State of Cooperation in India (1994-1995) (CIP, September 1996)

     This document has been made available in electronic format
          by the Cooperative Initiative Project, India (CIP)

                        September 1996

                  State Of Cooperation In India
                  for the Cooperative Year 1994-95

Many years ago Pandit Jawahar Lal Nehru said that the only alternative to
"co-operation" is "co-destruction". Our belief that if this were true in the
1950s, it is far more true today, inspires the Cooperative Initiative Panel
to pursue its mission "To develop a strong constituency of informed,
principled and committed leadership which could and would play a major role
in reforming the cooperative environment and thereby the cooperative
movement in the country."

Last year at the beginning of the cooperative week, we publicly resolved
that we would not remain mere bystanders while the death knell of the Indian
cooperative movement was sounded. On that occasion, the first "State of
Cooperation in India" report was issued as part of our effort to place
cooperation back on the national agenda.

One year has passed and the nation's 170 million cooperators still find but
a precarious place at the bottom of the national agenda. Government has
emphatically placed the corporate sector at the top of its priorities.
Nothing makes this more evident than the Union Budget for 1995-96 which
completely disregarded the cooperative movement's request for modest tax
relief which would have resulted in a revenue loss of some Rs. 20 to Rs. 30
crores annually. The same Union Budget offered the corporate sector
exemptions amounting to more than Rs. 1,750 crores.

We, the Cooperative Initiative Panel, share the belief of cooperators from
all over India that cooperative law is the single largest factor shackling
the potential of Indian Cooperative Movement. While the liberalisation
process has brought a sea change in the laws and regulations governing the
corporate sector, cooperatives remain the victims of archaic and colonial
laws. We have therefore resolved to dedicate this year's State of
Cooperation in India report to our cooperative laws. The future of our
nation's cooperative movement requires a new law which is consistent with
the Constitution of India, which enshrines the "Principles of Cooperation",
which respects the right and ability of our people to make responsible
choices about the resources they create; and which will ensure the relevance
of the cooperative sector as the third alternative even in the next

Cooperative Law and the Constitution of India

The right of an Indian Citizen to form an association is derived not from
the Cooperative Act but from the provisions of the Constitution. The State
itself gets its right to frame a law from the Constitution only, and always
subject to the fundamental rights outlined there in.

While we respect the Parliament and the Apex Court of the country for having
enactments which are expected to conform to the Constitution; we are pained
to bring to the notice of Honourable Parliamentarians and Judiciary that
there are ample provisions in various State Cooperative Acts which actually
call for citizens to sacrifice their freedoms under the constitution, making
cooperatives lose their essential characteristics as free and voluntary

In our continuing struggle to seek a level playing field, in an economic
liberalization era which benefits only private sector, we demand protection
of the Constitution. It is our firm belief that there are many provisions in
the Cooperative Laws of various States and Centre, that violate the
provisions of the Constitution under Article 14 (Right to Equality) and
Article 19 (Right to Form Association). In fact, the restrictive provisions
of the Cooperative Laws not only violate the principle against arbitrariness
(Dimension of Article 14) but also flout the principles of reasonableness,
forming association and carrying on business and most importantly the
concept that burden of proof lies with the "State" (refer to table-1 on page
# 4-5).

The preamble tells us that the intention of the Constitution is to serve
economic justice and equality of opportunity and to promote fraternity,
assuring, the equity of the individual. The Cooperative legislation,
imposing intensive and extensive restrictions on cooperative societies goes
against the basic feature of "Economic Democracy" of the Constitution. Given
the inglorious tradition of uniformly all political parties to come up with
amendments to Cooperative Acts to suit their requirement, we call on our
legislators to make the Model Act inviolable by giving the idea of
"Cooperation" a Constitutional sanction.

Cooperative Law and the "Principles of Cooperation"

When forming or joining a cooperative society, the members make a careful
and deliberate choice to do business with a firm that subscribes to a unique
identity and specific values. The cooperative identity and values are
enshrined in the "Principles of Cooperation" which are accepted by
cooperative members throughout the world. These same principles also
represent a vital historical link with the origins of cooperation.

Cooperation is grounded in the values of self-help, self-responsibility,
self-correction, democracy, equality, and solidarity. In the tradition of
our movement, cooperative members accept the ethical values of honesty,
openness, social responsibility, and caring for others. Incorporation of the
"Principles" in our lives and in the practices of our cooperatives is the
way we preserve the unique characteristics of cooperation. The success or
failure of a cooperative as an economic and social enterprise is a function
of its ability to work according to the principles of cooperation. While all
these principles are necessary, two -- democratic control and economic
equity -- represent the very essence of cooperation. Without these, no true
cooperative can survive.

