Friday, May 28, 2010

Modern India .Problems of agroeconomy

History of co-operative land management and problems faced by modern India

The essentials of the co-operative village management according to the first 5 year plan

(pp 102-103) are:-

1.All the land of the village is treated as a single farm

2.Cultivation of entire village organized to secure maximum advantage to village


3.The village resources well organized and maximum employment provided to owners of

land, workers who are non-owners of land, receiving remuneration for work/services, while

artisans receive additional returns for rights of ownership of lands.

4.Village management body allots constituted blocks for cultivation purposes.

5.Adopted when at least 2/3rd of the owners of land or a permanent tenant holding not

less than ½ of the cultivated area of the village wants it .

According to the Planning commission(Second five year plan pp 206)the village lands

will be managed in three ways:-

1Individual farmers cultivating their own holdings

2.Groups of farmers cultivating their own holdings

.Groups of farmers who pool lands voluntarily on their own interest into co-operative

working units.

3.Some land belong to the village community as a whole-the common lands, the village

site, the uncultivated wastelands available for settlement of landless, the water resources


The main agencies for achieving co-operative village management:-

1.National extension service and programme for increasing agricultural production and
development of other allied activities.

2.Village panchayaths

3.steps taken to develop co-operative credit ,marketing,warehousing,processing

4.Programmes for developing village industry

5.For assisting voluntary co-operative farming society.

The reorientation and co-ordination of land policy was initiated in Nagpur congress

January 1959.Thus co-operation was visualized as the keystone of the third plan. The

development of panchayath-based joint co-operative farms ,preceded by development of

a network of service co-operatives to function as multipurpose co-operative societies and

arrange for credit and marketing facilities was born.

The highlights of Nagpur resolution on agrarian organizational pattern:-

1.village organization based on village panchayaths and village co-operation. Both with

adequate resources and powers to discharge functions allotted to them.

2.Future agrarian pattern on basis of co-operative joint farming

3.Prior to this joint farming, as a first step, service co-operatives to be organized

throughout the country.

4.Ceiling to be fixed on existing holdings and legislation to this effect completed in all

states by end of 1959.

5.Minimum on floor price should be fixed reasonably in advance of the sowing season

with respect to each crop, with a view to assuring a fair return to the tiller (uzhavar means

the agriculturists).

6.Introduction of state trading in wholesale trade in food grains

7.Every effort to bring the uncultivated land and wastelands to cultivation.

(It was based on these decisions ,the co-operative society ,one of the first of its kind was

formed by the Punnayurkulam village under the guidance of K.G.KarunakaraMenon,my


In page 463(Dr C.B.Mamoria) it is mentioned that in co-operative farming, management

assistance to cultivators combined with supervised credit ,and joint ownership of

equipments ,offers a way to obtain advantage of better management while still retaining

the incentive gained by individual operations. The Ford foundation agricultural production

team also emphasized the significance of combining rights and privileges with

responsibilities.Nanda committee(Land reform implementation committee 1963 Report

in 1964) under G.L Nanda highlighted the following:-

1.Administrative arrangements for enforcement and supervision –adequate

2.Records of tenants did not exist in several states and were incomplete, or out of date

even if existed

3.poor economic condition of the tenant

4.In several states the existing provisions for security of tenants were of interim nature

and comprehensive measures to bring them to direct relation with state had to be adopted.

5.The ejectments though said to be voluntary were actually forced

6.In several states the rents have to be brought down to 1/4th of the produce or even less.

7 Although legislation exist for ceiling ,the problem of benaami transfers still existed in

several states
The fourth plan proposals for land reforms (draft outline pp128-132) :-

1.Records of tenancies to be prepared and kept upto date. Recorded tenant( each )issued a

certificate indicating right in the land and rent payable by him/her

2.Rights of resumption to be terminated and permanent and heritable rights conferred on

all tenants.

3.To improve economic condition of tenants it is necessary to confer on them the right to

make permanent improvements to land and to ensure adequate compensation in event of

eviction. Adequate and timely agricultural credit to be made available to them.

4.There should be a high level committee in each state to review the programme from

time to time (6 months )so that timely steps taken to fill gaps that come to notice.

5..Each state to appoint a special officer assisted by staff as may be necessary to

implement programme according to a fixed schedule to be drawn up by state


6.To lay down measures of adequate management .If the lands under cultivation of

private owners is not cultivated the state has the right to take over the management of

those lands.

