 3,103 were engaged in paddy husking and oil crushing.

11

Cooperative farming
Societies include l) better farming societies, 2) tenant
farming societ i es , 3) joint farming societies and collective
farming societies.

Each of the kind indicates its purpose.

There were 6325 cooperative farmi ng societies, of which 2080

were joint farming, 1109 collective farming, 1097 better
farming, and 2094 tenant farming societies. 12

Cooperative

farming societies represent a very insignificant proportion

of the total number of agricultural non-credit societies.
The Indian farmer,

in common with farmers elsewhere, has a

deep attachment to his own land.

34

Other maJor agr1cultural non-credit societ1es 1n lude

irrigation societ1es and fisheries soc1eties.

Thus agri-

cu ltu ral non- redit coopera tive societies are primar1ly co ncerned with agri ultural operat1ons suc h as pur hase of seed,
manure, implements, and machinery, irrigation facil1t1es ,
co nsolidation of holdings, cooperative farmi ng , c ooperative
marketing, and supply , social service , housing insurance,
land reclamation, crop protection, cattle breeding, etc.
Non-credit agricultural credit societies have not developed
like credit societies for several reasons.
did such societies start to form.

Only after 1 9 12

Furthermore , illiteracy ,

industrial backwardness, and cre dit soc ieties covering noncre dit activities s l owed their de v e lopment.

During and after

World War II, be cause of h ig h agricultural prices , these

societies showed remarkable progress, but in recent years
these societies have shown a decline e xcept cooperative
marketing.
Non-agri ultural and non-credit societies are generally
comprised of industrial societies such as weavers societies ,
spinning mills, consumer stores , housing societies , production
an d sales societies, social service societies, a nd l abor
cooperatives.
Consumer societies
During World War II this type of society made progress
because of black-marketing and high prices.
also encouraged this development.

The government

These societies carried

the d istribution of rationed articles .

After 1 951-52 they

35
re e1ved a set back because of the lifting of controls on
food grains a.nd other necessities .

The number of pr1mary

and wholesale c onsumer soc1et1es in 1961 was 75 a.nd 7059 ,

respectively , w1th a membersh1p of 13.67 lakhs and work1ng
c apital of Rs . 11.82

rores.

Pur hase an d sales amount e d

to Rs. 54.07 crores and Rs. 60.06

rores , respectively . 13

Industrial coope r a t1ve so c iet1es

Most important of these are weaver's societies.

Others

have been formed by tanne s, smiths, potters, oil processors ,

beekeepers and wood workers.

The main purpose is to encourage

small s ale and coltage industries .

During the year 1960-61

there were approximately 33 , 000 societ1es with a membership

of 16 lakhs and working capital of 50

rores.l4

Housing societies
Ho us ing societies numbered about 6458 in 1961 with a
membership of 3.81 lakhs and working capital of Rs . 57 . 83
crores.

The value of the houses construct ed during 1960-61

was Rs. 27.92 crores.

13

Ibid., vii

14rbid.

37
state

ooperattve l and mortgage and th

)4 primary cooperatt ve

land mortgage banks 1n the state ts Rs . 3.84 crores , of wht h

Rs. 1.22 is a .counted for by debentures. 1
Several hundre d voluntary cooperat1ve farming soc1ettee
are scattered throughout Jn.dJ a.

Th ough voluntary, they are

not necessarily the spon taneous ere ttons of indtvidunl

cu ltiv ators and all are suppor t e d by the government with
fairly ge nerous amounts.

The followtng ts an excepttonal

example of this type of cooperattve near Baroda.

A family of three brothers farming about 60 hectares of
land farm a cooperative with t hei r tenants and neighbors.
Liability is unlimited.

The membership is 29 and the land

pooled is 177 hectares .

The land is transferred to the

society by owners and tenants for 10 years .

At the en d of

10 years any me mber with no dues outstanding can withdraw

his land by paying fo r the improvements made by the

on h is pie e of land.

ociet

A rent is paid to the owner not

exceeding 6 pe ce nt of t he value of the property.

The tenant

pays rent to the so .iety, but at rat es not exceeding one-sixth

of the annu a l crop production.

Members are not allowed to

cultivate 1 nd not bel onging to the society.

and implements are valued
at 3 percent.

Work animals

s share capital, beari ng interest

Milk catt le are considered as the individual

property of members .

The 1 nd is pool e d and worked as a

1 "Coops in the Punjab," The Hindu Wee kly Review , December

16, 1963, p. 11.

38
single farm, d1vided 1nto e1ght blocks for management purposes .
A management committee is ele ted and appoints a manager and
supervisor from among the members.

Adult members

nd the 1r

families are pa1d Rs . 1.8 a day as against Rs . . 75 a d ay

average rate .
manager Rs. 4.

The supervisor receives Rs . 2 a day and the

There are four permanent non-member laborers.

A general plan of work is drawn up by the

ommittee.

The

manager and supervisor are responsible for carrying out the

plan.
The government has given substantial aid to th1s soc1ety.
There are no overdues.

On formation the society took over

all existing debts of the members and discharged them out of

wages due.

Members are not allowed to borrow further for

their personal needs except from the society.

Aft er the payme nt of operating expenses, 25 percent of
the s u rplus is placed in a reserve fund, 20 per ent go s

a common good fund, 10 percent to employees bonus , and the

rest is divided 40:60 in ownership and wage dividend .
Since the formation of the society the yield has

~n-

creased by 25 percent, the value of produce has doubl e d ,

individual incomes of land holders hav e increased from 15 to
50 percent .

The society provides, free of

barge, medical

aid to its members, education for their chil dren , fruit and
vegetables for home consumption, grass and fodder for the
2
cattle.

2 The Un1ted Nations Food and Agricultural Organ1zation,

Cooperatives and Land Use ( Rome, 1957), p. 45.

39
This is one of the v e ry rare examp l es of a successful
voluntary cooperative farming society.
Transportation is another field in which cooperation has
shown good results.

A taxi cooperative started in Calcutta

in 1961 with 20 taxis has worked efficiently and has encouraged

the taxi drivers to f orm similar type s of transportation
cooperatives.

The scheme of taxi cooperatives has bene fited

not only the drivers, but also the residents of Calcutta.

The introduction of taxi cooperatives has been a stabilizing
force in the transportation system of Calcutta, and has
eliminated the possibility of a taxi drivers ' strike.

This

has eliminated middlemen and the high rate of interest on

capital under the hire-purchase system.

The cooperatives are

operating more economically than private taxis.

These taxi

cooperatives plan to start a service station, and a shop for

sale of spare parts and accessories. 3
The Alumura Cooperative Rural Bank Ltd., Madras
This society operates in 12 villages within a radius of
5 miles of the town.

In 1948 members were 3,749 and the share

capital amounted toRs. 59,771.

The bank is a member of the

local Cooperative Central Bank.

Each member can borrow only

up to the maximum of Rs. 2000 and it is based on Rs. 10 per

share.

No member can hold more than 200 shares.

Loans are

granted on the security of deposits, on mortgage of property,

3 " Coops Made Good Progress," The Hindu Weekly Review,

November 18, 1963, p. 10.

40
on the pledge of government papers or gold ornaments, on
produce and against collateral security of standing crops
maturing for harvest within one month.

Short-term loans are

issued on the security of land and other fix e d assets. 4

The Gujarat State Cooperative Marketing Society
The Gujarat State Cooperat iv e Marketing Society has a
membership of 225 societies with paid-up share capital of
Rs. 15.33 lakhs, of which the government share is Rs. 7 lakhs.
Its reserve and other funds amount toRs. 3,55 lakhs and
borrowing Rs. 40.8 lakhs .

The society has been appointed as

state wholesale distributor of fertilizers.

and imports dry fruits.

It exports pulses

It has also been appointe d supervisor

for the state under the cotton supervisory scheme of the union
government during 1962-63.

The society purchased cotton worth

Rs. 2 . 84 crores and its sales amounted toRs. 2.85 crores.

The Poona Central Cooperative Bank, Ltd .
The Poona Central Cooperative Bank, Ltd., has its headquarters in Poona and 20 branches in the Poona District,
Maharastra State.

The membership is composed of 999 societies

and 5,500 individual members.

The paid-up share capital is

Rs. 23.5 lakh, of which Rs. 10 lakhs are government contributions

5 "Gujarat 's Strides in Cooperation," The Hindu Weekly

Review, August 3, 1964, p. 10.

41
to the share capital.

It has a 27 member board of d1rectors

representing the societies, the individuals, and the government .

The bank provides ag icultural credit and a l1mited

amount of credit for industrial cooperatives.

Sugar cane 1s

the principal cash crop in the area and roughly 25 percent

of this crop is grown by member cooperatives' sugar factories.
During 1959 the bank loaned Rs . 16 lakhs to 2989 members for
the production of potatoes on 3,338 acres.

Short-term agri-

cultural credit loans outstanding as of 1959 amounted toRs.

204 lakhs, medium-term agricultural loans toRs. 24 lakhs, and

non-agricultural loans to 12.9 lakhs.

The Kudiraichandal Multipurpose Cooperative

Ru ral Credit Society, Madras State
This rural credit society with unlimited liability serves
four small vilages with a membership of 102, a share capital
of Rs . 498, and a reserve fund of Rs . 2 ,359.

It is a me mber

B ~ nk,

the Cooperative

of the South Arcot Cooperative Central

Central Store Society, and of the Agricultural and Industrial

Cooperative Society .

This society deals in chemical ferti-

lizers, handloom cloth, iron and steel and salt.

It suppl1es

credit for the purchase of articles for agricultural ne e ds ,

for iron implements and manure, for cloth and food.
vidual member can borrow up toRs. 500.