The Cooperative Acts of various states (refer to table-1 on page # 4-5) not
only ignore, but compel the violation of the "Principles of Cooperation".
This contradiction has persisted for more than a generation. It is long past
the time for amendment of all provisions of State Cooperative Acts through
which the State effectively empowers itself to discourage or deny the
practice of the Cooperative Principles and, thereby, undermines the very
essence of cooperation.

Cooperative Law and Government Equity

The Model Cooperative Act prepared by the Chaudhary Brahm Perkash Committee
unequivocally rejects the concept of state participation in the equity of
cooperatives. Cooperatives' ownership is for users; and equity must be
restricted to owners. The State cannot be a user, and therefore should not
acquire ownership.

However, exclusion of government equity does not mean that a cooperative can
or will not enter into the same types of financial agreements with
Government or quasi-government institutions that are available to any other
business enterprise in the country. Such assistance should simply be
obtained through a mutual agreement between the cooperative and the
financing institution concerned -- no unfair privileges given or
taken.Various state governments have, from time to time, used their equity
participation as a rationale for continuing restrictive cooperative laws.
This violates the original concept of state partnership and is based on a
factually wrong premise.

It was under Prime Minister Jawaharlal Nehru that State Partnership with
cooperatives was conceived and initiated. Recognising the potential of
cooperatives to contribute to economic equity, social justice and the
nation's democratic foundation, the State evolved the concept of Partnership
in which cooperatives would be assisted with financial, human and material
resources. This partnership was at the instance of the State and was, in
fact, strongly resisted by many within the cooperative movement. It was only
on the assurance of the nation's political leadership that partnership did
not mean control that these cooperators agreed. Sadly their trust has been

Perhaps the greatest myth that has been perpetrated is that state control
and participation in cooperative governance is necessary because of
government's "huge" financial stake in the cooperative movement. If we
compare government's participation in cooperative equity in different states
with Government Financial Institutions investments in a few leading
corporate houses, (refer to table on page # 6). It can be seen that the size
and proportion of government stake in these businesses is as large -- and
often far larger -- than it is in cooperatives. The argument that
"government's stake" in cooperatives requires "government control" can be
seen and treated as what it is -- a carefully promoted deception. Moreover,
whatever government's stake in cooperatives may be, it is more than balanced
by the costs -- and losses -- incurred by cooperatives while implementing a
host of Government programmes.


                Government Share in few States on Cooperative
                          Sector - 1993 (Table 2a)

              Sr. No.        State       % of Government Share

              1         Andhra Pradesh       less than 09%

              2         Bihar                less than 50%

              3         Gujarat              less than 11%

              4         Karnataka            less than 25%

              5         Maharashtra          less than 17%

              6         Rajasthan ##         less than 27%

              7         West Bengal **       less than 30%

       As per NABARD Figures ## = Data of 1990-91
                                                 ** = Data of 1991-92


            Government Financial Institutions share as equity in
                        Private Comapnies (Table 2b)

           Sr. No.         Companies           % of Government
                                             Share through F.I.s

           1         TISCO                            44

           2         ACC                              40

           3         V X L Ltd.                       35

           4         Mahindra and Mahindra            46

           5         Dunlop                           34

           6         Escorts                          44

                   From the Hindu Business Line, May 1995

What Cooperatives want in a New Law

As Citizens of India, we urge adoption of cooperative laws at the Centre and
in the States which are faithful to the Constitution. We believe that no
Cooperative Act can be drafted without incorporating, in full, the
internationally-accepted principles of cooperation. Cooperative laws should
enable, not prescribe, and should leave the burden of responsibility with
the members and their bye-laws.

Such laws should not duplicate provisions that already exist under other
laws and are applicable to all citizens alike. Even more, the provisions of
cooperative law should not provide shelter for those who, were they to
commit the same act in other institutions would be prosecuted. Cooperative
laws should, without exception, provide for due process whenever the member,
or the cooperative, is affected. They should ensure the fiduciary
responsibility of those elected or appointed to positions of trust, holding
them accountable financially for acting with the same prudence and care with
the cooperative's assets as they would with their own. Because cooperative
laws affect the common man, they should be written in a way that is
accessible to and interpretable by all citizens. They should ensure that the
rights and responsibilities of the members are respected in the same manner
and to the same extent, as those of the owner of any business.

