Cooperative movements in India and their importance for Indian agriculture

Following the recommendations of the Reserve Bank of India’s (RBI) Committee of Direction of the All-India Rural Credit Survey, the cooperative movement, both in the field of credit and agricultural processing, had a new lease of life. The village credit cooperative membership was confined to farmers—landowners as well as tenants. The Agricultural Refinance Corporation created by the RBI provided the working capital for advancing short-term credit to the cooperative members through the district (central) cooperative banks. These cooperative banks were created by the primary level credit cooperatives in the villages. Other than this, the working capital for advancing credit came from the share capital of the co-operative members. Because the bulk of the short-term credit came from this financial body, there were tight regulations about repayment and accommodation for farmer distress.

The system worked well in the initial years. It was based on the idea that farmers would deposit their monetary savings in the credit society, which would gradually come to depend more on such savings than on external funds. But, since these advances were largely public funds, there was gradual political pressure to keep the interest rate low. Farmers with surplus funds, no wonder, put their savings in banks and in other forms, and not in these societies as they were in no position to pay interest on such deposits at rates competitive with commercial banks. Consequently, with the refinance body laying down all conditions for the loan operations, the members did not show much interest in the decision-making process of the society.

Is it any surprise that by the beginning of the 21st century the cooperative credit movement in most states was virtually dead? It is worth noting that since the beginning of this millennium, the National Bank for Agriculture and Rural Development (NABARD) has even stopped publishing the annual statistical volumes related to rural cooperative credit, which it did as a responsibility taken over from the RBI. If primary cooperative credit has survived in states like Maharashtra and Gujarat, it is because the loans are mostly recovered through the sugar and milk cooperatives through which the farmer-members of these societies sell their produce.