The indi-

This society was

6 M. A. Abrahamsen, A Look at Agricultural Cooperatives

in India, U. S. Department of Agriculture, FCS C1rcular 28
(Washington, D. C.: U. S . Government Printing Office, 1961) ,
p. 22.

42
first r eg istered in 1910 and for many years continued its
activity to credit, building up in the process a small
r ese rve .

Only since Worl d War II has it expanded its

activities, covering the e ntire nee ds of a cultivator.

The Dooma Uni on Large-Sized Primary Cooperative
Agricultural Cred1t Soc1ety, Ltd.
The Dooma Union Large -Siz e d Primary Cooperative Agricultural Credit Society, Ltd. was o rganized in 1957 in Wes t
Be ngal to provide loans to me mbers for productive and other
us ef ul purposes , to procure and supply agricult ural and
domestic requireme nts, and to engage in bet ter marke ting.
It operates in an 11-square -mile area and has 498 members.
Ninety percent of the me mbers are agriculturalists. 7
Authorized share capital
capital is Rs. 13,276.
its members in 1959-60.

is Rs. 60,000, paid-up share

It advanced loans o f Rs. 20,125 to

It provides irrigation services and

operates a shop for supplying food grains and f ertilizer . 8

7 The United Nations Food and Agricultural Organization,

Cooperative Thrift, Credit and Marketing in Economically
Underdeve lop e d Countr1es (Rome, 1952), p. 48.
BAbrahamsen, op. cit., p. 32.

Table 1.

The cooperative movement in India 1960-61.

of rupees

Type of society
I. An societies

II. Credit societies

A) Short-term
1. State coop. banks
2. Central coop.
banks
3. Primary credit
societies of
a. agricultural
b. grain banks
c. non-agri.
B) Long-term
1. Central land
mortgage banks
2 . Primary land
mortgage banks
III. Non-credit societies

Source :

Figures at a glance.

Amounts in lakhs

Value of goods

Number

Membership
(in
Working
thousands) capital

Loans
advanced

Received or
produced

3,32,488

3,51,94

13,12,09

379,84

346,92

518,89

21

50

221,65

258,20

390

3,88

304,05

354,38

2,12,129
9,412
11,995

1,70,41
12,49
45,73

273,92
5,35
150,11

202 '75
2,03
130,37

48,90

51,11

18

2,74

47,60

11' 62

463

6,69

26,99

7,17

98,060

1,09,70

282 '42

43,89

-5,05

292 ,97

Sold

--

5,98

461,80

Statements Relat ing to the Cooperative Movement in

~
(..>

Table 2.

Progress of cooperative societies

1957-8
Percentage
No,
to total

Items
l

Credit societies :
Agricultural a
Non-agricultural
Non-credit societies
Agricultural
Non-agricultural
TOTAL

1958-9
Percentage
to total
No .
4

1959-60
Percentage
No.
to total
6

176
10

68.9
3.9

193
11

68.0
3 ,9

213
11

68.1
3 ,5

32
38

12 ,4
14.8

30
50

10.5
17 . 6

32
57

10.2
18,2

256 100.0

284

100,0

313

100,0

aincluding grain banks

Source : Reserve Bank of India , Review of the Cooperati ve Movement in India
1958-60 (Bombay, 1962) ' p, 13 .

""

""

Table 3.

Agricultural credit societies--all India averages

(amounts in rupees)

Item
l. Membership per society

2. Working capital per society

1959-60

1960-61

71

80

11,011

12,913

2,312

2,722

32

34

585

688

117

119

3. Share capital
( i) per society
(ii) per member

4. Deposits
( i) per society
(ii) per member

5. Loans advanced per member

Source :

Reserve Bank of India, Statistical Statements Rela ting

to the Cooperative Movement 1n Ind1a 1960-61 (Bombay ,
1962), p. IV.

.;..

c.n

Table 4.

Composition of working capital of agricultural credit societies

(amounts in lakhs of rupees)
1957-8

Item

Amount

Working capital
Owned funds
Deposits
Other
borrow i ngs
Source :

1958-9

Percentage
to total
3

1,33,75

100

Amount

1959-60

Percentage
to total

1 , 70 , 94

100

Amount

Perce ntage
to total

2 , 23 , 70

100

42 ,3 7

31.7

51 , 74

30.2

62,97

28 . 1

8 , 64

6.5

9 , 88

5.8

11 , 86

5 .3

82 , 74

61.8

1,09,32

64 . 0

1,48,87

66 . 6

Reserve Bank of India , Review of the Cooperative Movement in India

1958-60 (Bombay , 1962) , p. 15 .

,.a>

Table 5,

Operations of non-agricultural credit societies during 1959-60

(amounts in lakhs of rupees)

State

Number

Membership
(in
thousands)

Deposits

Working
capital

Loans
advanced
during
the year

Maharashtra

1,515

10,17

24,19

41.72

38,00

West Bengal

627

6,86

21,48

29,02

20,32

Madras

869

7,15

7,93

16,81

18,15

Gujarat

795

3,52

8,40

13,11

10,65

7,656

14,61

21,27

36,74

30,28

11,371

42,31

83,27

1,37 ,40

1,17,40

Other states
TOTAL
Source :

Reserve Bank of India, Review of the Cooperative Movement in Indi a

1958-60 (Bombay, 1962)' p. 52 .

II>

-..1

Table 6.

Position of non-agricu ltural credit societies (amounts in lakhs of

rupees)

Item

1957-8

1958-9

1959-60

10,430
36,74
102' 53
34,58
60,73
87,34
76,33
79,33
6,54
2,34
2,43
1,86
13

11,084
40,22
12 1,47
37,48
75,81
110, 18
99,32
90,48
6,53
3,63
3,28
2,16
14

11,371
42,31
137,40
42 '70
83,27
117,40
100,86
106,52
7,76
7,02
7,01
2,46
15

Number
Membership (in thousands)
Working capital
Owned funds
Deposits
Advances
Recoveries
Outstandings
Overdues
Value of goods received
Value of goods marketed
Profit
Loss
Source:

Reserve Bank of India, Review of the Cooperative Movement in India

1958-60 (Bombay, 1962), p. 51.

00

Table 7.

Working capital of state cooperative banks (crores of rupees)

30 June 1960

% to
Item

Amount

1. Working capital

174.74

working
capital

30 June 1961
% to
wor king
Amount
capital
221,65

2 . Owned funds

19 , 69

11. 3

24 . 00

10.8

3. Deposits

60,15

34,4

72 .33

32.6

5.88

3,4

6,00

2 ,7

85.21

48 . 8

113.82

51.4

3.81

2 .1

5 , 50

2,5

4 . Borrowings from :
(i) government
(ii) r eserv e bank
(iii) oth er sources
Source :

Reserve Bank of India , Statistical Statements Re lat i ng to the Cooperative Movement in India 1960-61 (Bombay, 1962)' p. 11

II>
<D

Table 8,

Working capital of central cooperative banks (crores of rupees)

Item

As on 30-6-1960
% to
working
Amount
capital

As on 30-6-61
% to
working
Amount
capital

1. Working capital

247.40

304.05

2. Owned funds

41.69

16.9

50 . 87

16.7

3, Deposits

95.41

38.6

112.02

36,8

110.30

44.5

141.17

46.4

4. Other borrowings
Source :

Reserve Bank of India, Statistical Statements Relating to the

Cooperative Movement in Ind1a 1960-61 (Bombay, 1962) , p . 111.

U1
0

CHAPTER VI
CENTRAL ORGANIZATIONS TO COORDINATE, CONTROL,
AND PROMOTE THE WORK OF COOPERATIVES
In this chapt e r we will study the different organizations, both government and private, which are mainly
responsible for the promotion, coordination, and control of
the cooperative movement.

The major emphasis will be on the

role of the government in the cooperative movement because

of the significant and major participation by the government
in the development of cooperatives.

We will briefly revi e w

the non-government organizations which are active in the

coope rative work .
Indian Government policy aims at building up a cooperative sector as part of the scheme of planned development,
so the functions of the government take on an important
character.

It has been an important feature of the movement

in India that the initiative for its development has mostly

come from the government and the laws in the various states
governing cooperative societies provide for powers of regulation and control over the cooperative movement.
control of the movement has taken various forms.

The state
The different

government and non-government agencies which deal with the

affairs of the cooperative societies are briefly described in
the following pages.

52
Government Agencies
The Department of Cooperation
The Department of Coope ration , Ministry of Community
De v e lopment an d Coo peration of the Gover nment of India , i s
th e major government agency responsible for the deve lopme nt
of cooperatives in I ndia.

The Department of Cooperation

coordinates the activities of the Reserve Bank of India , the

National Cooperative Deve lopment and Warehousing Board , and
the All India Cooperative Union.

These activities include

credit, marketing, farming, processing, credit , and training.

It also supervises the cooperatives across state borders, and
keeps in touch with the State Cooperative Departments in each
state.l
The Reserve Bank of India
The Reserve Bank of India has been playing a very significant part in the building up of the cooperative movement
through its supervision over financial institutions, arrangements for training, and loans to states for participation
in the share capital of coope rative banks.

It acts as

consultant to the central and state governments and other

banking organizations.

During the year 1962-63 the Reserve

Bank of India advanced Rs. one-fourth billion short-term

1 M. A. Abraha ms en, A Look at Agricultural Cooperative s

in India, U. s. De partme nt of Agr~culture, FCS c~rcular 28
(Washington , D. C.:
U.S. Government Pri nting Press Office ,
1961), p. 6.

