Introduction || APPENDIX (CH-4) || APPENDIX (CH-9) || ANNEXURE (CH-12) || APPENDIX (CH-14) || APPENDIX (CH-24) || APPENDIX (CH-29) || Conclusion
Chapter- 1 || 2 || 3 || 4 || 5 || 6 || 7 || 8 || 9 || 10 || 11 || 12 || 13 || 14 || 15 || 16 || 17 || 18 || 19 || 20 || 21 || 22 || 23 || 24 || 25 || 26 || 27 || 28 || 29 || 30 || 31 || 32 || 33 || 34 || 35 || 36 || 37 || 38 || 39

Chapter 10:
DEVELOPMENT OF THE CO-OPERATIVE MOVEMENT

In India, as in many other countries, co-operation started as a means of ensuring for the poorly equipped citizens advantages which better placed persons were able to command by their own individual resources. The principle of mutual aid, which is the basis of co-operative organisation, and the practice of thrift and self-help which sustain it, generate a sturdy feeling of self-reliance which is of basic importance in a democratic way of life. By pooling their experience and knowledge and by helping one another, members of co-operative societies can not only find the solutions of individual problems but also become better citizens. In an unregulated economy, the terms of contract are frequently weighted in favour of persons of large means. Those who have the command of scarce resources are left free to drive a bargain with those who need such resources but are ill-equipped to compete for their possession. In a relatively stagnant agricultural economy of small holders, undergoing a transition from barter to money economy and from local to national and international exchange, the possession of capital naturally confers a strategic advantage. The evils of usury, indebtedness and widespread indigence which were rampant in the rural areas at the turn of the century were the inevitable outcome of the economic transition that was then taking place.

2. After the experience of the limited success of merely regulatory laws like the several anti-usury measures, an effort at building up by mutual association the people's own credit institutions was sponsored by government. In the then prevailing atmosphere of economic passivity on the part of the State this official sponsoring of a special form of organization was considered to be a great event. The first piece of co-operative legislation was the Co-operative Credit Societies Act of 1904, which was amended in 1912 to permit the formation of societies tor purposes other than credit. As a result, societies for a variety of purposes began to be organized. This process of diversification was, however, slow in its pace, until the special needs of the period of the Second World War, and the subsequent years of reconstruction invested co-operative organizations with a special importance and significance. When individualism was the order of the day, co-operation represented a defensive act of association on the part of individual citizens. But with the adoption of the principle of social regulation, the co-operative societies, which from their commencement in this country have been socially sponsored and supported, came to occupy a more positive role. In a regime of planned development, co-operation is an instrument, which while retaining some of the advantages of decentralisation and local initiative will yet serve willingly and readily the overall purposes and directives of the plan. This has been amply proved by the recent experience of India, as also of other countries, like the U.K. which hswe entered upon an era of democratic planning. The co-operative form of organization can no longer be treated as only a species within the private sector. It is an indispensable instrument of planned economic action in a democracy.

3. The broad features of the history and evolution of co-operation in India are unmistakable. With 181,000 Societies, a membership of about 14 million and a workin capital of Rs. 276 crores the movement constitutes an important economic and social force in the country. It has shown a steady quantitative expansion, especially during the last five years. Even more striking than the expansion in numbers and size, is the growing diversity of functions assumed by co-operative societies. Besides agricultural societies of all types credit, processing, marketing, farming, irrigation, consolidation, etc.,there are industrial co-operatives, labour societies, consumers' co-operatives in rural as well as in urban areas , housing societies ;processing factories; and urban banks. However, agricultural societies still constitute more than 80 per cent of the total and of these credit societies are still by far the most numerous. The non-credit and the non-agricultural forms are, however, making steady progress The conditions created by the Second World War, the emphasis on intensive and rapid rural development in the post-war reconstruction programmes of State Governments, arid the channelling of state aid activity through co-operative institutions have been responsible for this trend.

