Enabling environment is a must for 'Sahakar se Samriddhi'

On 6 July 2021, Prime Minister Narendra Modi fulfilled the much-awaited demand of the cooperative sector for having a separate ‘Ministry of Cooperation’. Everyone concerned with the cooperative sector has hailed this decision as it reflects the deep commitment of the government for the promotion and development of the cooperatives in the country. 

It was no surprise for those who have been watching carefully the developments happening in the cooperative space. On several occasions, the Prime Minister has been signalling his intent to take necessary measures for strengthening the cooperative sector and making it a viable, self-sustainable business enterprise. He has always stressed keeping alive and strengthening the ‘cooperative spirit’ and has been exhorting the cooperative sector people to introspect whether the ‘cooperative spirit’ has got lost in its legal structure.

The announcement indicates the importance the government attaches to community-based development partnership and outlines the broad contours of the road map and agenda for the Cooperation Ministry. It says that the government has created the Ministry to realize the vision of ‘prosperity through cooperation (Sahakar se Samriddhi)’. It further says that the Ministry will work to streamline the processes for ‘Ease of doing business’ for cooperatives and enable the development of multi-state cooperative societies. The Ministry will strengthen the cooperative movement in the country and help deepen cooperatives as a true people-based movement reaching up to the grassroots. It will promote a cooperative-based economic development model, including the spirit of responsibility among its members. The Ministry will also create an appropriate institutional, legal and policy framework for strengthening the cooperative movement and help cooperatives realize their full potential.

It needs to be appreciated that cooperatives are basically economic enterprises with member ownership and control that are preferably established voluntarily to correct or mitigate the negative impact of market failures for the benefit of their members. In cooperative enterprises, the members can reach economic objectives by joining forces and pooling their resources, which the individual would be unable to achieve. Cooperative enterprises can facilitate and ensure market access, and create economies of scale and scope, and independent market positions. As a consequence, they can leave positive marks on a country’s economic and social structures. However, they can have value in society only if they are economically viable. Cooperatives that are sheltered by the government from economic and market forces for social and/or political reasons have no real legitimacy and no reasonable chance of survival. It will be better if these fundamental nature and features of cooperatives are kept in mind while working out the institutional, legal and policy framework for strengthening the cooperative movement in the country.  

Financially robust and viable cooperatives can strongly contribute to addressing some of the priority areas of concern for the government like food security, employment, poverty reduction and financial inclusion.  Sustainable farm cooperatives can be the best option to increase agricultural production and reduce poverty among the rural population in the country. However, cooperatives can only be sustainable if a proper enabling environment is in place.  

Cooperatives are more than a century old grassroots-level member-driven enterprises in India that today face the threat of survival. Any meaningful effort to strengthen the cooperative movement in the country should start with primary-level institutions. Strong primary institutions will in turn strengthen the upper tiers of the cooperative system. The government has to send an appropriate and strong signal of its intention to do so by creating an appropriate policy environment. It is a well-established fact that an appropriate and enabling policy environment has a positive effect on the establishment and evolution of any form of business enterprise, including cooperatives.

Financial support to the cooperatives from the government in the form of grants/subsidies should only be a matter of exception. This will send a strong signal to the cooperatives to become financially strong and viable. Member capital and institutional finance should be the main source of meeting the financial requirements of the cooperatives. The government will have to play an important role in removing the barriers for the cooperatives to obtain access to financial services and to increase their productivity.

Members should be encouraged to provide the cooperative with risk-bearing capital via member fees or retained profits, and make the cooperative eligible for loans from banks or other institutional lenders for its core business. The cooperative must make a profit to build sufficient reserves for solvency, continuity and growth of the cooperative enterprise.

It has been observed that in most cases, even if members are strongly committed to their cooperative, they may not be able to capitalize it adequately. Without sufficient funding, the cooperative cannot function properly and its future viability is threatened. To overcome this hurdle, the government may through appropriate financial and policy instruments incentivize the financial institutions to provide the necessary working capital and/or investment capital to the cooperatives through loans. One such instrument can be the extension of government guarantee for the loans granted to the cooperative institutions.  

The government needs to put emphasis on creating an enabling or supportive environment for the cooperatives. The enabling environment encompasses many factors which determine the viability of any cooperative. A very important enabling factor is that the government provide a sound socio-economic, political and legal framework in which the cooperatives can flourish and act autonomously. This calls for good public governance since the cooperatives must have adequate room to act flexibly and thus depend on the willingness of the policymakers and governments to grant them this freedom.  