53
loans, Rs. 106 million medium-term loans, and Rs . 312 m1llion
long-term loans to the

ooperative sector and the state

governments. 2
The functions of the Reserve Bank of India in relation
to cooperatives are summariz ed as fo llows :
l) To provide short-term finance at low rate of
interest.
2) To provide medium and long-term finance.
3) To purchase the debentures of the Central La nd
Mortgage Banks .
4) To advise the cooperative banks.
5) To train cooperative banking off1cials
6) To act as a consultant to the ce ntral and state
governments.
The State Bank of India
One of the first major steps taken on the Rural Credit
Survey recommendations was the establishment in July 1955 of
the State Bank of India (previously the Imperial Bank) .

The

Bank now has branches in all the states and most district
headquarters.

Its main purpose is to extend remittance and

credit facilities to cooperatives at the local level.

The

State Bank of India has also been of great help to cooperatives, particularly those engaged in marketing and processing.
The State Bank has provided free remittance facilities and

2 "Report of the Department of Cooperation," Indian

Information, May l, 1964, pp . 210-211.

54

loans on easy terms and conditions .

The Registrar of Cooperative Societies
The Registrar of Cooperative Societies is the administrative head at the state level.

Every state has one

Registrar who is mainly responsible for the execution of the

policies and programs within a state.

He is responsible for

providing financial assistance, supervision, promotion, and

advice to cooperative societies in a state.

His office is

staffed with the assistant registrars, deputy registrars,

and inspectors, who carry out the work at the local level.
The success of the Indian cooperative movement largely depends
upon the efficiency of the Registrar's Office.
Non-Government Organizations
All India Cooperative Union 3
The All India Cooperative Union is the federation of
state cooperative uni ons , state cooperative banks, central
mortgage banks, marketing and other cooperative federations .
The main purpose of this most important non-government
organization is to direct and coordinate t he programs
designed to strengthen cooperatives throughout India .

It

provides educational, legislative and advisory assistance

to coope ratives and acts as their spokesman.
Other organ izat ions which are active in the promotion
and development of the Indi an Cooperatives are Indian

3 Abrahamsen, op. cit., p. 10.

56

It seems likely that in the early stages of cooperative

development a cons iderable element of direction and g uidance
on the part of government is needed.
justified at this early stage .

State p artnership is

This is not in keep ing w1th

Weste rn cooperative traditions , of course, a nd ve ry properly

may b e critized as being i nco nsist e nt wi t h an independent
se lf-re liant movement.

But there seems little alternative

to such a breach with the Western tradition in India in the

early stages.

Critici sm comes when th e Indian government

claims that the coo p erative s ecto r is a part of the private

sector or a br i dge betwe e n the public and the private sector.
In realit y the opposite is the case;

the cooperative sector

is nothing but the extension of the public sector.

Unlike

the cooperatives of the Western world, Indian cooperatives

are mainly administered and fin a nc e d by the government.
As me ntione d, every state government has a Department of
Cooperation, headed by the Registrar of the Cooperative
Societie s.

The Registrar, with his staff, supervises, controls,

and administers the affairs of the various cooperative societies.

His office exerts such an influence on the operation

of cooperatives that it is hard to follow an independent

policy.

Mr. S. K. De y, the Minister for Community Development

and Cooperation of the Government of India, addressing the

conference of the state cooperative ministers, strongly protested the actions of the gove rnment officials, stating that
the actions of thes e o fficials were major obstacles to the
development of cooperatives.

57

In a country like India, government partnership

~s

essential in share capital, grant of loans, and subsidies

for a minimum period of time.

But this minimum period seems

never to end, and government participation continues to

increase.

It would be interesting to have statistics of

cooperative societies so assisted, the period of assistance,

and their present condition.

So far the societies so assisted

have not become independent.

One cannot find evidence that

state aid has been withdrawn because a cooperative has been

able to stand on its own legs.

Furthermore, the argument

with respect to help in the early stages of development can

be advanced in support of any other form of economic organization.
If the mere provision of share capital, loans, and
subsidies could yield the results desired, they should have
been evident by now, considering the large amounts of aid
given to cooperatives.

For example, during the year 1962-63,

the Reserve Bank of India advanced Rs. l l /4 bill ion shortterm loans to state cooperative banks, Rs . 106 million me d iumterm loans, and Rs. 312 million l ong-term l oans.

Besides,

the Reserv e Bank has subscribed Rs. 32 million to the de b e ntures of land mortgage banks.

This is just part of the

government assistance to cooperatives.

Since 1947 g overnment support to coope r at ives has increased many-fold.
economic grounds.

Such support cannot be justified on

The cooperative form is just one of the

forms of economic organization.

One cannot agree that the

58
supply of credit and other facilities through the cooperati ve
form are more e ffici ent than throu gh private outle ts or eve n
by government agencies.

The cost of servi ces offered by t he

cooperative excee ds their value

~o

tbeir c u stomer members.

The gove rnment will have to continue indef inite l y its massive
aid to u ne co nomic cooperative un its.
It is said that cooperatives will tend to r e du ce the
power of mone y l enders, but the real r eason for the high rate
of inte rest is the scarcity o f capital and high risk of
default.

The supp ly of cap ital can be made availab l e by

diff ere nt types of economic organizations, including co ope ratives .

Government interve ntion in the affairs of cooperatives
is inc r eas ing.

The government appears t o hav e f orgotten its

role of promoter a nd h as become essentially the owner of the

movement.

One may agree that in the e arly stages cooperatives

do need government assistance , but in the long run if cooperatives are to be efficient and independent organizations they
should stand on their own feet .

The government should realize

that cooperation is a people's movement; initiative for

cooperative developme nt and res ponsib i lity for regulating the
wo rking of the movement shou ld progressive ly devolve on
cooperative instituti ons and their higher federal organizati ons .

The government should help to organize and build

eff icient cooperative federa l organizations to take over many

of the g over nme nt functions, such as promotion, general
cooperative e ducati on, and supervision .

59
The government s h ould
mi nimum statutory dutJ eS of
a nd

~n "pectJ.o n .

should b

l~rnit

it s act1.vities to the

reg ~strat1.on ,

a ud1.t , arbttratton

Th e underly ing pr1.nc]ple of governr e n t help

to make cooperat]ves st r o ng and independent so that

they wil l grow up i nto se lf- reliant organJ.zatJ.ons.

the

The n o nly

ooperat1.ve sector wi 11 be .ome a truly independent sector

of the Indian eco nomy .

CHAPTER VII
ACHIEVEMENTS
As cooperative socie ties have continued to expand in
India many appraisals of cooperative endeavor have been made
by various individuals, committees, commissions, and organizations .

Their findings are mixed.

Some h ave h ighly praised

the activities of cooperatives, and t h e movement has been

regarded by some as a failure .
own way.

Both views are right in their

At this stage, cooperatives cannot be looked at

only as economic organizations, but also as a means of bringing social change to modern India with all its social ,
religious, and cultural complexities.

In the follow i ng pages

we will try to examine the positive side,

ments of Indian cooperative societies.

the achieve-

Before proceeding,

however , we should bear in mind that many of the achievements

and weaknesses cannot be backed by statistical determinants
of s u ccess .

Usefu l statistical figures are d ifficult to get

because of inconsistencies in the definition of cooperative

societies, and because of wide differences betwee n t h e m i n
their range of services and degree of patronage.
Since cooperatives represented a response to the urgent
need of credit by farmers, one tends to look at the achievements in terms of economic gains.

A society can only flourish

i f it is sound economically, even though external factors

such as culture, social customs, and traditions, religion,

61
pol1tic s , and edu c ati o n do play an e qually impo tant rol
establishing a sound

oope rat1ve syste m.

1n

These external

f ac tors a e diffi ul t t o me asure and hi tory alone can te ll

us its impact.
Ec onomic Gains
Most of the cooperative development has taken place 1n
rural areas where the main purpose has been to replace
depe ndence on money lenders a nd middlemen by providing similar
service in a better way.

The monopoly of money lenders has

been broken by making available similar credit through cooperatives at reduced interest rates.

Because of the competing

cooperative, money lenders have reduced their interest rates.

In the year 1960-61 interest rates charged by the state,
central, and primary credit societies were 3 percent to 9
percent, 4 l / 2 percent to 10 percent, and 6 percent to 12
percent, respectively.

On the average, rates were 9 percent.

This may be compared with the 25 percent to 30 percent, in

some cases 70 perc e nt , interest charged by private money
l e nders. 1
While the total money borrowed from cooperatives is very
insignificant (4 percent), still cooperatives have achieved
their purpose by providing cheap credit.

Owing to the cheap-

ness of credit that it has made available, agriculturalists

lReserve Bank of India, Statisti al Statements Relating

to the Cooperative Movement in India ( Bombay, 1962) , pp . 28 -

62
have saved an est lmat d one crore of rupe s.
debts by establiShlng a system of

It has restricte d

ontrol cre dit a nd h as

weakened the vi lOUS system of money lending that u se d to

prey u po n the l.gnorance of the peasant.

Furthermore, man

members of the credlt societles have been rel1eved not onl

of high interest rates, but a l so ma ny hav e been freed of d e bt .
The cooperatives h a ve en ouraged th ift , saving, and
investment among members.

They hav e di sc ouraged the unpro -

ductive hoarding of money.

In 1961, agricultu al cre dit societies numbered 212 , 219 ,
with a membership of 170.41 lakhs, working cap ital of Rs .
273.92 crores, loans a dvan ce d Rs. 202.75 crores .2

About one-

third of the urban population 1S covered by non-agricultural

credit coo perati ves .

More than 12,300 non -agri c ultural credit

coopera tives were functioning i n India i n 1963 , with work1ng

cap it a l of about Rs. 164 crores composed mainly of owned f unds
and d eposits.
crores.

