The Centre this week announced the creation of a separate Ministry of Cooperation, with an aim to provide a separate administrative, legal and policy framework for strengthening the cooperative movement in the country. The portfolio will be handled by Amit Shah.
India has had a long history of cooperative movement. But many of the cooperative institutions have not been able to scale up to match some of their private or public sector counterparts because of limited capital or political interference, and several other factors. THE WEEK caught up with Satish Marathe, the founder of Sahakar Bharati and a member on the board of the Reserve Bank of India, to understand if and how the cooperation ministry could give a lift to the sector, and whether the Centre is ‘interfering’ in state powers, since cooperatives is a state subject. Marathe was the first to pitch for creation of separate Union cooperation ministry. Excerpts.
Q\ The Centre’s move to form a separate cooperation ministry has been hailed by many. Why do we need a cooperation ministry?
A\ India has the largest cooperative movement in the world. Cooperatives can play a very important role in the economic development of the society, both in urban and rural areas. So, we need a national policy for development of cooperatives. Such a policy was prepared about 20 years back when Atal Behari Vajpayee was the prime minister. Thereafter, it has not been reviewed.
We have almost 8.5 lakh cooperative societies, with the total membership exceeding 28 crore (directly linked). Such a large segment of the population, which is directly or indirectly linked to cooperatives, didn’t have its own ministry and we have been demanding this for last 5-7 years. We now need a national policy for training and capacity building in the cooperative sector. The National Council for Cooperative Training should be converted into centre of excellence for cooperatives, which will eventually become something like a university, because we need professional expertise and managers to run the cooperatives efficiently.
The 97th constitutional amendment conferred on the citizens of this country the right to form a cooperative as a fundamental right. But, because of technical reasons, Gujarat High Court stayed the applicability of the amendment to various cooperative acts. As a consequence, the state cooperative acts remained as they are and there has been no liberalisation, no updation of the state cooperative acts. This case has been in the Supreme Court for many years. A focused attention is needed to the cooperatives, which can substantially contribute in income levels being increased.
Q\ Now, that a ministry has been set up, what needs to be done to deepen India’s cooperative sector?
A\ India has been putting a lot of importance in doubling the farmers’ income. Cooperatives are going to play a very important role here. Apart from various segments like fisheries, dairy and poultry, agro-processing is going to take a leading role as we go ahead. We have about 95,000 primary agricultural cooperatives in the country and operational and profitable 1.40 lakh primary milk societies. There is already infrastructure available. So, if agro-processing at the primary stage is to be considered, we should harness the availability of resources in these societies.
As a country we have missed the bus in entering new areas of cooperatives. Worldwide, they have done a lot of wonders. We have no cooperatives in mutual funds, we have no cooperatives in insurance, we don’t have cooperatives in telephony or distribution of electricity or water. Particularly in medical services, cooperative presence is very low. In the past, we had consumer cooperatives, but today the number is very small. Consumer cooperatives can play a very effective role in price stabilisation. In countries like Singapore, UK and USA, we have huge retailers like Walmart. Yet, the share of consumer cooperatives in these countries is high; anywhere between 20 and 30 per cent. We need consumer cooperatives in a big way when a country like India is substantially urbanising.
The cooperative act and relevant other acts need to be amended and empower cooperatives to access markets and raise capital. Since, cooperatives have no access to tap capital markets, they are totally dependent on the government, which has limitations in providing capital. Ease of doing business norms should also be extended to all cooperatives.
Q\ We have had consumer cooperatives like Apna Bazaar or Sahakari Bhandar. But, why have they not been able to scale up when compared with the organised retail chains?
A\ Capital is one of the factors in case of consumer cooperatives. Margins of consumer stores are very low. So, the profitability was low, capital was inadequate, and they couldn’t bring in expertise, nor could they develop anything to increase the business. We need consumer cooperatives with a strong capital base.