4. An increasing measure of responsibility for organising and financing rural economic development is being shouldered by co-operatives. Both the natural evolution of co-operative activity, and the impetus of the special need created in several parts of the country by agrarian legislation regulating the business of money-lenders, scaling down of debts, restricting rents and abolishing landlordism are responsible for the striking increase in the operations of co-operative credit societies. Co-operation is in fact being transformed steadily yet surely, from a tolerated exception into a general rule. In industry, commerce, transport and retail distribution co-operatives are gaining experience and strength. Different State Governments sometimes emphasize different fields of co-operative activity in keeping with local conditions. There can be no doubt, however, that a new awareness of an opportunity to build up a form of business organisation more suited to the conditions and needs of the times than the joint stock company has come over the people of small means everywhere. The joint stock company is too cumbersome as an organization for the small producer, agricultural or industrial. What is needed and what the co-operative society has provided is a simpler form of organization more suited to the needs of the people to be served and therefore likely to be more acceptable.

5. We have in several parts of this report expressed our preference for the co-operative organisation of the economic activities of the people, especially of those activities e.g., agriculture, marketing, cottage and processing industries and internal trade, which form the most important part of the developmental schemes included in the Plan. As an instrument of democratic planning, combining initiative, mutual benefit and social purpose, co-operation must be an essential feature of the programme for the implementation of the Five Year Plan. As it is the purpose of the Plan to change the economy of the country from an individualistic to a socially regulated and co-operative basis, its success should be judged, among other things, by the extent to which it is implemented through co-operative organisations. The Planning Commission in consultation with the State Governments, co-operative organizations, and the Reserve Bank intends to formulate a more specific programme for the expansion of the movement in all the sectors in respect of which co-operative organisation has been considered suitable.

Co-Operatives And Panchayats

6. We are anxious to ensure that in the agricultural part of our Plan the village as a whole should be actively associated in framing targets, in suggesting suitable methods for achieving them, in evolving and directing a suitable organisation for day to day working and in checking periodically the progress made. A willing and constructive participation of the people can alone ensure the success of the Plan. While a general stirring of the aspirations of the people is to be noticed all over the country, the establishment and successful working of village organisations remain to be achieved in many parts. Latterly there has been a welcome earnestness on the part of State Governments for the establishment of Panchayats as civic and developmental bodies charged with the general responsibility of attending to ^he collective welfare of the village community. Panchayats have an indispensable role to play in the rural ,areas. As representing the best interests of all sections of the community their status is unique. Many activities such «s, framing programmes of production for the village, obtaining and utilising governmental assistance for the betterment of the village, such as, the construction of roads, tanks, etc., encouraging villagers to improve the standards of cultivation, organising voluntaiy labour for community works and generally assisting in the implementation of economic an social reform legislation passed by the States, will naturally fall within the purview of the panchayat.

7. On thf; other hand, for the working of individual programmes of economic development, where not only the general interest but also the specific responsibility and liability of a member have to be ensured, a more integrated and binding form of association is needed. Specific and practical tasks of reclaiming land, of providing resources for better cultivation, of marketing the produce of the villagers, both agriculturists and artisans, can be best performed through co-operatives. The co-operative agencies will naturally have to conform to the principles of business management, namely, of satisfactory service and economical working. That they are not profiteering associations and that they function for mutual service makes them desirable agents of democratic planning. It is therefore very necessary that Co-operative agencies in the village should have the closest possible relationship with the principal democratic body namely, the panchayat. Though in the discharge of their functions the two bodies have specific fields to operate, in a number of common functions by having mutual representation and by having common ad-hoc committees, it will be possible to build up a structure of democratic management of developmental plans through both the organisations, the panchayats and the co-operative societies. We therefore suggest that in so far as institutional reform is an essential part of the implementation of the Five Year Plan, emphasis in due proportion and in appropriate fields should be placed both on panchayats and on co-operative societies.