Loans advanced by these societies we r e 161 . 6

It is s ignificant that non-agricultural cre dit socie-

ties, whi c h include the urban banks, the emp loyee credit
societi e~ ,

and ot her types which serve a parti c ular profession

like we avers, h ave b een able to e ncourage thrift among its

me mbers.

Tot a l deposits in the non -a gricul tural sector rose

from about Rs. 35 crores in 1950-51 to about Rs. 103 crores

in 1961 - 62.

Depos its formed 62 percent of the working

capital, as compare d to 6 percent for the agricultural cre dit

2 Ibid., p, iii.

63
side, showing the strength and J.ndependence of the non-agricultural

redit so iet ~ es. 3

State governments advan .ed Rs .

oopera t~ ve

256 crores during 1962 - 63 toward

red~ t

Economically, cooperatJ.on in India has tried to bring

justice J.n business and to a l1mited exte nt has prevented
exploitation of the wea ker members of soc1ety.

In add1tion

to economic gains, the c ooperative movement has made social,

cultural, and education gains.

The moral advantages of the

movement have been stated as follows :

Litigation and extravagance, drunkenness and
gambling are all at a discount in a good cooperative society and in their place will be found
industry, self-reliance , straight dealing, e ducation, thrift, self-help, and mutual help . 4
A cooperative has become a continuous source of education
to the members; for example, a credit society teaches the
proper use of money, and a cons ume

society trains the members

in what to buy and the true value of goods .

A marketing

society gives lessons in better methods of produ ction .

Direct

social services are offered by such societies as better living

and village developme nt .

Sanitation and health cooperatives

have indirectly helped to weaken social customs and traditions .

Cooperatives teach their members responsibility towards the
organization, respect for individual rights, and de mocratic
principles.

Cooperatives have started to help people in

3 Ibid., p . IV .
4K. K. Dewett and G. C. Singh, Indian Economics ( 12th
ed . ; Delhi : Premier Publishing Co., 1962) , p . 180.

64

wo

k~ng

toge t h r on commo n grounds, which 1s the very heart

of d e mo .r a tic living and so .i a l progress.

Co ope rat1v e s s eem to b

br1ng1ng to the masses 1n fnd1a

a de gree of cultural a n d s p 1r~ ual 1mprovement.

in

wh~

h the maJorit y of peo p le know nothing but poverty and

inse urity, the contr1but1ons of

may fa

In a country

ooperattves to a better ltfe

outwe tgh the c old and 1mpe r on a l e onomi

largely have

orne to be asso

~ated

ga~ns

that

Wtth cooperat1ves in Ind1a.

In summary, cooperat1ve societies have helped to tmprove

security of tenure of land , to consolidate holdings , to promote

onservation of natu al resources , to factlitate land

settlement, to foster the all important growth and spre d of

te hnical knowledge for better farming, to se ure saving and
administer cre dit, to r e duce the charges made for production
requisites and us e of longer

a pi tal i terns fo

farm and small

scale industr1al production, to reduce charges for consumer

goods and services, to improve the marketing of farm products,
to minimize risk, and to lower the cost of insurance.

They

have promoted education, both general and vocational .

They

have provided effe tive tra1ning in demo racy and selfgovernment.

bound.

They have been neither class bound nor state

They have maintained or increased the sense of

interdependence so important for social progress.

Some Examples of Achievements
1. Sahitya Pravarthaka Cooperative Society, Lt d :
writers ' cooperative society of Kerala has succeeded in

The

65
eliminating middlemen from the
a u t h ors now publish and s 11

publ~shing

the ~ r

trade.

own works.

an author-member to eat'n 30 percent royalty for

7.5 percent as

d~vid e nd

Member-

Th~s

h~s

e na b les
books,
~n

on the s h ares he ld by him, a nd

addition a bonu s on the royalty e v ery year.

The cooperative

has 400 members a nd a pai d-u p capital of Rs. 2.5 lakhs .

has its own printing press and sales machinery.
books are published every year.

It

About 150

This has influenced other

publishers to offer better terms to authors.

The cooperativ e has helped to improve the quality of
Malayalam publications.

It has published Malayalam trans-

lations of Western classics and Indi a n literary books .

Kerala cooperative has prompted formation of similar

The
ooper-

atives in other parts of India. 5

2. Sugar production by cooperatives:

The production of

cooperative sugar factories from November 1, 1963 to February

1, 1964, recorded an increase of 31 percent over the corresponding period last year.

The corresponding increase in

the private sector was only 11 percent and for the industry
as a whole only 15 pe rce nt . 6
3. During the cooperative year ended June 1963, the
value of agricultural produce marketed by cooperatives was
estimated at Rs. 183 cro res.

The main commodities handled

5 The Ministry of Community Development and Cooperation,

Kurukschetra, (Del hi, 1962), 10 : 10.
6 " Sugar Production by Cooperatives," Eastern Economist,
May 1, 1964, p. 1055 .

66
were sugar cane, cotton, oilseeds, wheat, and certain
plantation

rops.

About 2,200 primary mar keting

ooperat1ves

covered most of the 1mportant secondary markets 1n the

country.

4. S1gnificant progress was achieved in the

sponsored s heme fo r consumers ' cooperatives.

As

entrall ompared to

72 wholesale stores and 848 pr 1mary stores/ bran hes at the

end of March, 1963, 143 wholesale stores and 2 ,3 41 primary
stores and branches had been set up by the end of December,
1963 . 8
5. The cooperatives in Punjab have made big strides since
the dawn of independence.

All the 35,300

ooperative soc1e-

ties in Punjab own funds amounting toRs . 28.92 crores and

have working capital amounting to Rs . 95 . 90 crores, with a
total membership of 23.76 lakhs . 9
The progress ach1eved by cooperatives in various spheres
during the first two years of the plan is noteworthy despite
the set b ac k occasioned by the national emergency.

The Punj a b ,

Maharastra, Gujarat, and Bengal-especially in urban cooperation--have shown remarkable progress in the field of cooperat ion.

7 "Report of the Department of Cooperation, Indian News ,

May l, 1964 , p. 210 .
8

Ibid.

9"Coop in the Punj ab,"

l' 1963' p. 11.

The Hindu Weekly Review , December

CHAPTER VII I
DRAWBACKS AND PROBLEMS
The a hieveme nts o f India coo peratives , when compared
to the magnitude of the problem of Indian e onomic development, are ve ry s mall , a nd indeed the achievements have been
very small considering the

potent~alities

Out of a total population of 440

m~llion,

people belong to cooperative societies.

of cooperatives .
only 35 million
This means less than

13 percent of the population are cooperative members .

Mr .

M. B . Nanavati and J . J . Anjaria say :

For c ooperation has b e en understood so far
in a narrow sense and has failed to deal with man
as a whole in respect of all his requirements.
In the West, coope r a tive action has proved how
it can transform the whole human being, his
personality , haracter, attitude to the community
and attitude to life . . . Roughly outlined in
this way ; the rural cooperative society is seen
not only as a factor in technical progress and
material well-being; it is seen also to be an
instrument of economic organization , of vocational training and discipline, a centre of
spiritual life and general education , a cell in
the new social tissue which is reestablishing or
carrying on that vital , solid cohesion and
systematic collective defence which family feeling, neighborl iness and the tradition of mutual
h e lp kept alive in the old village communities . !
In light of these standards , the achievements of Indian
cooperatives are yet small.

In the succeeding pages the

1M. B. Nanavati, and J. J. Anjaria, The Indian Rural

Problem (3rd ed.; Bombay : Vora and Company Publishers,
Ltd., 1947) , p. 221.

68
wea kness of cooperat1ve soc J et J eS 1n India will be dis ussed.
Examples of

Weaknes~e s

The fundamental weaknesses of the cooperat1ve movement

are found in the ne gl ect of the basic principles of thrift
and self-rel1ance.

The e:.ooperati ves are supposed to encourage

thrift, self-reliance, and provide credit at reasonable

inte rest rates, and remove the influence of the Indian money
lender who charges exhorbitant rates of interest.

Instead of

thrift Indian cooperatives are disproportionately de pe ndent

on external finan ce, particularly from the government.
the year 1959 - 60 the

In

omposition of working capita l was 28.1

percent owned funds, depos 1ts 5 . 3 percent, and borrowing 66.6

percent.

In the years to follow, outstanding loans have

2
risen and overdues increased.
If we analyse the position of
overdues in different states the position becomes more disquieting.

Bihar had the h1ghest percentage of 55 percent,

West Bengal 43.4, Mysore 33 percent, Madras and Uttar Pradesh

were lowest with ll and 6 percent, respectively. 3

The rate

of interest charged by socie ties varie d from 4 percent to 16,

and the total c r'e di t made a vailable through cooperatives is
insignificant .

The following table shows the main agencies

2 Reserve Bank of India, Statisti al Statements Relating

to the Cooperative Movement in lnd1a, (Bombay, 1962) , p . ii1.
3 Reserve Bank of India , Review of the Cooperative Movement in India 1958- 60 (Bombay, 1960) , p. 21.

69
of r u ral
of

cred~t

and

the~r

ontr1bution to the total

bor row~ n g

ult ivators .

Ma~n

agen ~es of rural cre dit an d the~r

co nt r1but1on to the total borr-owing of
c ul tivators

Table 9.

Pr oport~on

Credit agency

of borrowings from
each agency to the total
borrowing of c ultivators
Perce nt

Government

3 ,3

Cooperatives

3.1

Commercial banks

0.9

Re l a tives

14 . 2

Landlords

1.5

Agri c ultural mo ne y lenders

24.9

Professional money l e nders

44.8

Traders and commission agents

5,5

Others

1.8

TOTAL
Source :

100 . 00

Reserv e Bank of Ind ia, All Indi a Rural Credit

Survey, (Bombay, 1955 ),

Table 9 shows the inadequa y of cooperative

redit .

