Cooperatives Tackling Challenges, Building Opportunities

Cooperatives are people-centric enterprises owned, controlled, and run by and for their members to realise their common economic, social, and cultural needs and aspirations. Cooperatives aggregate the power of people who, on their own, would find it difficult to achieve their goals. Cooperatives are thus, unique entities that reduce individual risk in undertaking economic activities through a culture of shared productivity, decision-making, and creative problem-solving.

2.1 PRINCIPLES OF COOPERATIVES

Functioning of cooperatives is driven by higher values of self-help, self-responsibility, democracy, equality, transparency, and social responsibility (Figure 2.1). These characteristics distinguish them from other economic models and make them best suited to play a role in strengthening the rural economy.

Figure 2.1: Seven principles of cooperatives

2.2 HISTORY OF THE COOPERATIVE MOVEMENT IN INDIA

The culture of cooperation and the practice of cooperative activities are deeply ingrained in the Indian ethos. It has been 120 years since cooperative institutions received legal recognition in India with the enactment of the Cooperative Credit Societies Act, 1904. The law was passed to facilitate flow of institutional credit to farmers in view of the widespread distress in the agricultural sector in the latter part of the nineteenth century due to recurrent famines. The history of the cooperative movement since then is briefly traced in Figure 2.2 and Appendix Table A2.1.

Figure 2.2: Development milestones for the cooperative movement in India

ARC = Agricultural Refinance Corporation, CBS = Core Banking Solutions, CRAFICARD = Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, DCCB = District Central Cooperative Bank, NCDC = National Cooperative Development Corporation, NDDB = National Dairy Development Board, RBI = Reserve Bank of India.

2.3 CONSTITUTIONAL FRAMEWORK OF COOPERATIVES IN INDIA

‘Cooperative societies’ is a state subject under Entry 32 of the State List of Seventh Schedule of the Constitution of India. Cooperative societies functioning within a single state are governed by the Cooperative Societies Act of their respective state/Union Territory (UT). Cooperative societies functioning in more than one state/UT are governed by Multi-State Cooperative Societies Act, 2002 under the purview of Government of India (GOI). Constitution (97th Amendment) Act, 2011 granted citizens the fundamental right to form cooperative societies and included a directive under the Directive Principles of State Policy requiring the state (government) to promote voluntary formation, autonomous functioning, democratic control, and professional management of cooperative societies.

Cooperative banks are basically cooperative societies which are registered under the Cooperative Societies Act of the state concerned or under the Multi-State Cooperative Societies Act, 2002. Central and state laws on cooperative societies generally deal with incorporation, regulation, and winding up of the cooperative societies. When cooperative societies carry on the business of banking, they come under the regulatory purview of the Reserve Bank of India, and they are licensed under the provisions of the Banking Regulation, Act, 1949.

2.4 INDIAN COOPERATIVES IN THE GLOBAL CONTEXT

The Indian cooperative movement is one of the largest in the world with nearly 8 lakh cooperative societies (of the 30 lakh globally)¹ and a membership base of over 29 crore people.² India accounts for nearly 27% of all cooperatives in the world.³ Over 20% of Indian population⁴ is estimated to be part of the cooperative movement in comparison to the global average of 12%.⁵ Of the 300 largest cooperatives in the world (by turnover/GDP per capita), 15 are from India with IFFCO at top position, followed by Amul.⁶ India ranks second in the Asia Pacific region (after Japan) and sixth in the world (after USA, France, Germany, Brazil, and Japan) in terms of number of cooperatives under this category.⁷ Among the top 300 cooperatives listed by turnover (US$), IFFCO is placed 72^nd, Amul 90^th, and KRIBHCO 236^th.⁸

2.5 COOPERATIVE SCENARIO IN INDIA⁹

2.5.1 Sectoral distribution

The cooperatives in India cover a wide array of activities, including credit and banking, fertiliser, sugar, dairy, marketing, consumer goods, handloom, handicraft, fisheries, housing, etc. Housing (24%), dairy (17.7%), and PACS–FSS–LAMPS (13%) account for over 54% of all the cooperatives in the country (Figure 2.3, Appendix Table A2.2).¹⁰ Also, 48% of the total cooperative members are associated with PACS–FSS–LAMPS. Dairy cooperatives and their federations have been especially successful in India, contributing to equitable growth of their members (Showcase 2.1).