Multi-Purpose And Credit Societies

8. The States as a whole are conscious of the importance of developing co-operative societies as a means of re-organisation of rural life. Among co-operative bodies working in rural areas, the multi-purpose society has quite rightly come to occupy an important place. It has come to be realised that division of the needs, activity and assets of a villager into mutually exclusive parts such as credit, production, sale etc., is somewhat artificial. At any rate, it has been agreed that for the future an attempt should be made to have in each village a co-operative organisation which will cater for the multiple needs of its members. In some parts of the country efforts are now being made to transform many of the credit societies, which historically have been the most important co-operative organisations, into multi-purpose societies, The emphasis now being placed on the concentrated and all-sided development of rural areas would suggest the desirability of encouraging such transformation. Pending this development the credit societies will continue to play a vital role in rural economy. In fact it is dim-cult to over-estimate the importance of the services that rural societies could render in the sphere of credit organisation.

9. Recently there has been a noticeable increase of money incomes in the agricultural sector of the economy. Much of the development that will be brought about under the Five Year Plan will strengthen this tendency. While therefore, on the one hand, larger sums will come to be disbursed in rural areas, it is of the utmost importance to see that monies so spent do not go outside the system of organised credit. In other words, rural savings and monies generally in the hands of the rural population have to be kept flowing into credit organisations. A co-operative society is calculated to do this much better than almost any other organisation. In the Co-operative form of organization the provision of resources such as credit goes with the practice of thrift. Even if a village co-operative is too small to open a savings account for its members it can induce them either to open accounts with the postal savings banks or the Central Co-operative Banks. It can also function as an authorised agent for savings, Poromoting savings schemes sponsored by the State or Central Governments. The establishment of credit societies in villages is thus a sine qua non of the organisation of credit in the context of planned investment in the developmental schemes approved in the Plan.

10. In the past the village credit societies have been accustomed to secure their finance from central financing agencies operating in urban centres and utilising mostly capital resources made available by the urban classes. In keeping with the normal financial structure an apex co-operative bank has also been established almost in all States. The State Governments have lately taken a more active part in assisting financially the apex banks. The Reserve Bank which as the Central Bank of the country is interested in the creation of a co-ordinated and sound system of rural credit as recently liberalised its procedure for accommodation to co-operative banks. We have ourselves recommended in Chapter XVI that the advances to the cultivators through the institutional agencies {i.e. the Government and the co-operatives, the latter with the assistance o the Reserve Bank) should- be steadily increased so as to reach the limit of at least Rs. 100 crores per annum by the end of the Plan year 1955-56. If, however, the credit structure of the country is to be geared to an increasing pace with economic activity in rural areas an intensive effort at integrating all the channels of credit for the common purpose is needed.

Sale And Purchase Societies

11. The purchase of the agriculturist's requirements and the sale of his produce are key activities in the business of farming and their importance is likely to be even more crucial in a socially regulated economy. Due to his inability to secure a fair deal at these two stages the average agriculturist is denied the full fruits of his industry. The organisation therefore of co-operative sale and purchase societies and of other marketing organisations is vital both for its direct and indirect benefits. With credit and marketing co-operatively organised all over the country not only would the success of the present initial Plan be more adequately assured but the stage will be set for a much more ambitious and constructive programme of rural development.

12. The emphasis of the Plan is on augmenting agricultural production. In this sphere co-operation has a very significant contribution to make. Co-operatives can help to increase the effectiveness of extension work. Other services which a cultivator needs for efficient utilization of his land can also be made availalle through co-operative agencies. Such aids as seeds, fertilizers, and implements on which depends the profitable exploitation of the resources of the soil can be effectively placed at the disposal even of the small farmer by co-operative societies. In fact, in the field of agriculture co-operation comprises almost every activity that is connoted by the term agricultural organization. It is the best medium for promoting a progressive agriculture. Major items of agricultural development e.g. consolidation of holdings, soil conservation and provision of facilities for irrigation as well as current needs such as protection of crops from pests, diseases and animals can be most effectively served through co-operative organizations.