The credit re ce ived by the medium and small cultivators

through cooperat1ves is insignifi ant .

Cur're nt f1gures are

not available , but these 1955 figu res have not changed much
except that the percentage might have increased by 2.5 to
5 percent.

70
An o ther t es t o f s u ccess of the cooperative sector is
the n e t results o f the o pe rations of cooperative societies.
Table 10 shows t he ne t r e sults of the operations of cooperative so c i e ti e s during the year 1960-61 as compared to the
year 1959-60.

This indicates that 75,558 societies operate d

at a loss of Rs . 642 lakhs .

Ninety-five percent of the loss

was in primary agricultural credit societies and non-credit

societies.

These statistical figures show that the credit

operations of primary credit societies, particularly the agricultural ones, are not sound.

The state cooperative banks did

not have any loss because they are backed by the funds of
central and state government agencies.
The figures in Table 11 show dishonesty among officials
and members of the society.

In the official categories we

can safely include some government officials.

Other weaknesses of Indian cooperatives are the following.
1. Addressing the conference of Registrars of Cooperative
Societies and representatives of state cooperative marketing
societies in New Delhi on April 8, 1964, Mr. N. E . S.
Raghavachan, Additional Secretary, Department of Coope ration,
pointed out that cooperatives now handle l ess than Rs. 30
crores worth of food grains out of Rs. 800 crores of the
country's marketing surplus .

Furthermore, they have not

been able to stabilize the food grain prices which skyrocketed

recently.

4 "Meeting of the Registrars of Cooperat ive Societies,"

Indian Inf ormation, May 1, 1964, p. 211.

Table 10.

Net result of the operati ons of cooperative societies (amounts in lakhs of

rupees)
1959-60

Type of society

Profit
Number
Amount
of
societies

1 . State coop 22
erative banks
2. Central cooperative banks
344
3. Primary agricultural credit
societies
Large sized
6,303
Small sized
130,129
Grain banks
5,308
4. Cent r al and
mortgage banks
13
5. Primary land
291
mortgage banks
6. Primary non-agric ultural credit
societies
7 , 633
36,814
7. Non-credit Soc .
1,86,857
TOTAL

19 60-61

Loss
Number
of
societies

Amount

1 ,17

P rofit
Number
Amount
of
societies
21

1,51

Loss
Number
Amount
of
societies

2,48

36

356

3,35

21

1,26
3, 2 6
23

1,561
40,394
1,430

17
94

6 ,15 6
1,40,277
5 ,999

1,62
4,04
40

1,628
41,107
1,252

32
90

13

31

8
a

38

12

104

305

15

137

2,46
8,77
20 , 13

2,128
25,876
71 ' 532

15
3,79
5,21

7 , 889
40 ,3 74
2,01,390

2 ,79
1 0,16
24, 33

2,391
29 ,02 0
75 , 558

14
4 ,30
6,42

aLess than Rs. 50,000

Source : Rese rv e Bank of Indi a, Statis t ical Statements Re lating to the Cooperative
Movement in India 1960 61 (Bombay, 1962) , p. I X.

,_.
-..]

72
Table 11 .

Embezzlement cases durlng 1960-61

So ieties

No

Loss in thousands
of rupees

Central credit
institution

20

176

Primary credit
institution

933

2053

Central non-credit
socieites

32

342

Primary non-credit
societies

297

1455

1282

4026

TOTAL
Source :

Reserve Bank of India, Statistical Statements

Rel ating to the Cooperative Movement in India
T9U0-61 (Bombay, 1962), p . 233.

2. Among industrial cooperatives sugar factories and

spinning mills are comparati ve successes.

But they are really

not worker cooperatives, because they are formed by middle

class and upper middle class people and not by landl ess
laborers and c ultivators .

In fact, most of the members are

well-to-do people who can form a pri v ate company or corporation .

But the co ncessio ns made to cooperatives are attractive e nough
to lead some groups to assume the pose of being cooperatives.
3. An influential official of a n industrial estate got
an allotment of 200 wagons of coa l from the government for
making bricks.

At the same time, in the same city a worker's

cooperative engaged in the production of hand -made paper

ould

not get even one wagon of coal and was bu yi ng more expensiv e

73
f1rewood to keep 1ts members emp loyed. 5
4. The government of Ind1 a 1s concerned over the apparent
failure of the cooperat ive farm1ng movement du e to the lack
of support from farmers.

Insufficient financial resour ces,

sabotage by vested interests, both official and non- off1cial,

and the indiffere nt attitude of farmers are the real reasons,6
5. Housing cooperatives are progressing very slowly.

At

present 6 societies at the state level, and 5,568 at primary

level are functioning.

In 1959- 60, it is es timat e d 45,000

houses or tenements were built at a cost of Rs . 38,41 crores .

These figures are insignificant when compared to the cou nt ry's
housing needs.

Betwe en the registration of a cooperative

housing society and the completion of houses for its members

by the society, there are so many stages of bureaucratic procedure to pass through .

With a handful of honorable exceptions ,

if at all, bureaucracy in India see ms to know more a b o ut how

to put a spoke in the wheel than to be positively helpful.
Due to inordinate del ays in establishing the marketable title,
in drawing the loan, and in getting quotas of cement and
steel, the ini t ial cost es timates invariably go way up . 7
6, A Philippine scholar who studied the cooperative
mar keting struc tu re in Indi a reported that in Mahastarstra

5 H . Vakantasubbiah, "Emp l oyers' Coops," The Hindu We e kl y

Review, september 7, 1964, p. 211 .
6 "Coop Farming Makes Little Headway, " The Hindu Weekly
Octob er 7, 1963, p, 10 .

7 croesus, "How Housi ng Cooperatives are Cribbed,"

Eastern Economist, Octobe r 12, 1963, p. 683.

74
some of the primary societies disposed of their members' p r odu ce to priv ate retailers rather than to distri t societies.
The reason given was that distri t societies did not offer
good prices.

Whether this is typi ca l or not, it indic ates

a lack of integrated cooperati o n network.s

7. A pu blic survey of public opi nion co ndu cte d by Dr.
S. Elderveld of the Un1versity of Michigan in De lhi State
regarding the communi t y deve lopment movement indicate d an
utter lack of commu ni cation betwee n planners and a majority
of the Ind ian rural and urban public.

The same survey indi-

cated that two-thirds of the rural samples felt that the

program was worthwhile.

But half were ignorant of its goals

and not more than one-third knew of its accomplishments.

Another significant finding was that 60 percent of the urban
samp l e f e lt that 50 percent of the government servants were
corrupt. 9
8 . Efforts at chec king the growth of spurious cooperative
societies have failed to yield satisfactory results.

Accord-

ing to reports reaching the central government, the number of

s uch societies has continued to increase much to the chagrin
of the authorities.

It has been noted that vested interests

get themselves entrenche d in cooperative s, undermining the

very movement.

8 c ooperative Trade in s. E . Asia, The Hindu Weekly

Revi ew, July 13, 1964, p. 11.
9
" The Peop le and the Plans, " The Hindu Weekly Review ,
August 3, 1964, p. 2.

75

The Union Ministry of Community Development and Cooperation has urged state governments to give serious thought to
the problem of weeding out non-genu1ne societies and removing
vested interests.

On its part, the Ministry is cons1der1ng

a proposal to set up a special committee of officials and

non-officials to undertake a comprehensive study of these
problems and recommend measures for developing the movement
on sound lines.
In regard to non-genuine societies, it has come to the
notice of the central government that in some states cinema
cooperatives involving investment of lakhs of rupees have
been organized by a few resourceful people.

It is felt that

such a society can hardly be different from a joint stock

company .

Similarly it is noted that a large number of trans-

port societies have been organized with big financiers having

major control of them.

Some industrial cooperatives are

reported to have been organized by members of the same

family who get the work done by hired laborers.
Offi cia l sources feel that to some extent the grant of
financial assistance by government tax concessions and preferential treatment meted to cooperatives lead to this
practice.

The existing provisions in the State Acts permit

registration of cooperative societies which are intended to

promote the economic interests of their members in accordance
with cooperative principles .

But the difficulty is found to

lie in defining "cooperative principles" from the point of

view of weeding out or preventing registration of non-genuine

76

so 1etles.

The Un1on M1n1stry of Commun1t y De v elopme n t a nd

Cooperation f ee ls that 5tate governme nts s hould lay down

norms or

r1ter 1 a to dec1de th e genu 1ne ness of d1ffe r e nt types

of coopera ttves b fore the1r reg 1strat1on .

In or der to prevent the growth of vested interests in
cooperatives a s u ggestion has been made by the Centre see king
to limit the number of lnstitut1ons in which a person can
hold key posts at the same time and to r es trict the per1od
for whi c h a person c an continue in offi e in a coo perative .
In this conte xt, the provisions in

the Madras Act have been

recommended to other states for consideration.lO

9 . The unions depe nd 100 percent on government assistance
for training and educational programs.

Unions are not pre-

pared to pay even partial expenses of training.

Mr. Dey , the

Union Minist er of Communit y Deve lopment a nd Cooperation, said

the prices of food grains were skyrocketing not because stocks
were not available but because there was hoarding.