A Historical Step Forward

We call on all cooperators and well-wishers to welcome the new "Andhra
Pradesh Mutually Aided Cooperative Societies Act 1995" which marks the dawn
of a new era. This is the first Cooperative Act in this country which
ignores the colonial past and which enshrines the basic values of
cooperation. It is significant that this Act was passed in the Andhra
Pradesh Legislative Assembly with the unanimous support of all political
parties. The most significant features of this Act are:

[*]...The Internationally accepted "Principles of Cooperation" are
incorporated in the Act,

[*]...Government has denied itself rule making powers under this Act.

[*]...The Act guarantees to cooperatives the same freedom to conduct their
own affairs that other forms of enterprises presently enjoy,

[*]...Elections will be conducted by the cooperatives themselves,

[*]...Selection of auditors is now the responsibility of the cooperatives,

[*]...The affairs of the cooperatives will be governed by their own by-laws,

[*]...Staffing Patterns, staff remuneration and service conditions will now
be the responsibility of the cooperatives themselves,

[*]...Cooperatives no longer need to take permission to make investment

That the courage and wisdom of Andhra Pradesh has inspired the country's
cooperators, politicians and bureaucrats is evident from the fact that:

[*]...The Gujarat government has appointed a committee to recommend
amendments to the Gujarat State Cooperative Societies Act. We are confident
that this committee's recommendations will lead to enactment of a
progressive, enabling legislation which will further strengthen the state's
cooperative movement.

[*]...The Goa government appointed a committee of cooperators and officials
who were mandated to draft a new cooperative Act. The draft is now ready. We
welcome the commitment of the Minister for Cooperation to introduce the new
Act in the next session of the Goa Legislative Assembly.

[*]...In Kerala a committee has been constituted, which has been asked to
recommend appropriate changes in the Kerala State Cooperative Societies Act.

[*]...The State Cooperative Union of Orissa has initiated a process of
bringing together cooperators from across the state to draft recommendations
for changes in the Orissa State Cooperative Societies Act.

[*]...The Delhi Government has recently constituted a committee to suggest
changes in the Delhi Act.

[*]...The Karnataka Minister for Cooperation has initiated a process of
preparing suggestive amendments to the Karnataka State Cooperative Act. We
are encouraged both by his public commitment to bring about progressive
changes at the earliest and by his active involvement of cooperators from
across the state in this initiative which is now in its final stages.

[*]...The Pondicherry Government has appointed a committee to suggest
amendments to the State Cooperative Act.

We welcome and commend

[*]...The Parliamentary Standing Committee on Agriculture, which has urged
the Union Ministry of Agriculture and Cooperation to expeditiously finalize
the draft of a new Multi State Co-operative Societies Bill and place it
before the Parliament by this winter session.

[*]...Congress MP and columnist, Shri Mani Shankar Iyer for calling for
immediate implementation of the recommendation of the Chaudary Brahm Perkash
Committee on Cooperative Act and for recommending an amendment to article
19(2) of the Constitution to include the word a in the list of organisations
which could be formed by the people as a fundamental right.

[*]...The All India Cooperative Bank Employees Federation (AICBEF) wihch
announced that it will launch an agitation for sppedy implementation of
Model Cooperatives Societies Act

[*]...The Union Minister for Agriculture and Cooperation, Shri Balram
Jakhar, for his acceptance of the proposed Multi-State Cooperative Companies

[*]...The Union Ministry for Agriculture and Cooperation for its
recommendation that a 10% price preference over the lowest tender and
exemption of earnest money deposit should be granted to the labour
cooperatives. We also welcome the recommendation of several policy measures
to facilitate improvement in the functioning of labour cooperatives
including the reservation of unskilled work for the cooperatives and
awarding of skilled work contracts worth up to Rs. 5 lakhs to labout
cooperatives without calling for tenders.

[*]...The action of those Development Cooperative Bnk shareholders who
challenged the cooperative's conversion in Maharashtra's cooperative
appellate court, terming it as illegal and detrimental to the interest of
the 46,000 odd shareholders & who have sought to the DCB to continue as a

[*]...The Union Minister of State for Power, Shri P.V.Rangayya Naidu, for
calling for setting up more Rural Electric Cooperatives while stating that
these are ideally suited for the rural areas of the country.

[*]...The Cooperative Sector Study, prepared by the Indian Institute of
Management, Ahmedabad, which confirms that the cooperatives are an important
and relevant third alternative for Indian Economy. We also welcome the
Study's recommendation that liberalisation of cooperatives from archaic laws
should be on top of governments' agenda.

[*]...The Rajasthan Government for directing that the elections in primary
agriculture credit cooperatives societies and large scale agricultural
mutipurpose cooperative societies shoul be completed by the end of January,
1996. While we ar firm that elections should be controlled and determined by
the cooperatives themselves, this is at least one step forward in
establishing democratic control.