Figure 2.3: Cooperative societies by sector (number in lakh)

FSS = Farmers’ Service Society, LAMPS = Large Area Multipurpose Cooperative Society , PACS = Primary Agricultural Credit Society.

Note: The difference between the PACS and ‘credit and thrift’ societies is that the ‘credit and thrift’ societies are dependent primarily on member savings for meeting the credit needs of their members. The PACS were originally thrift-oriented credit institutions but have matured into channels for disbursing credit by availing refinance with limited emphasis on deposit mobilisation (barring a few states like Kerala). Source: National Cooperative Database, Ministry of Cooperation, Government of India. https://cooperatives.gov.in/en.

2.5.2 Regional distribution

Though India has a very large number of cooperatives, the spread of the cooperative movement has not been uniform across states. Maharashtra alone accounts for over a fourth of the total cooperatives in the country. The top 5 states with the largest number of cooperatives accounting for over 57% of the cooperatives in the country are Maharashtra, Gujarat, Telangana, Madhya Pradesh, and Karnataka (Appendix Table A2.3).

Figure 2.4: Cooperative membership as a percentage of population by state (2023)

Sources:

• No. of cooperatives and membership data sourced from National Cooperative Database 2023, Ministry of Cooperation, Government of India. https://cooperatives.gov.in/en.
• Estimated population data sourced from Unique Identification Authority of India.

Among the big states, cooperative membership as a percentage of estimated total population is much higher in the states in the southern and western regions than the eastern and north-eastern. Cooperative membership as a percentage of total population was highest in Kerala (77%) followed by Karnataka (50%), and lowest in Mizoram (4%). There are still 18,497 gram panchayats not covered by a PACS in India and the government has launched a central plan to establish a cooperative society in each of these.¹¹

2.6 NABARD’S MANDATE OF SUPPORTING RURAL COOPERATIVES

Development of rural institutions is one of the core mandates of NABARD and a part of its corporate mission statement. NABARD’s role in the development of cooperative sector can be broadly summarised under the domains of refinance support, developmental support, policy support, and supervisory role (Figure 2.5).

Figure 2.5: NABARD’s mandate of supporting the development of rural cooperatives

2.7 NABARD INITIATIVES IN DEVELOPING THE COOPERATIVE SECTOR

2.7.1 Cooperation amongst Cooperatives

‘Cooperation amongst Cooperatives’ is one of the fundamental principles of the cooperative movement and it helps in achieving synergies by bringing together different types of cooperative institutions to strengthen the movement and in increasing their share in the contribution to the economy. A pilot project to promote ‘Cooperation amongst Cooperatives’ was launched by the Union Minister for Cooperation on NABARD Foundation Day (12 July 2023) in Banaskantha and Panchmahal DCCBs of Gujarat to promote financial transactions of primary dairy cooperative societies with cooperative banks and to strengthen the cooperative sector to increase its self reliance (also see Showcase 6.1 of this report). After the success of the pilot project, the campaign on ‘Cooperation amongst Cooperatives’ was launched in all districts of Gujarat by the Chief Minister of Gujarat on 15 January 2024.

2.7.2 CBS upgrade in rural cooperative banks

NABARD encouraged and supported the process of bringing the RCBs onto the Core Banking Solutions (CBS) platform.

Figure 2.6: NABARD-initiated project for CBS in cooperatives

AePS = Aadhar Enabled Payment System, BBPS = Bharat Bill Payment System, BHIM UPI = Bharat Interface for Money Unified Payments Interface, CBS = Core Banking Solutions, CKYCR = Central ‘Know Your Customer’ Records Registry, DCCB = District Central Cooperative Bank, PFMS = Public Financial Management System, RCB = Rural Cooperative Bank, StCB = State Cooperative Bank, UT = Union Territory.

NABARD, in August 2022, kicked off the ‘National Level Study on Core Banking Solutions in Rural Cooperative Banks’. The report indicated a list of ‘Must-Have’ and ‘Good-to-Have’ modules which NABARD has been pursuing with the CBS vendors to ensure their availability in the CBS system. NABARD, in its endeavour to enable the RCBs to have access to latest technologies in the banking sector, is working to facilitate common platforms for various initiatives like Centralised Account Aggregator platform, Cyber Insurance, Common MIS Server, Centralised Payment System, etc., for the RCBs.

