Draft Final Report of the Task Force on Revival of Cooperative Credit Institutions
2.04 The classic study by Frederic Nicholson, followed by the Edward Law Committee on Cooperative Legislation, confirmed and reiterated the need for the State to actively promote cooperatives. A decade later, the Maclagan Committee (1915) advocated that "there should be one cooperative for every village and every village should be covered by a cooperative". The Royal Commission on Agriculture in India, which submitted its report in 1928, suggested among other things, that the cooperative movement should continue to focus on expanding rural credit and that the State should patronise cooperatives and protect the sector.
2.05 It was the Royal Commission which made the observation "if cooperation fails, there will fail the best hope of rural India". By this time, the State was already deeply involved in promoting agricultural credit cooperatives. The number of societies reached impressive proportions and diversified their activities well beyond agricultural credit. Debates centred on whether or not each village should have a cooperative and whether there should be a single purpose or a multi-purpose cooperative at the village level.
The Second Phase: 1930-1950
2.06 The major development during this phase was the role played by the Reserve Bank of India (RBI). The Reserve Bank's concern and involvement in the sphere of rural credit stemmed from its very statute of incorporation. Specific provisions were made in the Reserve Bank of India Act, 1934 both for the establishment of an Agricultural Credit Department (ACD) in the bank and for extending refinance facilities to the cooperative credit system. Emphasis was laid on setting up, strengthening and promoting financially viable provincial cooperative banks, central cooperative banks, marketing societies and primary agricultural credit societies in each province. The RBI, since 1942, also started extending credit facilities to provincial cooperative banks for seasonal agricultural operations and marketing of crops.
2.07 The Government policy during this phase was not as pro-active on promoting cooperatives as before. There seemed to be a policy lull until 1945, when the Agricultural Finance Sub-committee and the Cooperative Planning Committee were set up by the Government of India (GoI). By then, there already were signs of sickness in the Indian rural cooperative movement. A large number of cooperatives were found to be saddled with the problem of frozen assets, because of heavy overdues in repayment. The Sub-committee's recommendation that the frozen assets of the members of such cooperatives be liquidated, by adjusting the claims of the society to the repaying capacity of the members, marked the beginning of State interference in the management of cooperatives and the consequent erosion in the credit discipline of the members. The Cooperative Planning Committee identified the small size of the primary cooperative as the principal cause of failure. It also advocated State protection to the cooperative sector from competition.
The Third Phase: 1950-1990
2.08 After Independence, rapid and equitable economic development became the central focus of State policy. Cooperatives in general, and rural financial cooperatives in particular, were once again on centre stage. Taking cognisance of the weakness of the cooperative system, the All India Rural Credit Survey (AIRCS) not only recommended State partnership in terms of equity, but also partnership in terms of governance and management. Other recommendations included linking credit and marketing cooperatives and enlarging their area of operation. The recommendations of the AIRCS stopped just short of the Government running the cooperatives, and paved the way for its direct intrusion in the governance and management of cooperatives.
2.09 State policy came to be premised on the view that the government should ensure adequate supply of cheap institutional credit to rural areas through cooperatives. The thinking then was that if the institutions that were meant to deliver such cheap institutional credit failed, there either had to be reorganisation of existing institutions, or creation of new types of institutions. The Hazari Committee recommended integration of short term and long term structures. The Bawa Committee (1971) recommended setting up Large Multi-purpose Cooperatives in tribal areas. The National Commission on Agriculture (1976) recommended setting up Farmers Service Cooperative Societies with the active collaboration of the nationalised banks.