The

cooperatives and Panc hayat Raj were unable to meet this

challenge. 11

10. Sometimes influential directors, presidents, and

secretaries of a society have such an influence on the
government official of a cooperative departme nt that s uch an
official has to refus e the registration of a new society .

lOibid., Spuriou s Coops., p . 4.

ll "News " The Hindu Wee kly Re view, August 24 , 1964,
p. 13.
'

77
The pr ecee di ng examp l es l e ad u s to be lieve that c oopera tives ha ve n ot b ee n a ble to fo s t e r the spirit of thrift ,
se lf- r e li a n e , and many o the r virtu es of c oope rat i v e societi e s .

Whe n we try to an a lyze the f ac ts and figure s , the

b a sic weaknes s e s are f o und i n the management , structure ,

a nd o perat ion s of coo pera t i ve s ; too much gove rnme nt interference and its paterna listic attitude ; vested interest groups
within the coo p e rative who try to use the cooperative for
their own benefit and interference of political leaders of
the ruling part y and c ontractors; and lack of understanding
of cooperative principles on the part of members and officials.
Equally important are external factors such as illiteracy,
low economic progress, so c ial and religious customs and
traditions.
Management, Structure, and Operations
One of the major obstacles to the progress of cooperatives has been the lack of trained personnel, es pec ially at
the l ocal level.

A small society cannot afford to maintain

a trained professional manager .

In many cases the work is

c arried on by an honorary secretary who happens to be the

village teacher, or an accountant who devotes minimum time
to the society's operations.

Many times the only literate

person is the landlord and he can mismanage a society for

his personal benefit.
This raises the question of cooperative training.

Even

though the central and state governments have a comprehensive

78
scheme of

cooperat~ve

tra~ning

at different levels through

advanced study institutes, training

ce nt rs the pres nt
tra~n

prov~sion

all those who are

at lo al levels.

The

emphas~s

officials who control thes

ing local

off~cers

is not

oncerned

train~ng

alleges, and

omprehensive enough to

w~th

ooperative

operat~ons

is on training government

cooperati ves.

and members is lacking.

Emphasis on
The

tra~n

ontent of

the course needs to be revised, especially in regard to techniques to be used at local level.

The tota l nee d of trained

personnel far exceeds the tota l supply which has resulted in

inefficient cooperative operations.

Economic s u ccess depends

upon the able management and enlightened membership of a

cooperative society.
Another weakness is the lack of cohesion and uniformity
among members, and the spread of membership is either too
wide or too small.

The results are 1) internal di sagreements,

2) general lack of interest among members in the affairs of

the society, 3) bad selection of members resulting in dishone s ty and incompetence of society officials, 4) excessive
enthusiasm in promoting cooperation without local support and
understanding (most of the members do not know the implications
of unlimited liabilit y), 5) a few members monopolizing the
work of and leaving too little room for incentive of others,
6) concealment of old debts, and 7) l ac k of supervision .
The credit policy is rigid.

Lending rules, overly h igh

standards of credit worthiness, and shortage of working

capital have resulted in making many types of loans unacceptable

79
and many

more up o n the asset

me mber.

in e l1g1ble.

~nd~vidu als

The

s ~d e

eco nom~c

than o n

The
he

red~t
pay ~ng

poli y
capa

ba kgr o und of the Ind1an

the urban dweller is not t a ken into

~t

~s

of a

v~llag e

considerat~on.

bas e d

or of

Even

where cre dit so ieties are succes sful, only 30 to 40 percent

of rural f ami lies are qualif1e d to receive loans .

Societies

have also tended to negle t taking into consideration a

pattern of short, me dium, and long requirements of credit
and proper disbursement of loans.

This faulty credit policy

and its execution by incompetent and dishonest offi ials and

members have led to 1) indiscreet loans, 2) continuancy of
borrowing, 3) excessive overdues, 4 ) delay in granting loans,
5) abuse of power in collection and distribution of funds,
and 6) favoritism in granting loans.
This credit policy is not preperly linked with production,
distribution, and marketing, so that many societies turn out
to be uneconomic business units with insufficient volume of
business to keep them alive.
important weakness.
capita income of $68.

The lack of capital is another

This can be attributed to the poor per

Many societies with inadequate funds,

inefficient management, and passive membership cannot carry

on their operations.

All they can do is to go bankrupt or

offer a poor quality of service.

Central and state cooper-

ative banks engage more in commercial banking activities and

neglect their cooperative function.
It is clear that many of the achievements of

ooperatives

are due to the efforts of the government, with consequent disregard for the basic principle of self-reliance.

No doubt

80
in a country l1ke Indi a, w1th m1l l1ons of persons living 1n
utte

poverty, t he governme nt ca nnot sit as1de.

omes with the tendency to operate the

The problem

ooperac1ve moveme nt

with ma ny of ics corrupc and 1nc ompe t e nt off1cials.

Th1s

paternaliscic attitude leaves l1ccle co pr1vace 1n1tiat1ve

and people start be liev1 ng that the
another departme nt of government .

ooperative sector is
For example, in th

Scate

of Madras the Cooperat1ve Re gistrar's Office is staffed with

6 assistant registrars, 600 deputy registrars and 2,100 cooperative inspectors.

This is just one of the many examples .

The

central government and all other state government have some

type of bure au cracy with all its departments, officials,
c ommissions, and committees and the numerous set of laws which
can hardly be understood by a literate person.

A recent scudy

indicated that many of the officials have little to do.

This

has led to lack of proper supervision, differences with local

members, and slowing down the progress of cooperatives.

The

government advertises that the cooperative sector is a bridge

between the private sector, and professes to aim at making
the cooperative self-sufficient.

But how many cooperatives

have become independent, with the government with d rawing s u ch

help?

No evidence is available of this--instead, one can see

a growing dependence on government.

The Indian cooperatives

are financed, administered, supervised , and contro l led by

government.

They cannot be cal led an independent sector but

an extension of a government department and are looked upon

by many as a cheap lending agency.

81
The so
of

Ind~ a n

~al,

e ducatLonal ,

ultural , a nd

society hLnders. the growth of

The div rsLty

~n

rel~gton ,

cultu r

, and

relig~ous

eooperat~ve

st ru cture

soc t e

s.

r nd rs i

trad~tions

diffi c ul t to bring such div ers tfied groups together tn a short

period of time,

Millions of the population are

and do not understand the value of cooperat Lon,

society, combine d with a very low per

~llit

rate

In a stattc

apita 1n orne, one

cannot expect to spread the gospel of cooperation without

failures.

Communal

feel~ngs

are still strong.

For exampl e,

if the board of directo r s are Brahamins , all members of the

staff are Brahamins.
Other factors r esponsible for weakening the

ooperative

movement include the following :

1. Opposition from private mo ney lenders and middlemen.

2. Sudden fluctuations in agricultural prices .

3) Poor transportation and communicatio n.
4) Natural causes.
5) Technological c hanges.
To sum up, the failures of Indian
t a ed to the socio-economi

ooperatives

an be

st r ucture of Indian society ,

lack of education in ge neral, and education for cooperation

in particular.
b e made,

This d oes not mean that improvements

There is a real

annat

hallenge for cooperative so ieties

to take a more active part in butlding a new India on democratic principles.

CHAPTER IX
SUGGESTED IMPROVEMENTS
In line with the stated policy of the government of
India with respect to cooperati ve societies, cooperation is
there to stay.

The cooperative sector, even though heavily

subsidized by the government, and with all its weakness, is

still one of "he major means for molding India into a true
democratic country based upon a prosperous economy.

So,

instead of running away from the problems which have slowed

the progress of the cooperative sector, let us try to find
out what improvements and reforms can be made to make the
cooperative sector strong, efficient, and independent.
Economic Need
Over-enthusiastic supporters of the cooperative movement
have many times forced a cooperative society without local
support, and without recognizing the economic need for which
they are established.

For example, a promoter visiting a

vi llage may think a marketing society is needed but he finds

that the local people want a better farming society.

It would

be better if he gives up the attempt to a marketing society

and helps people solve their better farming problem.

Often,

once the society is organized an attempt shou ld be made to

justify its existence by its performance.

It should attract

the cultivators, artisans, and other persons with common need

83
1.n that part1cular area.

Jn short, a cooperat1. ve soc 1e ty

s hould be a tru e peop l e's soc t e ty .

Sel e ct1.on of Members
This

e l e .tion of m mb rs, esp

ially in so 1et1.es Wlth

unlimit e d liabilit y, should be caref ul .

The charac ter of

the individual and hi s reliability sho uld be his qualifiations.

Every mem ber should be instru ted 1n the prin 1ples of
cooperation .

Withou t the sympathetic understanding and loyal

support of the members a

ooperative

a nno t succeed.

can only be done by their whole-hearted support .

should participate in the affairs of the society .

Th1 S

The members
P ri de in

belonging to an organ ization is lacking in Indian c ooperatives.

People look to a societ y a s a place for getting loans at
cheaper rates.
Management and Personnel
One of the weakest s pots in a cooperative society is the
lack of competent and hones t managers .

The cooperative is

often an alien organization from outside the community until

local leaders adopt it and make it their own.
people to

hoos e good a nd

Helping the

apable l eaders is one of the most

important aspe ts ne gl ec t e d 1n India.

All the efforts towards effect ive organization and
operation of the cooperative will be in vain if the management is not trained and effi i e nt.

The selection of a manager

84
or a seer tary should be bas e d on 1) chara ter , 2) training,
3) experience , 4) personality , 5 ) and his attitude towards
cooperative effort .

He should be the only one

for the day-to-day operations of a society.

of a managing

re spons~ble

The sele tion

ommitt e e should be on the basis of 1) honesty

and unselfishness , 2 ) democ ratic election , 3) capable and

interested persons .

The managing committee should not

~nter-

fere in the secretary ' s duties unless some policy decisions

are neglected or he mismanages society affairs.
The present facilities for training at the local level
are inadequate.