[*]...The state of Kerala for being the only state where deposit
mobilisation campaigns are conducted by the cooperatives. The deposits
mobilised by the cooperative up to 1994 are Rs. 475.14 crores.

[*]...The Government of Kerala for initiating a scheme called "the scheme
for providing guarantee by District. Coop. Banks for the deposits held by
the affliated primary agricultural credit societies" in which the DCB's
should constitute a fund called deposit guarantee fund.

[*]...The Members of the Pondicherry Milk Cooperatives, who successfully
challenged the denial of elections to the Milk Union.

[*]...The Media, which over the last year has significantly raised the
quantity and quality of reporting on cooperation.

We draw attention to and censure:

[*]...The Reserve Bank of India and the Central Registrar of Cooperatives
for allowing the conversion of the Development Cooperative Bank, Bombay,
Maharashtra, into a commercial bank, thereby ending its cooperative
character and benefiting the few at the cost of the large number of its
46,000 members.

[*]...The Rajasthan government for having gone back on its commitment to
bring about amendments in the "Rajasthan State Cooperative Societies Act,
1965" so as to provide the cooperative sector autonomy, and freedom from
government control and also to professionalise and debureaucratise the
sector. A perusal of the recent Government Order (Dated 11.10.1995) makes it
crystal clear that the exemptions are no more than eyewash and fall much
short of expectations of the cooperative sector. It seems as usual the
bureaucracy has overshadowed the entire exercise. The exclusion of the
Credit and Housing Cooperative Sectors en-block from the purview of these
orders is obviously a conscious decision not to free them from the
government control.

[*]...The Tamil Nadu Government for its continued denial of democratic
rights to cooperators in that state. No elections have been held for most
cooperatives in Tamil Nadu for nearly two decades, transforming what was
once a star in India's cooperative movement into a cesspool of despair.
There are now 29,217 "cooperatives" functioning under the control of 14
functional Registrars.

[*]...The present Gujarat government for its supersession of a large number
of cooperatives, immediately after coming to power.

[*]...All those responsible for the fact that there are more than 20,000
cases relating to cooperatives pending in various courts in Gujarat.

[*]...The present Government of Maharashtra for its decision to postpone
elections to all major cooperatives in the state by six months, immediately
after coming to power.

[*]...Those responsible for the reported 34,000 and more cases of
embezzlement, misappropriation and irregularities that have been detected in
cooperative sector in Uttar Pradesh amounting to Rs. 317 crores and more,
those responsible for vitiating the links between authority and
accountability, thus creating a climate for such violations of trust.

[*]...Those whose acts of omission and commission led to the collapse of the
Delhi Parishad Co-operative Bank which has raised serious questions as to
the effectiveness of banking regulations and the conduct of concerned

[*]...The Karnataka Government for its decision to waive interests on loans
from cooperatives and cooperative banks, a measure that erodes confidence in
cooperatives and jeopardises the savings of members and the public.

[*]...The Karnataka Government for its decisions to postpone cooperative
elections twice during the year.

[*]...The Karnataka Government for its arbitrary orders banning the holding
of cooperative general body meetings.

[*]...The Orissa Government for waiving interests on loans which cost
cooperatives over Rs. 11.7 crores in losses.

[*]...The Punjab Government for its decision to repeal Section 67(4) of the
Cooperative Societies Act under the guise of a relief package for farmers.
The repeal protects defaulters from arrest and prosecution. Defaulters who
are behind the bars for non-payment of debts will also be released. It is
estimated that the repeal will cost the cooperative banks more than Rs. 57
crores including Rs. 27 crores in interest on defaulted loans.

[*]...The Punjab Government for its eleventh hour decision to cancel
cooperative bank elections at Mansa and Sangrur as well as elections to the
Punjab Agricultural Development Banks at Dhuri, Faridkot, Mukatsar, Bhatinda
and Patti.

[*]...The Madhya Pradesh Governments for its delay in reimbursing the Madhya
Pradesh Milk Federation Rs. 23 crores incurred in implementing schemes
initiated by the state government.

[*]...The Madhya Pradesh Government for its delay in reimbursing PACs and
District Central Cooperative Banks as much as Rs. 62.43 crores. These
reimbursements are to offset the costs incurred by cooperatives as a result
of the 1990 waiver of loans and interest.

[*]...The Madhya Pradesh Government for imposing responsibility for the
Public Distribution Scheme (PDS), and the Fair Price Shops (FPS) on Consumer
Cooperative Societies and Primary Agriculture Cooperative Societies (PACS).
A total of 22,875 FPS are run by the PACS leading to an estimated loss of
Rs. 9.78 crores during 1993-94.