Q\ There has been criticism from some circles that the Centre is encroaching upon a state subject by setting up the cooperation ministry. Your views?
A\ I don’t think there is any issue of Centre overstepping into the state area. Historically, cooperatives was under the Union list. The cooperative act was formulated in 1904, a Central act. When the local self-governments were formed sometime around 1934-35 during the British era, it became a state subject. At the time of Independence, when the list was drawn, subjects were divided as they were being operated at that time. So, cooperative became substantially a state subject. Only for units that operate in more than one state, there was a multi-state cooperative act. People can come together from two states and form a multi-state cooperative society. So, there is no infringement on the state powers in any way.
Q\ Will the cooperation ministry help in strengthening the existing cooperatives and development of large multi-state cooperatives?
A\ It will lay down policies for reinventing the cooperative sector and deepening the cooperative sector. Many things can be done to deepen the cooperatives. When Arun Jaitley was the finance minister, support was being extended to computerise primary agricultural societies. We have 700 districts, but just 220 district unions, where the milk is processed. Also, the 1.4 lakh primary milk societies are primarily in west India. We miss out in a big way in central and north India and in northeast India. So, someone has to promote this and extend support. This can happen through the new ministry.
Q\ If we look at the sugar cooperatives or the state cooperative banks, a key issue that often comes up is political interference. There have been several instances where political interests take over a particular entity and the cooperative movement takes a back seat. How do you address this problem?
A\ I have been requesting the Reserve Bank, NABARD and the finance ministry that if you want the reduced intervention of the state, you need to allow all these cooperative banks to raise capital. Unless they increase their capital and the capital of the state government gets reduced, the autonomy will not come.
The other thing is that the income pattern has completely changed in many areas. Some of the district central cooperative banks are now serving urban areas also. There are several areas like Mumbai and Delhi, where there is very little farming and the non-farm income is significantly more. But, the district central cooperative banks and state cooperative banks have not developed a new business model. So, they are not able to meet the credit needs in their area of operation, because they have limited mandates, and the limits they can sanction is ridiculously low. So, for district central cooperative banks and state cooperative banks, even as a part of risk mitigation, we need new business models. Unless that happens, these banks will not be able to come out of their troubles.
Q\ So, there needs to be a complete professional management structure that needs to be put in place in these cooperative?
A\ It is true, but first they need to be empowered by amending the acts. Professional management, expertise, qualified people, yes. But, unless they get the desired autonomy and the operational freedom to function, we can’t have the desired effect.
Q\ Last year, RBI got the control to fully supervise cooperative banks, which was a long pending demand. How has this panned out since, and what kind of impact it is going to have on the urban cooperative banks?
A\ I was one of the persons pursuing the issue for last five-seven years. Ultimately, it was the crisis at PMC Bank, our demands and the RBI also taking up the matter, that led to the changes. The finance minister and finance secretary also appreciated what we were saying all along, that things had materially changed after 1966, when the banking regulation act was first applied to UCBs, and now there was a need to give complete powers to RBI.
We have also demanded to the governor as well as finance minister, that they should constitute a broad-based committee of experts to prepare a vision document for the UCBs and give a roadmap with milestones. A report of the expert committee on urban cooperative banks is expected by end of July or possibly first week of August. So, it will take a definite direction and I believe there will be differential regulatory processes, depending on the size and business of the banks as we go ahead.
We have also urged the setting up a committee comprising all stakeholders including finance ministry, RBI, SEBI among others, to come out with their recommendations on how UCBs can raise equity capital.
With respect to management in cooperative banks, the RBI has now come out with a detailed circular that 51 per cent of the board has to be with specific experience and background. To ensure that the CEO is adequately empowered, they have also put out norms related to educational qualifications, among others. So, that process has already started. There will be hiccups, as is the case whenever new things happen; many banks, who don’t fulfil the criteria, may have to look for new chief executives. But the issue will get settled in about a year.
