The second part of this three-part series enumerates some noteworthy features of agricultural cooperative credit and the current crisis it finds itself in.
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In this part, we will detail thirteen major developments in agricultural cooperative credit.
(1) Adequate and timely availability of formal credit at affordable rates of interest is critical to improving agricultural productivity in a way that is sustainable for the farmer.
Though the figures for institutional credit flow to agriculture and allied sectors looks impressive with a compound annual growth rate (CAGR) of 14.8 percent during financial year (FY) 2019–FY 2023, with total ground level agri-credit clocking an impressive figure of ₹21.7 lakh crore in FY 2023.
However, the share of the cooperative sector in this overall disbursement of agri-credit is only ₹2.6 lakh crore (12 percent). Commercial banks with a total disbursement figure of ₹16.1 lakh crore (more than 74 percent) are leading the pack, followed by regional rural banks (RRBs) at ₹ 3 lakh crore (14 percent).
Most unfortunately, due to sustained neglect of the cooperative sector, the share of cooperatives in the ground-level credit (GLC) in agriculture has tumbled from 62 percent in 1992–93 to barely 12 percent in 2022–23.
Adequate and timely availability of formal credit at affordable rates of interest is critical to improving agricultural productivity in a way that is sustainable for the farmer.
The increasing share in the total cake of agri-credit of commercial banks has other attendant problems like growing urbanisation of agri-credit on which principal publications of Reserve Bank of India (RBI) and NABARD seem to be often wearing ideological blinkers.
(2) Post-harvest losses and volatility in the prices of agricultural commodities— especially perishables such as tomato, onion and potato— due to lack of storage infrastructure have been disastrous for farmers and consumers alike.
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In this backdrop, the government of India’s plan to build the world’s largest networked food grain storage structures in the cooperative sector may help in checking distress sales by farmers, reduce import dependence and create employment opportunities in rural India, provided the scheme is implemented with all sincerity by the government, not with an eye to public relations postures.
NABARD has stepped up efforts to make this mammoth exercise a success and has initiated a pilot project in 11 states entailing the setting up of grain storage infrastructure along with other agri-infrastructure.
The project may act as a catalyst for enhancing farmers’ income given the possible synergies between this programme, the Union scheme to promote 10,000 farmers’ producer organisations (FPOs) and electronic-negotiable warehouse receipts. We will have to wait to see the full result of this scheme when implemented.
(3) The Ninety-Seventh Amendment Act of 2011 gave constitutional status and protection to cooperative societies. It made the right to form cooperative societies a fundamental right under Article 19.
(4) Though cooperation falls under the state list of the Seventh Schedule of the Indian Constitution, the Union government, by dint of the amendment to the Banking Regulations (BR) Act, 1949 as carried out in 2020, tried to centralise the powers to form, guide and control cooperatives, especially financial ones, from the remit of the state Governments.
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It is feared that the multi-state, Union government controlled cooperatives (that are fast emerging even in states like Kerala that has a rich history of nurturing state-level, democratic, peoples’ controlled cooperatives) may get preferential treatment in respect of fund allocation from various agencies, including from RBI, NABARD and the government of India.
This may, in essence, kill the state-level cooperatives and lead to more centralisation of cooperatives, with the eventual aim to ultimately to “corporatise the cooperatives”.
(5) By virtue of this amendment to the BR Act, 1949, one of the main formation templates of cooperatives as essentially a “member driven, democratically controlled institution” may undergo significant changes.
The increasing share in the total cake of agri-credit of commercial banks has other attendant problems like growing urbanisation of agri-credit on which principal publications of Reserve Bank of India (RBI) and NABARD seem to be often wearing ideological blinkers.
The RBI has already permitted rural cooperative banks (RCBs) to issue various types of equity, preference shares and debt instruments to raise funds, even to non-members residing within the operation of geographical areas of the concerned RCBs.
This may eventually pave the way for corporate takeover of the RCBs in tune with the “corporatisation of agriculture”.
(6) The RBI may prescribe conditions on and qualifications for employment of the chairman of cooperative banks and may remove a chairman not meeting ‘fit and proper’ criteria and appoint a suitable person.
Though, in view of certain aspects of corruption and non-professional management of cooperatives, this particular clause of empowering the RBI to remove the chairman of a cooperative may sound attractive to few, it has wider connotation to encroach upon the rights of the members to choose their own chairman of a cooperative.
(7) A national-level committee on cooperatives was constituted on September 2, 2022 by the Union government under the chairmanship of Sri Suresh Prabhu, which made some sweeping recommendations including formation of a new refinancing development bank for the cooperatives.
