DEST Practice 17

The cooperative sector in India represents a distinctive organisational model that combines member ownership, democratic governance, and commercial operation to serve the economic needs of member communities, particularly in agriculture, rural credit, dairy, sugar, fisheries, housing, and consumer goods, and has played a historically important role in extending organised economic activity and institutional support to rural communities that lacked access to formal corporate structures and commercial banks. The three-tier cooperative credit structure, comprising the National Bank for Agriculture and Rural Development at the apex, the state cooperative banks at the state level, the district central cooperative banks at the district level, and the primary agricultural credit societies at the village level, has for decades been the primary institutional channel through which short-term agricultural credit flows from the formal financial system to the small and marginal farmer in villages across the country, providing seasonal crop loans at rates subsidised by the government's interest subvention scheme. NABARD, the National Bank for Agriculture and Rural Development established in 1982 as the apex development finance institution for agriculture and rural development, provides refinance to state cooperative banks, regional rural banks, and commercial banks for agricultural and rural lending, supervises the functioning of cooperative banks and regional rural banks, promotes the development of rural financial institutions, and funds rural infrastructure and watershed development through dedicated funds. The revival and strengthening of short-term cooperative credit structures has been an ongoing concern of government policy, as many district central cooperative banks and primary agricultural credit societies have accumulated non-performing assets and suffered governance failures that have undermined their viability and ability to serve their members effectively. The Agriculture Credit Sub-Committee of the High Powered Committee on Cooperatives and the Vaidyanathan Committee have made recommendations for institutional reform, capital infusion, and regulatory strengthening that have been implemented to varying degrees. The Cooperative Dairy sector, exemplified by the Gujarat Cooperative Milk Marketing Federation known as Amul, represents the most celebrated success story of the cooperative model in India, having transformed the dairy sector through the Anand Pattern of cooperative organisation in which village-level milk collection societies are federated into district unions that undertake processing and the federation handles marketing under a common brand, enabling millions of small dairy farmers to realise better prices for their milk while making dairy products affordable for consumers. The White Revolution brought about by Operation Flood, funded in part by the sale of skimmed milk powder and butter oil donated by the European Community, has made India the world's largest milk producer. The new Ministry of Cooperation established in 2021 and the Multi State Cooperative Societies Amendment Act signal renewed governmental commitment to the cooperative sector, aiming to address governance weaknesses, extend the cooperative model to underserved sectors, and bring cooperative entities under a more streamlined and effective regulatory framework.