Draft Final Report of the Task Force on Revival of Cooperative Credit Institutions

The Fourth Phase: 1990s and onwards

2.17 During the last fifteen years, there has been an increasing realisation of the destructive effects of intrusive State patronage, politicisation, and the consequent impairment of the role of cooperatives in general, and of credit cooperatives in particular, leading to a quest for reviving and revitalising the cooperative movement.

2.18 Several Committees (notably those headed by Chaudhry Brahm Perkash, Jagdish Capoor, Vikhe Patil and V S Vyas) were set up to suggest cooperative sector reforms during this period. The Brahm Perkash Committee emphasised the need to make cooperatives self-reliant, autonomous and fully democratic institutions and proposed a Model Law. Subsequent Committees have all endorsed this recommendation and strongly supported replacing existing laws with the proposed Model Law. They have also recommended revamping and streamlining the regulation and supervision mechanism, introducing prudential norms and bringing cooperative banks fully under the ambit of the Banking Regulation Act, 1949. To facilitate the implementation of these reforms, they proposed that governments provide viable cooperative credit institutions with financial assistance for recapitalisation.

2.19 Progress in implementing these suggestions has been very tardy because of the States' unwillingness to share in costs and their reluctance to dilute their powers and to cede regulatory powers to the Reserve Bank of India (RBI). The passage of the Mutually Aided Cooperative Societies Act by the Andhra Pradesh government in 1995, however, marked a significant step towards reform. Following the example of Andhra Pradesh, eight other States (viz., Bihar, Chhattisgarh, Jammu and Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Orissa and Uttaranchal) have passed similar legislation to govern and regulate mutually aided cooperatives.

2.20 In all cases these new laws provide for cooperatives to be democratic, self-reliant and member-centric, without any State involvement or financial support. They provide for cooperatives registered under the old law to migrate to the new Act. The old Acts were not repealed, nor was there any serious effort to encourage and facilitate the conversion of old cooperatives to come within the purview of the new Act. Most existing cooperatives, therefore, continued to adhere to the old law.

2.21 The new law, however, did lead to the emergence of a "new generation autonomous financial cooperatives", albeit slowly and unevenly across the country. While the number of cooperatives registered under the new liberal Act is slowly picking up, the conversion from the old law to the new Act has largely been in the arena of commodity cooperatives. The reason for the slow pace at which both credit cooperatives and the primary agricultural credit societies (PACS) are adopting the new law is largely because they are not eligible for refinance under the existing legal and structural arrangements.

2.22 As will be evident from the next chapter, these developments have not made much of an impact on the way cooperatives function. The movement has continued to deteriorate and reached the point that necessitated the appointment of the present Task Force, which has been entrusted with the task of coming up with an implementable action plan for carrying the reforms forward.