The training facilities should be expanded

so that every member has a chance to learn about cooperative

effort.
Mr. M. A. Abrahamsen says with respect to personnel
training and development in India :
The personnel training program under way in
India has made important contributions to various
levels of cooperative emp loyment.
A large and
dedicated core of competent civil servants in the
field of cooperative endeavor now exists. There
is, how ever, need to expand the development of
this program even further, if the large number of
associations serving Indian farmers are to have
the benefit of better trained personnel. Moreover,
there is a growing need to put emphasis on training
the directors, managers, and senior staff members
of these associations.
P eo ple also need to be
trained in the techniques of getting the cooperative story to the individual farmers who make up
the membership of primary societies. Training
would be more effective , too, if greater emphasis
were placed on practical aspects of problems such
as limiting credit by improving production practices.
In the view of the large number of Indian farmers,
this is a Herculean task. The need is brought
into better focus, however, when we recognize only
in this way can a broader base of local leaders hip
be developed.
It is generally recognized that as
soon as practicable many responsibilities now
assumed by government should be turned over to

85

village members . It is not always real1zed,

however, that th1s can be done when members
are sufflcientll trained to assume greater
r espo nsibility.
The Economi

Unit

A primary society should not specialize in o ne activity

if the volume of business is insufficient.

It should under-

take more activities if necessary to stay economi ally sound.

But care should be take n to avoid too large areas of operation
because the sense of belonging becomes obscure.

The evi dence

indicates that the government has again started to encourage

a primary village society o n the grounds that local interest
is lost as contrasted to its previous policy of encouraging
multipurpose societies.
The Question of Liability
Proponents

of unlimit ed liability claim that it keeps

members watchful, makes supervision and mutual control

easier, and inspires confidence in the minds of outsiders.
But a hard working and honest member is penalized for the
mistakes of other members.
means of living.
livelihood?

An average member has limited

Why should society deprive him of his

The writer f ee ls that limited liability will

encourage sincere and honest people to join cooperative

1 M. A. Abrahamsen , A Look at Agricultural Cooperatives

in India, U. S. Department of Agr1culture, FCS C1rcu!ar 28
(Wash1ngton, D. C. : U. S. Gove rnment Printing Office, 1961),
p. 40 .

86
soc i e tie s .

The gove rnme nt should make some sort of insurance

provision for those soc i e ties who liqu1dat e or it should help

to build up provision f o r su c h a l oss.
Financial Ope rations and Credit Policy
Indian farmers, because of their limited income are not
in a position to contribute towards shared capital; thus the
government contributes large amounts of money to share capital.
This results in too much dependence upon government subsidy;
the real spirit of cooperation is lost.

No one should be

prevented from joining a society if he has a desire to become

a worthy member .

This can be done by lowering the initial

capital share and allowing subsequent payments towards share

capital.

In the meantime, central banking associations c an

provide financing r e quired by the society for its operations.

As far as possible every effort should be made to increase
the financial responsibility of members to their cooperatives
and to inspire confidence in the future of a cooperative
society.

This will need coordinat ed and concentrated efforts

by leaders of cooperatives.
The credit policy should be based upon the repayment
ability of the borrower, and not only on the security of
land or other collateral.

A small farmer, a landless tenant,

and a low income lab orer should be able to get a loan for a
productive or worthwhile purpose.

At present the government

is considering a proposal to make outright grants to provide

bad de bt reserves, thus indu cing cooperatives to advance

87

loans to marginal farmers and landless te nant s.

Cooperatives should tap l o cal savi ngs to a much greater
exte n t than at present .

This will e nable t hem t o become

independent and serve members at reduced c osts.

A small

saving weekly or monthly shou ld be ma de compulsory even i f

it is a smallest coin .

Th is will encourage thrift among

members.
A society should build up large reserves by adequate
charge for its service .

The cooperative should operate on

the income from its service cha rges.

They must be adequate

to cover expenses .
Loans should be given for produ c tive purposes but the
policy of granting loans should be flexible to meet the need
of borrowers.

Credit should be closely linked with produ c tion ,

marketi ng, and other simi lar activities.

o f cre dit should be in a constructive way .
both parties.

The distr i bution

It s hould benef i t

A society shou ld , therefore , ef fectiv ely

supervise the use of cre d it and bear i n mind the borrowers'

l e git imate needs and interests.
The d a te should be fixed for repayment and it should be
suitable to the borrower .

Overdues must be scaled down by

arranging their payments in i nstallments and in the meantime

fresh finance should be supplied for cultivation and other
nec essary expenses .
Mar keting Problems
The marketing problems i n I ndia are very complex .

Even

88

though pre s P nt c oope r a ttv e ma r k tLn g socte t1es are do1ng a

good JOh, more m.ark t1n g EOC Je tt s should be forme d
pror rly w1th c r e d1t , rr o d uctton , and
For

xa ~ p l e,

nd l1nked

roc ess1ng funct1ons.

s u rplus agricult u ral produce should be colJe ted

at as s ur d pr1ces ,

Th1s would 1 n sur e larger suppl t es of food

grains for meeting th e needs of the urba

larger credit facilitie

seet.or and provide

for the rural area.

In some parts

of the state of Maharastr a pr1mary agrtcultural so 1et1es

sold the1r suppl1es to pr1vate tract rs be .ause they could
not get higher p ric.es from c.entral cooperative organ1zatio ns.
Mr. M. A . Abrahamse n sees the n ed for revLSl.on of the
fa ilities and operat1ons of cooperatives .

He says ,

For coope ratives to de velop an effective program

of process1ng, marke ting, and distribution, greater
att e ntion Will n ed to b given to developing
ne ssary suppo. ting facill.ti e s and serv1ces and
training emplo ee s
o ope rat e them. These fa 1lJttes
and servi es inc lude star g , refrigera ion , mark t
Information, e tablishme nt nd use of grades and
standards, pa kaging , transportation arrangements
and e onomical distribution channels. Likewise
redit and supply ooperatives need to give increased effort to coordinate their efforts with
improved cultural and farm management practices. 2

Another vital problem l.S the lack of proper operat1ng

standards.

Very little has been done in developing different

kinds of ratios which measure oper-ating cost and eval uat e

2~ p. 38.

89
bus~ness

performan e.

from t h

pr ~mary

so Le t.y to the

Su .h measurements of
operat~ng

Th LS Lnadequacy appears to b

e rforman

standard s hould b

r~ght

ta e and na tiona 1 l e ve l .

Th~s

are highly des 1.rable . 3

develop d by the resear h

~nstL

tutes.
Th e number of

e ntral

ooperat ive assoc 1ations has b e n

redu ed to 3 9 0 {196 0- 61 ) from 400 ( 1959-60) , and

that the reduced number will result

~n

~t

better opera t~o n

eve r, this overlooks th e problems of wea ker primary

and poor transportation and communication .
to form a small union of primary
funct~ons

~s

societ~es

hoped
.

How-

soci e t~es

It would be better
so that the

of finance, supervision , and e ducation can be

entrusted to these union s, rather than the present arrangement

of many agencies involv e d in such activities.
Central and state cooperative organizations should be
involved more in their main activity of helping coopera tives
rather than engaging more in commercial activities.

There is

no objection to taking on such commercial activities provided

they serve the primary purpose for which they were organized.
Admittance of private individuals who are usually well-to- d o
should be discontinued, and only primary societies shoul d be
the members.

This will weed out vested interest groups who

want to control and use cooperatives for their own benefit.

Adequate accounting and auditing is another function
grossly neglected by all levels of cooperative societies ,

90
The soce t y should keep records of all transa t1ons Jn
ac ordane.e Wlth thEo h'y - l aws and so und coope r a ttv e pr aft l ce ..
Lt s houl d a l so ma1n t a1 n comrlPt E stock and equ 1cy r ecords .
Reports shou d be ava l ah)

S1n e

to dt.rcortors and merr<be rs .

t he rnaJor ct y of the 1nemners are vsuallv 1ll 1t erate ( part1cularl

1n vtl l a ges )

a soct ty ac ountant or manager

eas1 l y JUggle ac ounts .

The

pro bl e~

when these boo ks and records ar

disintereste d government aud1tor .

an

becomes more complex

aud1ted by a so - alJed
It is not 1nfrequent that

the government aud1tor joins 1n juggl1ng accounts .

It w1ll

take drast 1c and rigorous ef forts to ma ke these gove nment

offi ials work W1th som.e sense of pub l1. c duty and honest y .
Coordi natio n
The mu lti tude of government agencies and non- governm nt
agencies are involved 1n the bus1ness of cooperation.
is so much

There

onfus1on 1n the d1vision of duties and responsi-

bilities that 1t has led to lengthy bur aucratic procedures ,

red tape , and 1neff

ien y.

Fu r ther

oordination is needed

to bring together government officials and cooperative leaders,

parti ularly as applied to the programs of the
the state government .

entral

The need for bringing lo al

between government worker

nd

oordination

and lo al p ople is very urgent and

the develo pme nt of a fl exib l

a pproa .h 1s needed .