The government has to work for creating a strong legal and policy environment to ensure the clear commitment of the members to the cooperative and their willingness and ability to invest in the acquisition of relevant skills and knowledge of production methods, logistics, etc. Members need to understand that it is in their own interest because efficient cooperatives improve the terms of trade and eventually their prosperity. Hence, the successful establishment and/or development of the cooperatives in the country will depend on sound cooperative business principles.

Unless a cooperative is a viable enterprise, it will eventually lose its cooperative nature. It will enter into an irreversible process of cooperative deformation, hybridization and finally liquidation. The denial of the business-like and economic nature of cooperatives hampers the development of well-organized cooperatives in markets where they could be very beneficial to their large number of members. The question is not how cooperatives can help the poor and disadvantaged, but how the poor and disadvantaged can help themselves by forming or joining cooperatives.

Dynamically changing market structures and conditions determine the organizational shape. It means that a cooperative has to adjust its organizational structure and business model continuously to find the optimum ‘fit’ to the ever-changing market structure and environment in order to survive in the long run. Weak and poorly organized cooperatives are useless, even detrimental for their members as well as the society. Small primary cooperatives can only survive if they are organized in regional business networks as soon as possible after their establishment. In this case, they will be able to allocate optimally their scarce resources and to achieve the necessary scale of business and appoint adequate professional management for carrying out the daily business. As for the management, board members must be responsible for organizing the decision-making structure of the cooperative, the capitalization, and members’ rights and duties. They should not interfere with the daily business activities and operations and leave this to professional management.

A cooperative is both an association and an enterprise. Cooperatives are as strong as their members make them. Therefore, members need to understand the basic principles of cooperation and the underlying rationales. They have to be motivated and committed to working together for their individual and common benefit. They have to know their rights and obligations and understand the rules governing their cooperatives (law, regulations, by-laws). They need to be prepared to make the required financial contributions and to share risks. Proper regulations and governance structures are necessary to ensure viability.

Members will only accept and maintain the required discipline if they have sufficient knowledge and understanding of the market conditions and business environment in which their cooperatives operate. Therefore, the government should revamp the existing education and training system and create a national-level professional-driven efficient education and training institution for national, multi-state, state, regional, district and primary-level cooperatives. This institution should have the freedom to set up its centres at various levels after assessing the requirements. It should design education and training programmes for the board-level members, ordinary members and also potential members as well as set up a frequent information service for the members. It should be under complete control of the Central government and the existing cooperative education and training institutions functioning in the country with government grants/assistance may be merged with this newly created institution. Education and training courses for enhancing and deepening the knowledge of new production techniques and products should also be designed because these are the key factors for the success and viability of any cooperative.

Amendments in the existing cooperative legislation are also urgently called for because a good deal of the existing legislation is partly based on the idea that cooperatives are established for socio-political reasons. However, cooperative enterprises should be considered as and should function as business organizations with mature legislation.  There is an urgent need to have uniform cooperative laws in the country. The Central government should initiate dialogues with the State governments to convince them of the benefits of having uniform cooperative laws in the country.

The government may also consider introducing enabling legal and policy provisions to promote ‘Cooperative–Corporate strategic functional alliance’.  This will facilitate meeting the managerial, marketing, infrastructure, technical and financial requirements of the cooperatives. A corporate entity may be allowed to contribute towards the equity capital in the cooperatives with which it forges functional alliance. The contribution of the corporate towards strengthening the management and infrastructure capabilities of the cooperatives may be reckoned as their Corporate Social Responsibility (CSR) liability.  

The prospects for the cooperatives in the country are promising since it is recognized that agricultural development functions as a fundamental driver for economic development and poverty alleviation. The government’s objectives of improving farmers’ income, providing jobs to the unemployed and improving the socio-economic conditions of the marginalized sections of the society by facilitating the establishment of cooperatives and providing education need to go hand in hand with the development of adequate financing structures/solutions for cooperatives and the improvement of the general legal, policy and business environment.

An efficiently functioning cooperative structure alone has the potential to make 'AtmaNirbhar Grameen Bharat (self-reliant rural India)'. Credible commitment among members is central to better and more efficient management of cooperatives and there has to be an emphasis on the concept of 'shared growth'.  This will not only facilitate economic prosperity and the formation of financial capital but will also help in creating the much-needed social and emotional capital essential for promoting better and harmonious community living. Creating the Ministry of Cooperation is definitely a masterstroke in this direction. Now, as the next move, catalysts that breach the various barriers to collective action deserve the serious attention of the government.

(Dr DN Thakur is a former Deputy Managing Director of the National Cooperative Development Corporation (NCDC). He is an expert on cooperatives and agricultural finance. The views expressed here are personal.)