Jyotindra Mehta
President, NAFCUB & Chairman, Sahakar Bharati
Cooperative is a fascinating form of business enterprise. It is noble in its construct, inclusive in character and provides opportunity to a collective of people of small means who otherwise are not in a position to start and sustain a business enterprise on their own. A cooperative is the most open,transparent and democratic business entity wherein the principle of one man- one vote principle ensures an equal say in its affairs to all members.
Cooperative sector has been receiving special attention and support of the government of the day, right from the colonial days of British Raj. The importance given to cooperative sector say, in the first three five year plans has been progressively diluted thereafter and soon there was hardly any mention of cooperatives in the subsequent plan documents. Some of the important committees constituted by Planning Commission like the Choudhry Brahm Prakash Committee way back in early sixties had advocated complete freedom from government control and had suggested the cooperative acts of states and also the central act to be changed to give full autonomy to cooperatives.
Issues of autonomy, amendments inlaws for non-interference, non-politicization, of cooperatives
Indian cooperative has the proud privilege of having the largest membership in the world in terms of numbers. This is not surprising as India is also the largest democracy in the world and democratic values are bedrock of cooperative philosophy.
However, as has been articulated time and again, the state support over the decades has resulted in progressive stifling state interference, often called ‘the kiss of death’ which has distorted the entire cooperative narrative in the Country. Across the world in the international arena of cooperatives, there is a strong feeling that Indian cooperative movement is highly politicized. As a result, it is not given the importance it deserves in the global context.
It is pertinent to note that cooperatives have over 20 crore members which forms very substantial sections of population of the Country, Cooperatives are spread in various sectors of economy such as banking and credit, dairy, fertilizers, sugar, agricultural marketing, fisheries, handlooms/handicrafts, housing and many others. The cooperatives with large number of small farmers and middle class population contribute significantly to the Country’s GDP and create localised employment that cannot be ignored. In fact the vast network of cooperatives is already catalysing and contributing silently in good measure to the development process. The contribution to GDP by very large number of smaller entities like grass roots level cooperatives and Self Help Groups {SHGs) are like many tiny drops and together they aggregate to steady stream whichlends stability to Country’s economy.
However, it is a perception in some quarters that with the technological advances and globalisation of economy in recent decades, the cooperatives no longer fit into thescheme of development efforts.
NITI Aayog & restoration of importance of cooperatives in the process of development
It is here that NitiAyog, as successor to the Planning Commission has a veryimportant and constructive role to play. It will have to convince itself and also the government that cooperative has a pivotal role to play as an alternative and as a complimenting sector to private and public sectors and that the sector needs to be given all the visible support in terms of legislations that provide autonomy and level playing field.
Cooperatives in many countries, particularly in Europe, enjoy all this and their respect ad ratings as well as are higher than corporate entities in any of the sectors.
It is a fact that if given laws and regulations that allow cooperatives breathe freely and operate in a level playing field without political interference, the collective entrepreneurship in the form of cooperatives in India is capable of galvanising many sectors of economy and ensure meaningfulparticipation ofcommon man in the development process. Giving an undivided attention to growth of cooperatives fits in well with the objective of NITI Ayog, which is to ”foster involvement and participation in the economic policy-making process by the State Governments of India”
Ease of doing business for cooperatives
Lot of emphasis is being placed on ease of starting a business enterprise and on doing ease of business. Global investors and industrialists compare countries on these parameters before committing themselves in a specific country. India has been making significant improvement in recent years. But it has a very long way to go in becoming one of the best countries in ease of doing business.
It is equally important that small business and MSMEs also have the benefit the ease. In particular cooperatives which are collective s of common people and their aspirations, have to have it even easier than others to business. Contrary to this cooperative departments of most of the states impose a lot of bureaucratic hurdles in their functioning because of restrictive laws which have to be removed.
Urban Cooperative Banks
I am associated with the cooperative banking sector in general and urban cooperative banks in particular. Cooperative credit is an engine of growth of all types of cooperatives, and therefore reforms in the cooperative banking sector is of paramount importance.
Urban cooperative banking comprises of 1562 banks of which 54 are scheduled banks. The urban cooperative banks have upward of 2crore members. Not withstanding the fact that ascooperatives, they do not have access to money markets, the capital adequacymeasured as CRAR ratio is above 12% for 82 percent of the banks. The gross NPA’s are of the order of 7% ofgross advances and net NPA’s are 2.7%. Loan ticket size of 95% of loan accounts is less than ` 25 lacs which is a powerful indicator of the fact that these banks cater to people of small means and micro enterprises. At the same time the health parameters of this segment of banking industry compares well with those of mainstream commercial banks. However, the sector is given step motherly treatment.
Income tax exemption to Non Scheduled urban cooperative banks
The profit of urban co-operative banks was not being taxed as income till 2006, recognising the importance of the support they provided to the lower and middle income sections of population. However they have been brought under ambit of income tax since then by introduction of Sec 80 (P) (4) in the Income Tax Act . Of theannual income tax amount of around ` 2000 cr. paid byall the 1562 banks of thesector, almost one third is from just 54 scheduled urban co-operative banks. There is, therefore a strong case for exempting the non-scheduled urban co-operative banks from applicability of Sec 80 (P) (4).This will enable them to build up reserves faster and shore up their capital funds.
Umbrella Organisation (UO)
In comparing the cooperative banking structure in cooperatively advanced economies with the urban cooperative banks’ structure in India, it is seen that the structures in European nations and in some other parts of the world have evolved over time wherein the local cooperatives at grass roots level form the base and at higher levels we have specialised institutions which may not necessarily be cooperatives but which the cooperative banks together have majority sharesand which are mandated to provide the base level cooperative banks with specialised services like technology, investment aggregation, liquidity support, payment services support and even certain levels of inspection etc. Such a system constitutes a strong and cohesive network of entities having some cross ownership.
As against this, the urban cooperative banks in India are large number of stand alone entities without having any benefits of collectivism. They are thus far more vulnerable individually than networked cooperatives.
This issue of restructuring the existing system has been engaging attention of the sector and the Regulator over the last few years and proposal for formation of an Umbrella Organisation in the form of an NBFC with partnership of the urban co-operative banks and their federations and the NCDC is under consideration of the RBI.
The UO is expected to be a game changer for urban cooperative banks to start with and once it is firmly established, the UO could also provide support to the rural co-operative credit sector and also help the urban co-operative banks to gain expertise in financing agro-processing units, dairy sector entities, and other co-operatives.