If experienc in Amer1 a 1.s any guide , it has

de monstr ate d that no one pattern i.s the a .n swer
when it comes to achieving the most effective
cooperat i.ve structute. Su h structure must
reflect the abi.li ty and 1nterest of people ,

91
Sel"VJC6 S "tO be pTOVLd d , a d th e COIP!IlUnit"l S
to te _ rve d . Am rJ(an e pe rL e nL-e has demonstrate d , more ov r , that fl e xtb1l1tv 1s a
gr e at ass e t 1n J~provtng th tl ~ lLne ss WLth
whtch vartous s e rvtc e s r e p rovtded . Such
fl e 1b tlt ty and Ll'''e I J ne::s a r oo hard Lo achcev
wh e n h e cooperat1v mold tS r e deterruned by
gov e rnrr.e nt regu l at 1.on and dtr ct1on . 4
Pu\:>1 1e

Re l a ttone

A cooper a t1ve should be a g ood ne 1.ghbor 1n t e

in wh1c h 1t 1s located .

ommuntty

Members , d1rectors , and e mployees

should conduct themselves 1.n su h a manner as to command the

respect of all persons 111 the
them .

ommun1ty and beeome part of

The mass1ve campatgn of 1nform1ng people about cooper-

ative advantages should be unde taken b

local , central ,

state ,

oope rative agencies , and the central and state govern-

ments .

The program m.us t b

is utter] l a king 1n Jnd1a .

sold to the people .

The c e ntral organizat1ons

should e c ourage local , reg1onal , natJonal

or sem1-annually.

Th1s is what

onventions annually

This w1ll bring members of

ooperatives

together to discuss the1 r mutual problems and nee ds .

ooper-

an only be sue essful i f 1t be omes a people's movement .

ative

Another important weakness of t h e cooperat1ve sector 1n

India is the vi ious self-indulgen e of many government
officials , ruling party members,
groups .

n d other vested interest

The cooperative has been used for the benefit of

these vested interests .

If the present tr-end continues the

92
cooperative effort will be an utter failure.

Again, a

quotation from Abrahamsen :

Pol1t1cal and religious neutrality is somet1mes
violated to such an ex t e nt as to produ ce 1njurious
functional1sm. A cooperative should endeavor to
be as impartial a.s any pr1vate prof1t bus1.n.ess
corporation. Cooperatives should not be used as
a "front" for a local c lique, organization, or
political group.s
The government and the ruling Congress Party should realize
their mistakes and help to make cooperatives work in their
true spirit.
Cooperative laws and rules should be made simpler and
understandable.

The present procedure for registration of

cooperatives, grant of loans by them, and their management

needs to be improved .

Laws of the central, federal, and

local government, by-laws of cooperative federated associations, and primary societies are so numerous and complex
that they create confusion in the mind of a literate person,
not to say an illiterate person.

The laws should be such as

will help and not impede the development of cooperation as

a popular movement.
The Government an d Cooperatives
The foregoing chapters have made it clear that the origin
and growth of the cooperative movement in India have been
mainly du e to government efforts .

It is understood that in

5 M. A. Abrahamsen, and C. H. Scroggs. Agricultural

Cooperation (Minneapolis : Universi ty of Minnesota Press,
1957), p. 462.

93

ount ies like India the d mo ratic government

aside.

.annot sit

It must take an active part in programs of e

development.

onom~c

But how far should the government go in promot-

ing, managing, and

ontrolling

ooperat ives?

has gone so far into the affairs of

The government

ooperatives that it is

in tho position of hindering the progress of the

as an independent institution.

ooperat~ve

The government has every

right to protect its financial contribution to the cooperative, but at the same time it should make a constant, sincere
effort to help cooperatives to stand on their own legs.
The evidence indicates it has been doing just the opposite.
It would be one thing if cooperatives assisted by the government tend to become independent economic units; instead one
sees growing interference of government officials and so ieties
relying more on government help.

If the government want s a

cooperative to function in its true sense it should:

1. Continue present government help in share capital,

bad debts, and other financial activities.
2. Withdraw all its appointed directors and representatives from the cooperatives.
3. Develop an effective audit and account system.
4. Confine its activities to general e ducation, training
in business methods and cooperation, special legislation for
cooperatives, monopoly

011trol, measures, and prices.

Ultimately the success of any measure depends upon general

economic progress, social, cu ltural, and educational improvement.

The cooperative movement in India has still a long way

94

to go in spite of ac tive governme nt support .

The gover nme nt

is con scious of its wea kness and is attempting to take corrective action.
The cooperative se tor does have policies, plans, and
government support but what it la ks is practical techniqu es
to sol v e probl ems , und rstanding of cooperativ e principles
a nd general e du cat ion, competent management, en lightened
membership, a nd sincere and honest workers.

It will take

de termination and hard work from everyone co ncerned to make

cooperatives an independent prosperous sector of the Indian
economy.

CHAPTER X
CONCLUSIONS
That the coope rative movement in India is making steady
progress is evident from the study made so far.
1. The number of cooperatives of all types has increased
from 1.81 to 3.32 lakhs.

The membership of primary societies

has in reased from 135 lakhs to 342 lakhs .

The increase in

the share capital was from Rs. 45.46 crores toRs. 221.57
crores, and working capital from Rs. 275.85 crores to Rs.
1,312.09 crores. 1
2. At the end of June 1.963 there were 21.2 lakh agricu1 tural

red it societies with a membership of 21.8 . 50 l.akhs.

The membership is expected to reach 29 million in the near

future. 2
3 . The provision of state 1aons of Rs. 380 crores has
been made for short-term and medium-credit during 1964-65 ,
as against Rs. 256 crores during 1962-63.

If the present

trend continues, at the end of third five year plan cooperative credit will reach Rs . 400 crores. 3

1 "Report of the Department of Cooperation," Indian

Information , May 1, 1964, pp. 210-211.
2 Ibid .
3 I bid.

96
4. State and

entral cooperat ive organizations showe d

increased finan cial strength.

285

The working capital of Rs.

rores, Rs. 400 crores, and Rs. 73 crores was noti ce d in

state,

entral, and central land mortgage banks , respectively.4

5. Agri ultu ral credit

the total societies.
c r e dit societies.

societ~es

numbered 64 perce nt of

This shows the dominance of agricultural

Among non-credit societies weaver's

societies, cooperative sugar factories, sugar cane supply

societies, and consumer stores showed increased strength.
6. A noteworthy progress is recorded by the non-agricultural credit societies like urban banks and employee
societies.
today.

More than 12,300 such societies are functioning

The wor king capital of such societies was Rs. 164

crores, composed mainly of owned funds and deposit s .

formed 62 percent of the working ca pital,

De pos its

This shows the

financial strength of no n-agricultural credit societies. 5

7. Cooperation has taken a multitude of forms and has
shown pract i ca l benefits in a variety of circumstances .

It

has shown the vast potential of being o ne of the major

institutions for technical, eco nomic, and social progress .
8. The Indian cooperative movement was not a spontaneous
proc e ss but a preconceived attempt to provide cultivators with
enough credit to carry on their agricultural operations and
less e n the power of money lenders who charged exorbitant

97
rates of interest.
9. The history of the cooperative movement in Ind ia
leads one to the conclusion th a t if a cooperative society is
to succeed, certain conditions must be fulfilled.

First, the

greater the social distinctions, the more difficult it is to

found successful cooperative s.

A se nse of solidarity among

the members is very vi tal to the success of a cooperative,

especially at the beginning stage when the cooperative is
financially weak and the utmost loyalt y of the membe rs is
ne eded .
10. Cooperative societies in general have shown weaknesses
in their financial structures, especially in capital investment.
11. Another vital factor is the quality of the leaders
who manage the daily conduct of business.

Most of the

cooperatives are managed by those who have little educat ion

and have no training and experience in managing a business.
This is especially true at the local l e vel.

Some training

for managers and executives of the local cooperatives is of

the greatest importance and increasing attention should be
given to this matter.

Inc luded in this group are both govern-

ment officials and cooperative leaders.

This vital problem

of able leaders and effective execut ion and supervision of

plans can be summarized by quoting Prime Minister Shastri of
India :
The main question before us is of the execution
of our plans and policies and how to introduce
the ne cessary vigor and effic iency required for

98
it. This naturally takes me to the problem of
efficiency and integrity of administration.
our public services have on the whole responded
well to the numberous calls that have been made
upon them since independence . But there is wide
spread feeling--whi h I share--that an extensive
reform is essential if the task of economic development and social reconstruction are to be
accomplished. Apart from this it is essential
in a. democracy that public service should be
sensitive to the feelings an d sentiments of
individual citizens. They should under all circumstances function not only with formal courtesy
but in the spirit of service. The administrative
organization and its methods and processes must
be modernized if it is to become an instrument
6
of economic change.
12. Central organizations formed by groups of similar
cooperatives play an important role.

The central organi-

zation should pay more attention to the

perfo1~ance

of

valuable services for their member societies such as those

of an organizational, technical, economic, legal, and administrative nature.
13. The cooperative form of organization is also subject
to criticism.

The great deal of time and money is spent in

comparison with private business organizations.

There are

too many cooperatives which are too small to be called

economic units.
14. Lack of proper bookkeeping and accounting has made
it impossible to compare the results of different underta kings
by public, private, and cooperative sectors.

6Prime Minister Shastri Defines New Government Policies,

India News, June 1964, p. 5.

99
Signific a nc e of the Conclusions
The cooperative move ment has occupied an important role
in the various sectors of the Indian economy.

The signifi-

cance of the cooperative society goes beyond that of an organization solely concerned with promoting the interest of its
members .

Cooperatives have tried to promote members' long-

term interest and have broadened their mental horizons.

In a country whose goal is democratic socialism, a
cooperative form of business organization has a vital place.
Cooperation has the merit of combining freedom and opportunity
for the small man with the benefits of large scale management
and organization, as well as good will and support from the
community .

Thus a rapidly growing cooperative sector with

special emphasis on the needs of the peasant, the worker,

and the consumer becomes a vital factor for social stability
for expansion of employment opportunities and for rapid
economic development.
The cooperative movement still has a long way to go in
India.

What littl e progress it has made with the help of

the government demonstrates that its rol e is by no means insignificant.

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