The land reforms programme moved slowly since the people of vested interest found

means to bypass legislation.Mhalanobis committee reported that no appreciable reduction

in inequality seen between 53-54 and 59-60 despite the land reforms of that period. The

land reforms touched only the fringes of the problem of land distribution.

Top 1% 17 16
Top 5% 41 40

Top 10 % 58 56
Bottom 20 % No holding No holding

Report of the committee on distribution of income and levels of living(Pt 1. 1964.pp 20-

21) pointed out that among the causes of failure or only partial success of the programme

was that the landlords after the land reforms showed complete indifference to the

maintenance of capital works like wells,tanks,and improvements of the soil (which they

were doing before)Instead ,they directed the investments /funds in trade ,financial assets

,gold, and silver instead of on land and agriculture. These two were the twofold adverse

effects of land reforms which they had noticed even in 1964( and which continues till

date ,but now it is with Government help ).Both affected agricultural investment and

production adversely. American expert Shri Ladenjinsky who studied the

agrarian problems of India in five districts (Tanjore,Ludhiana,West Godaveri,Aligarh

and Shahabad)said that Tanjore was the worst Land tenure system in India.20 % tenants

had oral holdings with no legal records, and though the law was that more than 40 % of

produce should not be collected as rent, the landlords were taking more than 50-60

%.Eviction for repayment of rent was common.

16th National sample survey report No:122 said that 6.95 crores of households were in

rural India and 28 % of them do not own land.24 % has only less than one acre. That is

half of the rural household had either no land or below one acre. Their share only 1 % of

the land owned by all the rural households.

3/4th of households-no land or below 5 acres of land.

Their share is 1/6th of the total.

1/8th of the households =more than10 acres. Their total share 2/3rd of whole area.

1 % more than 50 acres. Their share 1/5th of whole area. Estimated average area owned

for all households would be 4.8 acres.

(Compare with the figures for Punnayurkulam )

It was during this time the Bhoodaan,gramdaan and Prakhandan(Block)movements were

started .Bhoo (earth/land)dhaana(donation) or voluntary contribution of land by the haves

to the have nots was its mission. In ancient India the practice was to give away land as gift

or charity for favor of God as a good deed and Vinoba bhave based his philosophy on

this.” Land is the mother of all and everyone has a right to serve her”Vinobha bhave

said. The free gift of the earth, its water, air and other natural resources for all to enjoy by

God was to create a nonviolent atmosphere and sharing with the poor the wealth of the

rich. It was an economic revolution by consent and not by coercion and a new chapter in

the socioeconomic reconstruction of the country. The philosophy was simple and

traditionally acceptable ,and people readily responded and this modeled the sarvodaya


Sarvodaya life style :-

1.Simple life style ,with contentment and happiness which every human being seek.

2.The ever-increasing wants of human greed can never be satisfied by the limited supply

of material goods. This leads to exploitation of others, and accumulation of wealth in

some people. Inequalities are due to this. When there is concentration of economic power

in some ,all evils attached to it also accumulate. To break the vicious circle one has to

reduce one’s wants. And know how to get satisfaction from the available material

resources and share them with others.

3.The all-round real progress is material,intellectual,and spiritual and all the three should

progress together. A harmonious combination of spiritualism and materialism with all the

advantages of socialism and without its side effects .It avoids economic power in the

hands of the few and it gives utmost freedom of thought to every one (Individualistic)

and is not having a control of intellectual thought as there is in present day cadre party
politics .

Why Bhoodaan?

The chief problem of the world is agrarian and solved in different ways by different

countries. In Russia it was solved with force and bloodshed. China also followed the same

way. In Cashmere abolition of Zamindari was done without any compensation. In rest of

India it was done with compensation.

In India the problem of food production is linked to the economic sphere. The grow more

food campaigns in the first five 5 r plans were because of this recognition. The

rehabilitation of the landless agricultural laborers required early action and the

Governmental process was slow due to several red tapes. So for a noble end ,and as a

means for a fair and lofty ideal Bhave launched the movement. It tackled the problem in

all fronts:-

1.Abolition of landlords of tenure

3.Land reform enactment

4.Ceiling on land holding

Vinobha bhave also introduced a fifth one .The spirit of renunciation based on love and

sacrifice started the campaign. Ironically it started in Telengana on April 18 ,1951 where

later on violent movements also started .The first donation was 100 acres by

V.Ramachandra Reddy and it was distributed to Harijans of Telengana.Vinobhaji also

advocated along with bhoodaan,sampathidaan(donate wealth),koopdaan(donate

well)Grihdaan(donate house)sharamdan(donate free service)Budhidhaan(donate

intelligence)grandhadaan( donate books)and jeevandhaan( donate own life for a right

cause).Vinobha bhave’s aim was 5 crore acres so that every rural family has a piece of

land to cultivate. What legislation could not do, his yagna could do. And it avoided feelings

of selfishness, hatred ,suspicion, and class conflicts between people and therefore was

most beneficial to the society. Its international implication was farreaching.The face of

nonviolence in solving social problems patiently and with perseverance was

demonstrated by his experiments.