Co-Pperative Farming

13. In most parts of the country for ensuring economic cultivation an increase in the unit of cultivation is necessary. Here again, co-operative farming has direct relevance. Without under-mining the sense of proprietorship and the incentive to industry that it gives, co-operative farms can produce all the advantages that a larger unit possesses. A community which has been accustomed to the advantages of co-operative association in other vital matters of its business will be more successfully approached for establishing a co-operative farm than is possible in a community in which co-operation has made little headway. While the controversy between voluntary and compulsory formation of co-operative farms may at this stage be avoided, it can be suggested that in any area where a majority of holders representing at least half of the total area under cultivation desire to establish a co-operative farm, legislative means should be at their disposal to proceed with the formation of a co-operative farming society for the whole village. The State on its part should do everything in its power to encourage the establishment of such farms and to promote their satisfactory working afterwards. Farming through a co-operative calls for a number of individual and corporate virtues on the part of members. It will therefore be some time before co-operative farms reach a developed stage. If during the period of the First Five Year Plan, in representative areas of different States a good number of societies are established as going concerns, we can proceed more confidently to expand that pattern of cultivation in the next Five Year Plan.

Co-Operation And Community Projects

14. For the intensive and all-sided development of the villages the community projects hav recently been launched in the various States. The purpose and the organisation of the; ' projects have been touched on elsewhere in this Report. We have recommended tha; in all the aspects of community development co-operative methods of organisation sho Id be adopted to the maximum possible extent. As is obvious, the ultimate justification of ( immunity projects will depend on the extent to which the people are enabled to make self reliant efforts to carry out all their activities in an improved, business-like and progressive mai ner. While the leadership and assistance of departmental and external sources will to son extent help in initiating the process of community development, for the development to be ermanent and expanding the people must be active participants in the whole process. It i not easy to conceive how, in the absence of co-operative organisation of their business anc of their social activities, this desirable object of community projects can be realised. Wl le the working of these projects is no doubt likely to vary from area to area in keeping wit the local environment, a broad co-operative pattern should be considered essential. As in other spheres of co-operative expansion, the programme of reform should take acc» 'unt of the financial and personnel resources that will be made available by departmental as well as institutional agencies. It is, however, essential that in every community project area a programme for all round co-operative development .should be drawn up. The establishment of various types of co-operative societies after educating the local public regarding their benefit will be the best means of enlisting the "ctive support of the people on a voluntary basis for works of improvement on an organized scale.

Industrial Co-Operatives

15. In the rural areas the needs of employment will not all be met by farming. The Plan contemplates several improvements such as irrigation, soil conservation, and reclamation which may succeed in giving fuller employment to agriculturists than what they have at present. But limitations of nature will in many instances require that the agriculturists should turn to some other occupations during the slack seasons. Besides these part-time workers there are in the villages several classes of artisans who under the pressure of competition from organised industry are finding it difficult to maintain their traditional employments. Chapters bearing on village and small scale industries contain recommendations for the solution of problems connected with these classes of the rural population. We have indicated therein the advantage of establishing industrial cooperatives for such workers. While the formation of agricultural co-operatives is by now a familiar experience, industrial co-operatives are still in their infancy. Their activity is so directly in touch with the moving events of a competitive market that the uncertainties of their business often loom larger than their basic importance. Moreover, co-operative financing and marketing agencies have yet very limited experience of doing business with industrial co-operatives. As a result of these factors, the future of industrial co-operatives is yet not so well-established as appears to be the case with agricultural co-operatives. As we have recommended elsewhere, we desire that cottage and small scale industries should have for themselves well-marked fields which are not encroached upon by large-scale industry. This principle will no doubt have to be translated into more specific and concrete terms as a result of further investigations and experience. When this is done the conditions for the successful operation of industrial cooperatives will be more assured. In the mean while, it is desirable that co-operatives organised for the several trades be established on a sound footing.

