Co-operation ministry: Harbinger of hope?

How the new Ministry of Co-operation can make a significant positive impact on the ground

On July 6, the Government of India announced the creation of a new Ministry of Co-operation. This is potentially a historic decision. Over 300 million people are members of around 800,000 co-operatives in India today. Over the years, co-operatives have taken on multiple avatars but our focus in this article is the credit co-operatives, whose significance for the rural poor cannot be overstated. Even till the early 1990s, co-operatives provided over 60 per cent of the total institutional credit to agriculture. Many also provide farm inputs and serve as outlets of the public distribution system for food and other essentials. Tragically, co-operatives have suffered a serious decline over the years, with their share in institutional credit reduced to a mere 10 per cent today. 

The unholy trinity of moneylender-trader-landlords actually made a comeback in the rural credit market after the 1990s, when profitability norms were strictly enforced on public sector banks (PSBs). The increasingly robust partnership of women’s self-help groups (SHGs) with PSBs did enable some pushback against the trinity in recent years. But to decisively break the stranglehold of usurious moneylenders, who are the very lynchpin of a centuries-old system of oppression and exploitation in rural India, we need a reformed and rejuvenated co-operative sector.

So what can the new ministry do to help? The fact that co-operatives are a State subject under the Seventh schedule of the Constitution has led many to raise legitimate concerns regarding a possible politically-motivated overreach by the Centre, potentially violative of its avowed policy of co-operative federalism. However, we believe that like for other State subjects such as water and agriculture, there is a definite role for the Centre to play, so long as it happens within a framework that seeks to strengthen the hands of the states and reinforces the principle of subsidiarity, which means seeking solutions to problems closest to where they are located and not imposing one-size-fits-all quick fixes to every problem, which has been and continues to be the bane of centralised planning in India, the abolition of the Planning Commission notwithstanding.

Co-operatives have declined due to rampant corruption and political manipulation, with transparency, management and governance suffering in the process. The reform of co-operatives must enable them to evolve into member-centric, democratic, self-governing and financially well-managed institutions. This was the key recommendation of the 2005 Task Force on Revival of Rural Co-operative Credit Institutions led by the eminent economist, A Vaidyanathan. The suggestions of this task force must constitute the centrepiece of the work of the new Ministry of Co-operation. Of course, a careful reflection on the challenges facing the implementation of these recommendations should inform the work of the ministry.

Illustration: Binay Sinha

One of the key elements of the architecture of reform that would nudge the states to buy-in is to make the financial support provided by the Centre conditional on the reforms undertaken by the states to professionalise and democratise the functioning of the Primary Agricultural Credit Societies (PACS), which are the foundation of the rural co-operative credit structure. Once PACS are reformed and strengthened, their district- and state-level peers would also emerge on a stronger footing. This is a humongous exercise involving audit and clean-up of balance sheets, installing sound accounting and monitoring systems to enable them to remain competitive and foster much-needed transparency, technological upgrade and capacity building of personnel of hundreds of thousands of PACS. 

The Centre should bear a lion’s share of the cost, once the states agree to undertake these tasks. This requires the Centre to develop an overarching framework of norms, principles and practices of finance, governance, management and legal reform that states should debate and deliberate and finally agree upon within a specified time-frame. In the years since the Vaidyanathan report, a major positive development has been the growth of robust and powerful SHGs and SHG Federations. Learning from their successes, as also a careful diagnostic of their failures, could be very instructive while implementing solutions for co-operatives.

The fundamental question here concerns the role of the state and its relationship with civil society. Those who believe that the role of the state is crucial should at the same time recognise that this role must be one that supports, facilitates and strengthens civil society action in partnership with the most vulnerable. Unfortunately, very often state action, in the guise of supporting the poor, has ended up seriously harming their cause. And even many farmers’ movements have lobbied for repeated loan melas and loan waivers, which have only ended up undermining institutions like PSBs and PACS. That, in turn, leads to an unhealthy clamour for shutting them down, as their balance sheets inevitably veer into red territory. 

It is precisely this challenge that faces the new ministry and is a test of its true intentions. Will it succumb to the temptation of short-term political gain, based on command-and-control? Or will it work towards the long-term health of these critically important institutions? It is to be hoped that the naysayers will be proved wrong and the ministry will become a harbinger of the revival of co-operation in the spirit of genuine co-operative federalism.

The writer is distinguished professor, Shiv Nadar University and a former member, Planning Commission, Government of India