As a child I had attended his camp in Punnayurkulam and feel proud to be part of that

movement in some way.


1.Keep away from power and create Janasakthy or self-reliant strength of the people.

2.Janasakthy is the moral might or force of love or Athmasakthy.The medium is love and

not mere empty lip-service. Love is accompanied by sacrifice for the loved one. Here it is

love of entire living things and sacrifice for them. What we call Nishkaamakarma in the

Bhagavad-Gita .He was interested in the Anaasakthiyoga of Geetha.

3.For the sacrifice the Bhoodevi (the five elements) which belongs to God and hence to

all alike and to the society as a whole is made a symbol.

4.On this basis one can bring about a peaceful agrarian revolution .

5.He did not beg for the gift. But for the share for all who are rightly entitled to it.

6.Propagate the right thought by which land ownership and economic maladjustments can

be corrected without serious conflicts.

There were Pradesh bhoodaan committees in respective regions and the land gift deeds

were prepared in duplication duly signed and attested by witnesses ,collected by Pradesh

committee and forwarded to sewasangha,sewagram for signature of Bhava before

redistribution. Pradesh committees had local committees who appointed individuals to

collect the land gift deeds .The representative of Bhoodaan committee, District magistrate

,chairman of village panjayath had to sign the deed and no fee was charged from the

recipient of the land. Within three years the recipient was expected to start cultivation and

he has to cultivate for a minimum of 10 years .At the spot donations also were made in

some cases. The bhoodaan land came under legislation in AP,Bihar,Gujrat,MP,Madras

presidency,Mysore,Orissa,Punjab,Rajasthan,UP,Delhi and Himachal.Gramdaan special

legislatives were in Assam and Rajasthan.

Upto end of October 1965 , 42 lakhs acres donated .Of this only 11 lacks could be

distributed. Highest % of land distribution was in Bihar More land was donated in Bihar

,followed by UP,MP,Andhra,Himachal,Orissa,Maharshtra,Gujarat and Rajasthan. In

AP,Assam,Kerala and Madras the Governments provided advancing loans for

development work in graamdaan villages and subsidizing special sarvodaya co-operative

societies in villages. Since Jan 1957,the emphasis shifted to Gramdan which started in

hamirpur dist in UP. The best organized was in Koraput dist in Orissa.Upto 1967,only

39672 villages received as gramdaan.It was superior to Bhoodaan movement since it

applied sarvodaya principle not only to land but to entire life of village community. It was

easier with that to achieve Bhave’s aim of sarvodaya samaj and to correlate bhoodan

movement with the economic policy of the nation. The second plan recognized the

practical success which is achieved with graamdaan villages will have great significance

for co-operative village movements.

Villages were covered as blocks called a prakhand.These later developed under a block

development officer and a project implementing committee officer under the supervision

of the district collector for community development work .

There had been several restraints for the success of the programme.For example, a land

which is fertile and with facilities of rain/or river irrigation about .78 acre(less than one

acre) is superior to a land holding of 7 acres which is desert area. And just by the area of

the land we cannot assess the equality. The person who receive the land was tested only

for landlessness, not for whether he wants the land ,or whether he is capable of doing

cultivation ,the capacity of him to till land and make produce etc.There were criticisms

but they were more related to implementation of redistribution which was the

responsibility of the respective state Governments and officers.

50 % land donated was having some litigation and 70 % of total collection was infertile

land .The movement had a negative effect. It created a land hunger ,instead of avoiding

greed for land it increased it among people .This was a burning fire which the nation

could never suppress because even now it continues .Suppressed fire when it burns is

dangerous to a nation.Vinobha Bhave thought that by this movement he can do away

with the violent communist movements.% of land collection in predominantly communist

areas(which are fertile lands of Bengal and kerala)was less or insignificant than in the

noncommunist areas. What it aimed at was never attained. Only 8 % of its expected land

was collected at the end of 1961 March.Eventhough such criticisms exist ,the experiment

showed the principles on which India was working for millennia and how it can be

recreated if people are made aware of the benefits of it and the state give proper support