16. While it is possible and indeed desirable that the special advantages recommended by us elsewhere should be made available to the members of these co-operative societies, their place in the industrial structure of a planned economy will ultimately depend on their efficiency. Nothing should be done which will undermine the initiative and self-confidence of the members of these societies. Aids in respect of power, implements, raw materials, technical advice and marketing facilities should all be made co-operatively available to these societies. It is not necessary for us in the present context to suggest how the organisation of the industrial co-operatives themselves should develop fromthe village to the State level. We expect that according to the experience of each State, some form of federal organisation will in due course evolve. But in respect of the capital needs of these co-operatives it must be emphasised that provision for finance will have to be made commensurate with the extent to which the industrial co-operatives are expected to fulfil given targets of production. Whether the existing co-operative financing agencies can continue to offer finance for in dustrial activities which are somewhat special and, if so, to what extent is a matter in respect of which further enquiry by the States concerned, as also by the Reserve Bank, will have to be undertaken. We note that many of the States are establishing industrial finance corporations, designed for the most part for meeting the financial needs of comparatively small-scale units of industry. The Plan also provides Rs. 15 crores for assisting small-scale and cottage industries. We would recommend that financial aid from this provision and from such corporations should by preference be made available to co-operatively organised industries. With artisans' industry co-operatively developed and with a number of processing factories established on a co-operative basis, a growing portion of rural economic activities will come within the co-operatives sphere. For reasons mentioned earlier in this chapter, such development will conform to the requirements of democratic planning and will make it possible at later stages of planning to formulate more comprehensive schemes of economic progress.

Urban Co-Operatives

17. While in the immediate future extension of co-operation is most urgently called for in the rural area, where agricultural operations play a dominant part, the urban sector of the co-operative movement has also to develop along systematic lines, if in due course it is to make its contribution to planned development. In urban areas there are a number of artisans of small means who find it difficult to organise themselves in keeping with the requirements of modern times. It is to be desired on social as well as on economic grounds that members of this class should be enabled to reorganise themselves to be able to take full advantage of modern scientific methods. Small industries cooperatively using advantages like power and special techniques will be able to make a significant contribution to the industrialisation of the country. We have elsewhere expressed our preference for a decentralised type of industrialisation and how far we can go in the direction of decentralisation without loss of economic advantage will depend to a very large extent on the capacity of artisans to organise themselves on a cooperative basis. The utility of co-operation in the urban areas extends to the credit and other needs of small entrepreneurs and cottage workers. Urban banking conducted on co-operative lines has a very important role to play in this field. Co-operative banks are more democratic and more amenable to local control than even small sized joint stock banks, and hence urban banking closely associated, with other forms of urban co-operation ought to be more purposefully developed.

18. In urban areas special importance must be attached to consumers' co-operatives. Unfortunately, we notice that as yet, the development of consumers' cooperatives has not made enough progress in the country. Under the influence of rationing and governmental distribution of scarce goods, a number of consumers' societies have no doubt come into being. They have, however, as a class failed to extend their usefulness beyond these limits. Their future, therefore, in the event of removal of controls on distribution of essential articles is somewhat uncertain. The success of consumers' co-operation will primarily depend on the enthusiasm and preference that the co-operators themselves succeed in creating among their fellow citizens. It should, however, be possible for the State to adjust its policies in such a -way that the legitimate interests of consumers' co-operative societies are not ignored by those departments of the Central and State Governments which have to attend to their claims. It would in our opinion be in the best interest of the planned development of distributive trades that an attempt be made to build up consumers' co-operatives over as wide a field of distribution as possible. Here again, the questions of finance and credit are likely to be very important. We must, however, remember that to the extent to which co-operatives replace private business, capital engaged in the latter will tend to be released. If a common credit policy is made effective for all credit agencies a transfer of functions will gradually but effectively bring about an appropriate transfer of financial resources.