[*]...The Government. of Kerala for its decision to hand over the postings
of 14 district cooperative banks and 15 apex cooperative institutions to
Public Service Commission by amending section 80 of the Kerala Coop
Societies Act. This decision denies members and their elected boards the
right to employ and remove employees that they believe will serve their

[*]...The Pondicherry government, for withholding elections to all apex
cooperatives excepting the Pondicherry Cooperative Central Land Development
Bank and the Pondicherry State Cooperative Milk Producers' Union.

Agenda for the Cooperative Year 1995-96

                              Political Parties

There is unlikely to be any changes in the policy environment for the
cooperatives without the forceful expression of political will. We call on
all political parties, national and regional, to include a clear and
considered statement of their policy towards cooperatives in their
manifestoes for the forthcoming national and state elections to:

     *...Reaffirm their faith in, and commitment to the cooperative
     movement by giving prominence to liberation of this perple's

     *...Make clear and unambiguous commitments to liberalisation of
     the cooperative law.

     *...A commitment to extend the process of political
     decentralisation through progressive cooperative legislation.

     *...Commit their party if elected, to political non-interference
     in cooperatives.

     *...A commitment to advance the interests of the rural economy,
     putting it on an equal footing with the formal, urban-oriented economy.

     *...Recognise that the cooperative movement's important to the
     nation by a commitment to amend the Constitution in order to safeguard
     the practice of cooperation.

                      Parliamentarians and legislators

Next only to its member cooperators, the future of the Indian cooperative
movement rests in the hands of our nation's lawmakers, many of whom are
themselves cooperative members. We express our optimism that they will
honour the confidence and faith reposed in them by the electorate -- an
electorate that includes 170 million cooperative voters -- and will:

     *...Seek to redress any diaparities in policies, laws and
     subordinate legislation which place cooperatives in a disadvantageous
     position vis-a-vis, other forms of enterprise.

     *...Not hesitate to enact bold new legislation which will free
     the cooperatives from the control of all external vested interests.

     *...Vigorously challenge the government(s) where the interests of
     cooperatives are adversely affected by its policies.

     *...Protect cooperation through ensuring its independence as
     autonomous, member-owned and controlled, democratic, self-correcting,
     self help institutions.

We also call specifically on the legislators of the States where the process
of amending the Cooperative Act is going on to:

*...Ensure that this ongoing process concludes in the introduction of
amendments on the floor of the house; and

*...Ensure that such amendments meet the criteria for a good
cooperative law.

                           The Cooperative Sector

If the cooperatives are to remain a vital alternative form of economic
enterprise, cooperators must shoulder the burden of responsibility. We call
on all cooperative leaders and members to:

     *...Ensure transparency and accountability in their functioning.

     *...Unrelentingly persist in their demand of full autonomy.

     *...Preofessionalise their management and operations to equal or
     exceed the performance of any other form of enterprise.

     *...Elect and support a leadership committed to their
     cooperative, and with the ability to lead it to a prosperous future.

     *...Ensure that their cooperative is member-driven by raising the
     level of member participation in share capital, patronage and

     *...Assert your collective strength to protect and defend the
     rights of cooperatives and their members in every forum.

                                  The Media

Recognising the crucial and impartial role palyed by the print and
electronic media as guardians of our democracy, we call on the media to:

     *...Continue thie role of watchdog, objectively highlighting both
     the injustices done to cooperatives as well as the shortcomings of

     *...Seek and draw attention to the vital contributions made by
     cooperatives and uniqueness of the cooperative alternative.

     *...Initiate and sustain a debate on issues crucial to
     cooperation, thus maintaining pressure on the policy makers to create a
     liberalised policy for the cooperative sector.

                   Academicians and other Opinion Makers

Apperciating the catalytic effect of research and academic thought in the
development of any institution, we call on all those academicians and
intellectuals who profess a commitment to cooperation and its values, to:

     *...Undertake research that draws attention to the cooperative
     sector's contributions to the national economy.

     *...Document the effects of excessive control and the
     politicisation of cooperatives across the country.

     *...Study the comparitive tax structures and tax payment
     patterens of the corporate and cooperative sectors.

                           Citizens and Consumers

The success and failure of cooperatives also depends on those who do
business with them, as well as on the public-at-large. We urge that all our
citizens will:

    [*]...Make a conscious choice to use the products and services of
     our nation's cooperatives.

    [*]...Recoginse and support the role played by our cooperatives in
     furthering national, economic and social justice.

Suggestions and responses to :Sudarshan Srinivas, Project Manager

Cooperative Initiative Project