for rehabilitation

The preindependent rural indebtedness summarized.:-

Deccan Ryots commission Year 1875
Rs 371 /occupant only Analysis of 12 villages in Ahmed nager district
Famine commission 1880.
(not specified) 1/3 landholders in deep debt. Another 1/3 in debt but with power to redeem the debt
Sir Fredrick 1895
45 crores Madras alone
Famine commission 1901 ¼ lost land in Bombay.Less than 1/5 free from debt
Sir Edward Mclagan 1911
300 crores For British India based on estimate of Nicholson for Madras
M ,L.Darling 1925.
600 crores Based on Punjab figure of 900 crores
Central banking enquiry committee 1929
900 crores Based on provincial banking enquiry committee report
P.J.Thomas 1933
2200 crores
Dr A.K.Mukerjee 1935
1200 crores
Agricultural credit department 1937
1800 crores
Mr E.V.S Menon 1938
1800 crores

The figures for the whole Indian union after independence :

Dr .S.N.Naidu 1100 crores

National income committee 913 crores

S.Thirumalai 1800 crores

Rural credit survey of RBI (1951-52):-

1.Proportion of borrowing families in India 51.5 %

2. 63 % rural families in debt. Average debt per family was Rs 283 only.

3.The higher burden was in cultivators with small holdings.

Rs 300 /small holdings on average

Rs 1000 for the large holdings on average

(Debt was more for the large holdings)

4.Average outstanding debts per family was Rs 29-Rs 1200

Rural credit follow up survey (56-57)found an increase in volume of doubt in this period.

1.65 % agrarian labor families indebted in against 45 % in 1950.Average debt

increase from Rs 47 to Rs 88.

2.Average debt per indebted family rose from Rs 105 to Rs 133.

3.Total estimated volume of indebtedness of agrarian labor families Rs 143 crores in

1956 against 80 crores in 1950.

All India rural debt and investment survey of RBI(1961-62):-

1.Average debt per household Rs 654

More for cultivators (Rs 719 per house) Noncultivators Rs 429/house

2.Markedly high in Punjab,Rajasthan,Gujrat,Andhra,Madras and Mysore

Low in Bengal,Kerala,Orissa,Assam and J&K.(This is interesting. Because except JK al

other states with low debt rates are rice producing states and suppliers of staple food to

the country and yet they are comparatively free from debt .This point needs special


3.Examination of outstanding debt of cultivation in relation to their cultivating holdings

revealed that incidence of debt per acre was highest in Madras followed by Kerala

,Andhra and Bihar.(Note this point also. The debt of these rice producing places was

directly related to production cost whereas in the other states it was not.)The debts per

acre of cultivated holding exceeded Rs 100.The doubt in this category was very low in

MP,Rajasthan,Maharashtra ,Orissa and Assam.

4.The burden of land debt varied with land size and assets. Debt per acre showed a steady

increase in as the average size of the holding declined ,that is the smaller holding ,the

larger the debt per acre. The average debt formed 5 % of assets of the richer farmer ,9

% in the smaller farmer

The Banking Enquiry committee found that the debt was for productive as well as for

nonproductive activities. Rural credit survey committee(RCS) :- In a noncultivator family

the expenditure accounted for 70 % debts .Nonfarm business expenditure accounted for a

5th and other expenditures for balance of total borrowings. For a cultivator family, the

family expenditure was only 47 %.The capital expenditure on farm was 32 % of total


RCSC Report .Borrowings of cultivators classified according to purpose and duration

Purpose/Duration Government Co-operatives Others Total
Short term
Long term
Long term
Replacement of old debts 0.8 8.7 90.5 100
others 0.8 2.4 96.8 100

More than 80% of short term agricultural debts and more than 90 % of long term

agricultural debts were from private agencies. Half of the borrowed fund utilized for

unproductive family expenditure. A little less than 1/3 rd only on farm improvement
It is noteworthy here that the Reserve Bank of India had classified rural agrarian credit as

short term, medium and long term on basis of the return of credit as well as purpose of the

credit taken as below (Preliminary report in 1936) and the classification in the above
table does not show the term medium ,but actually the long term mentioned in it is the

medium credit .(The long term credit is mainly for making lasting improvements like

provision of drainage systems ,construction of wells ,embankments ,granaries and

storehouses etc and litigation and repayment of old debts and the duration is for 15-20

years and this was previously the duty of the zamindar or the local kings and the funds

came from peoples cooperatives as temple offerings and the emperor as trustee and the

Guru or Brahmin as the surety .)All these are needed in different stages of farming and

the RBI pointed out in 1936 that the long term credit is more important and if effective

steps are to be taken to make the agricultural credit worthy ,this is the first problem which

is to be tackled.