19. A problem of urban areas in regard to which co-operation has a special significance has been touched upon by us in our chapter on housing. While "it is not necessary in this place to cover the same ground again, it must be stated that with the strong urge towards , urbanisation that industrialisation is bound to promote, housing assumes crucial importance. While institutional activity such as that undertaken by governmental departments, civic bodies and employers' associations, will meet the situation to a certain extent, a considerable burden of the construction of houses, especially for the middle and lower income groups, will fall on their own co-operative organisations. From the choice of a site to the letting out or use of house-room when it is ready, the work of these housing societies will impinge on a number of departments. It should be the policy of these departments to assist in the formation and progress of these societies.

Improvement Of Personnel

20. The success of cooperatives ultimately depends upon their ability to perform their functions—whether they relate to production, finance, marketing, distribution or construct-tion—efficiently and to the satisfaction of the members and the community. The loyalties of the members can be retained not on the basis of monopoly, agreements or under duress but on the strength of the goodwill secured by rendering service. A unit of business, whatever its form cannot survive if it does not fulfil properly the tasks which it undertakes. It also ceases to grow if the management is not watchful for new opportunities. In the agricultural sector for instance diesel engines and electric motors are being increasingly used for providing irrigation in some areas while in others tractors are utilised for cultivation and reclamation. A progressive cooperative, besides supplying seeds, fertilisers and other requisites, would provide spare parts, repair and servicing facilities at reasonable cost. These and similar measures in other fields can be adopted only if the staff consists of competent and trained men. Co-operatives are sometimes organised and administered by those who lack both the qualifications and the experience necessary for the job. ^his factor alone accounts for a large number of co-operatives' failures and the uneven development of the movement, in the country. The importance of efficient management cannot, therefore, be too much stressed. Being a movement essentially dependent on the ability of persons in humble walks of life, who are often amateurs in the handling of business operations, the need for training and education is greater than for those who have ample resources and business experience. The co-operative society is, besides a democratic body, each member of which is equally important. Hence the need, recognized from the earliest days of the movement in foreign countries, for diffusing knowledge of the principles and practice of co-operation among all ranks of co-operators.

21. Many of the managerial and supervisory functions call for specialised knowledge and technical skill. The cooperatives ought to recruit qualified men and get the existing staff adequately trained. The present facilities for the training of higher personnel are not adequate and we have provided a sum of Rs. 10 lakhs for their improvement. We also trust that the State Governments will arrange for the training of other staff, and of workers for the cooperative movement.

22. Even though almost all the States have a cooperative department, many of them have to be helped to equip it to shoulder the new, diversified and complex responsibilities now envisaged. Until recently the main statutory functions of the department were registration, audit and inspection. Consequently the bulk of the staff was well versed in these activities. Now that the cooperatives are being recognised and utilised as an important instrument of economic planning, the staff of co-operative departments, without spoon feeding or interfering too much in the working of the Societies, should be able to provide effective guidance and knowledge and not merely, be auditors and inspectors of the Government. In short a constructive attitude and determination to make a success of the cooperatives must pervade the Government departments and the people.

23. In the past there have been occasional complaints to the effect that while the State generally sponsors co-operative societies and desires to accord them a preference, in actual practice agencies other than cooperatives often receive better treatment from a number of departments. There is also a tendency, in some of them, to regard only the cooperative department as responsible for co-operative development. It has already been indicated that the various forms of cooperative activity impinge on a number of departments. Therefore, unless every department and every Ministry accepts and adopts the policy of fostering co-operative methods of business, rapid and enduring results cannot be obtained. For instance the Central and State Public Works and Irrigation Departments spend fairly large amounts on works programmes every year. Except in one or two States most of the works are entrusted to contractors. We consider that every department should follow the policy of building up co-operatives which may eventually replace the contractors or other middle men. It is, however, not our intention that co-operatives should be bolstered up indefinitely, irrespective of the quality or cost of the service they offer. At the same time it is only reasonable to expect that in their formative years they should be ungrudgingly helped by the State to utilise the opportunities offered to them and enabled to consolidate their strength.