Co-operation ministry: Harbinger of hope?

Source: Business Standard

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

Background

• On July 6, the Government of India announced the creation of a new Ministry of Co-operation.
• Over 300 million people are members of around 800,000 co-operatives in India today.

Read more – Ministry of Cooperation

Need for the rejuvenated cooperative sector?

• Co-operatives have suffered a serious decline over the years, with their share in institutional credit reduced to a mere 10 percent today.
• The unholy trinity of moneylender-trader-landlords made a comeback in the rural credit market after the 1990s, when profitability norms were strictly enforced on public sector banks (PSBs).
• Thus, a reformed and rejuvenated cooperative sector is required to break the monopoly of moneylenders. A Cooperation ministry will take care of this task effectively.

What can the new ministry do to help?

Firstly, recommendations of 2005 Task Force on Revival of Rural Co-operative Credit Institutions, led by the eminent economist, A Vaidyanathan should be key to reforms. It recommended that the reform of co-operatives should make member-centric, democratic, self-governing, and financially well-managed institutions.

The Center should make 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). PACS is the foundation of the rural cooperative credit structure. PAC’s reform must involve

• Audit and clean-up of balance sheets,
• Installing sound accounting and monitoring systems to enable them to remain competitive and transparent,
• Technological upgrade
• Capacity building of personnel of hundreds of thousands of PACS.

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 and failures could be very useful while implementing solutions for co-operatives.

The role of the states must be one that supports, facilitates, and strengthens civil society action in partnership with the most vulnerable. Very often, state action, in the guise of supporting the poor, has ended up seriously harming their cause. For instance, 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 factor for shutting them down, as their balance sheets erode.

Also Read – Cooperation and competition