All-India NABARD Employees Association (AINBEA) opposed this idea from the very beginning, as NABARD has a rich history of serving and nurturing rural financial cooperative banks as an extended arm of RBI.
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(8) A memorandum of understanding (MoU) has been signed between the Union Ministry of Cooperation, Ministry of Electronics and Information Technology, NABARD and CSC e-Governance Services India Ltd. to enable PACS to emerge as common service centres (CSC) to improve their viability, provide village level e-services etc.
This may, according to NABARD, lead to village level empowerment of people and generate employment.
(9) On June 29, 2022, the Union Cabinet of Economic Affairs approved a scheme for computerisation of PACS with the objective of increasing efficiency of PACS.
The project proposes for computerisation of 63,000 functional PACS in the country over a period of five years with a total budget outlay of ₹2,516 crore. It entails a share of the Union government to the tune of ₹1,528 crore, state governments’ share being ₹736 crore and NABARD’s share being pegged at ₹252 crore.
A common software, the National Level PACS Software (NLPS), is designed to operationalise the whole scheme. Many cooperators in states such as Kerala feel this may kill state-level innovation and specifics with respect to their PACS and may eventually lead to data capture to dovetail them with the principal scheme of centralisation of cooperatives.
It seems this needs wider democratic consultation among all stakeholders.
(10) About 1.6 lakh panchayats in the country are still without any PACS and nearly 2 lakh panchayats without any dairy cooperative society. On February 15, 2023, the Union cabinet approved a plan for a declared objective of strengthening cooperative movement in the country and deepening its spread at the grassroots.
The plan aims to establish a viable PACS and viable dairy cooperatives in each uncovered panchayat, and viable fishery cooperatives in coastal panchayat/villages having large waterbodies.
Initially, 2 lakh such PACS are aimed to be established over a period of five years. The action plan for implementation of the project shall be prepared by NABARD, National Dairy Development Board (NDDB) and National Fishery Development Board (NFDB).
A national-level committee on cooperatives was constituted on September 2, 2022 by the Union government under the chairmanship of Sri Suresh Prabhu, which made some sweeping recommendations including formation of a new refinancing development bank for the cooperatives.
(11) According to NABARD, as on March 31, 2022, the short-term structure of cooperatives has 34 state cooperative banks (StCBs) with 2,089 branches, 351 district central cooperative banks (DCCBs) with 13,670 branches spread over 20 states and Union territories, and 1,02,559 PACS with a total membership of 13.72 crore spread over in 6.31 lakh villages.
Many such PACS in several states have become dysfunctional owing to encroachments of usurious micro finance institutions (MFIs) who are fast replacing cooperatives with total backing of preferential financing and treatment by the RBI and sometimes NABARD too under tacit instructions of government of India.
Democratic movements including trade union movement in NABARD and kisan organisations have long been voicing their opposition to this practice of fleecing of poor farmers and borrowers by these private sector MFIs.
(12) However, there are some silver linings in the overall performance of cooperatives in recent years due to constant monitoring and support by both the RBI and NABARD.
In FY 2022, the consolidated operating profits of StCBs and DCCBs have increased by 50.5 percent and 24.8 percent respectively and their asset quality has also shown a distinct improvement.
It is heartening to note that the growth rate of the loan portfolio of such cooperatives was greater than the average of scheduled commercial banks.
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(13) Though at the national level, as on March 31, 2022, the credit–deposit (CD) ratio of the short-term cooperatives stood at 81.57 percent, and investment–deposit (ID) ratio at 57.18 percent, the granular data in states like Chhattisgarh, Uttar Pradesh (UP), Uttarakhand, Jharkhand, Gujarat, West Bengal show a rather disturbing picture.
Democratic movements including trade union movement in NABARD and kisan organisations have long been voicing their opposition to this practice of fleecing of poor farmers and borrowers by these private sector MFIs.
The CD and ID ratio in these states are observed to be 20.6 percent and 101.55 percent for Chhattisgarh, 59.37 percent and 78.96 percent for UP, 50.15 percent and 72.35 percent for Uttarakhand, 9.38 percent and 101.17 percent for Jharkhand, 56.18 percent and 55.40 percent for Gujarat, 51.69 percent and 72.49 percent for West Bengal, which is a matter of serious concern, as the deposits in these states are diverted more to investment instruments.
They will lead to syphoning off of cooperative deposits to others than the needy members, mostly farmers. On the other hand, in almost all southern states, the CD ratio outwits ID ratio, with the average CD ratio being 126.47 percent and the ID ratio being 40.84 percent.
Read Part 1 here.
Read Part 3 here.