2.7.3 National Conference on Best Practices in Rural Cooperative Banks

A two-day ‘National Conference on Best Practices in Rural Cooperative Banks’ was organised at Lucknow on 16–17 October 2023, attended by about 200 participants. Others watched the live stream of the proceedings on YouTube. The workshop deliberated on the best practices of RCBs in areas of governance, business diversification, human resource management, technology adoption and the way forward in these areas.

2.7.4 Promoting fintech engagement of rural credit cooperatives

India is increasingly moving towards digital banking, and fintech companies are largely driving this change. To promote the fintech engagement of the RCBs so that they may offer digitally-enabled banking solutions to the rural populace, NABARD organised a two-day fintech workshop for the RCBs on 11–12 March 2024 at Lucknow. The objective of the workshop was to create awareness amongst the RCBs on fintech/agritech applications, enable an understanding of the technology needs of the RCBs, and foster collaboration between the RCBs and fintech/agritech companies. Also, NABARD, in collaboration with NABVENTURES, conducted a panel discussion on the topic ‘Collaboration amongst FinTechs and RFIs’ at the Global Fintech Festival 2023 on 7 September 2023.

2.8 WAY FORWARD

The growth disparities between the rural and urban economies are a matter of concern and may exacerbate income inequality in the country. The agriculture and allied sector comprising of livestock, forestry, and fisheries is the bedrock of the rural economy and one of the largest providers of rural employment.

The cooperatives provide a third alternative, with free-market organisations at the one end (which provide goods and services through exchanges in the market) and the state-owned organisations at the other (which provides goods and services through state control). The all-inclusive cooperative model provides a successful and sustainable economic alternative for equitable growth in the Amrit Kaal.

While promoting the cooperative sector as the backbone of the new Indian economy, it is important to address the present weaknesses. Lack of technology adoption has been one of the major reasons which contributed to the decline in market share of cooperatives. The computerisation of the PACS and ARDBs is expected to digitise the operations of grassroot-level organisations and improve transparency and efficiency in their operations.

NABARD is working towards developing a Cooperative Governance Index (CGI) for rural cooperative banks to assess and improve governance standards.

Members’ education and awareness of cooperative principles, management, rights, and duties should be given due emphasis by policy planners and implementers.

To build a future cadre of trained cooperators, curricula of schools and colleges, as well as specialised management courses should have modules devoted to the study of cooperatives.

It should be the endeavour of all stakeholders to see that the RCBs increase their share in agriculture credit from the current 11% to at least 20% by 2030 and 40% by FY2047.

NOTES

Table A2.1: Development milestones for the cooperative movement in India

ARC = Agricultural Refinance Corporation, ARDB = Agriculture and Rural Development Bank, CBS = Core Banking Solutions, CCB = Central Cooperative Bank, CRAFICARD = Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, CRAR = Capital to Risk (Weighted) Assets Ratio, DCCB = District Central Cooperative Bank, GOI = Government of India, J&K = Jammu and Kashmir, LDB = Land Development Banks, LMB = Land Mortgage Bank, LT = Long Term, NRC (LTO) Fund = National Rural Credit (Long-Term Operations) Fund, NCDC = National Cooperative Development Corporation, NDDB = National Dairy Development Board, PACS = Primary Agricultural Credit Societies, RBI = Reserve Bank of India, RCB = Rural Cooperative Bank, StCB = State Cooperative Bank, UP = Uttar Pradesh, UT = Union Territory

Table A2.2: Cooperative society membership by sector (2023)

FSS = Farmers’ Service Society, LAMPS = Large Area Multipurpose Cooperative Society, PACS = Primary Agricultural Credit Society. Note: The difference between the PACS and ‘credit and thrift’ societies is that the ‘credit and thrift’ societies are dependent primarily on member savings for meeting the credit needs of their members. The PACS were originally thrift-oriented credit institutions but have matured into channels for disbursing credit by availing refinance with limited emphasis on deposit mobilisation (barring a few states like Kerala). Source: National Cooperative Database, Ministry of Cooperation, Government of India. https://cooperatives.gov.in/en.

Table A2.3: Cooperative society membership by state (2023)

Note: Data on aggregate members may include membership of an individual in multiple societies.

Source:

• No. of cooperatives and membership data sourced from National Cooperative Database 2023, Ministry of Cooperation, Government of India. https://cooperatives.gov.in/en.
• Estimated population data sourced from Unique Identification Authority of India.