The purpose of borrowing as % of total borrowing is given in the following table.

Purpose of borrowing All India cultivators noncultivator
Capital expenditure on farm 27.8 31.5 6.0
Current expenditure on farm 9.3 10.6 1.1
Family expenditure 50.2 46.9 69.9
Nonfarm expenditure 6.6 2.5 18.5
Others 5.7 6.0 4.4
More than one purpose 0.4 0.5 0.1
Total 100 100 100

46.9 % of total debt was for consumption and not for productive expenditure The split up

of this was ,24 % for social purposes,19 % for productive purposes and 1 % for

miscellaneous items. Large part of debt was unproductive. In 56-57 about 92 % of debt

was for private agencies.

To other agriculturists 24.9 %
To professional money lenders 44.8
To relatives 14.2
Landlords 7.5
Traders 5.5
Commission agents 5.5
Government 3.3
Co-operatives 3.1
Commercial banks 0.9
Total 100

Needs to satisfy which the loans were needed by the agriculturists:-

1.Conduct of productive activity at normal levels of efficiency.

Seeds,manure,wages etc.Production needs like livestock,implements,payment of rent

,revenue, current consumption finance (food for family)

2.Development of conservation of resources

Ordinary long term development of long-term resources left unutilized in course of the

current productive activity-construction of wells ,tanks,embankments,trees ,orchard

planting etc

3.Circumstances of calamity or distress occasioned by famines, floods etc.This would be

above all the requirements of for ordinary production needs and consumption needs.

Causes of debt:-

1Ancestral.As a pious obligation to the forefather’s debts

2.subdivision and fragmentation of holdings.Skill,industry and thrift are needed to

support a family upon a few acres .(The joint family system was doing this efficiently and

whole villages were managed by a few guilds of workers and families .It was to prevent

fragmentation of holdings as individual property ,and because of this co-operative

holdings only the whole village was prospering)

3.Vagaries of climatic condition and natural calamities

4.Ignorance and illiteracy of cultivation

5.failure to provide for deficiencies. Agriculture is subject to law of diminishing returns

(Manure,water,seeds,soil,methods of cultivation).Poverty, tiny plots, and ignorance of

cultivation and climatic peculiarities leads to a diminishing return.(The individual /co-

operative farming and its value as well as climatic conditions were well studied by all

cultivators before independence. They might be illiterate but they knew the crops, the

seasons and economy associated with them )

6.Low income and hand to mouth existence

7.Money lenders and the vicious system of debt

8.high rate of interest

9.Extravagant and improvident borrowing

Marriage ornaments, funeral rites, which are beyond their means. Long seasonal feasts

,kasha observances etc (These observations are not entirely correct as we will discuss in a

further chapter)

10.Maintainance of law and order

The king or Zamindar was the chief security to the land. The spare produce went for the

military expenditure and the agriculture suffered after the 18th century .

11.The litigations (vyavahaara)increased after the Foreign laws were enforced and

individual property right was recognized and this resulted in ruining of funds as well as

the social co-operation

12 Heavy burden was the land and irrigation tax. In 1901 the rigid revenue system forced

the people to borrow.R.C.Dattha(1901) said that it made people impoverished. Heavy tax

and rigid procedure of its collection increased peoples indebtedness.

13.All the marketing facilities which were existing in the previous system of guilds were

lost .

The legislation recognized “Debt of its people as a symptom of deep-rooted disease and

took some temporary measures to control and eliminate it .These were

1.Legislation for scaling down the debts

2.Restricting the activity of the moneylender

3.Fixation of rate of interest

4.system of registration and keeping compulsory accounts

But it also recognized that the long-lasting remedy is:-

1.Spread of education

2.Extention of co-operative and joint stock banking

3.Training the borrower in the habits of thrift and saving

4.Agriculture to be made more productive by consolidation of holdings

5.Establishment of subsidiary occupation when there is no agricultural activity

6 population control and reduction of family expenses

The rural credit survey of RBI in the early sixties described the co-operation as a failure

on the grounds that the rich cultivators were sulking away the bulk of the cheap co-

operative credit and releasing it privately to small cultivators at exacerbated rates.53 % of

small cultivators were getting only 11 % of co-0perative credit in comparison to the rich

ones (13 %).The asset of the former was Rs 2500 and asset of the latter 10000 Rs and

above who are taking 55 % of co-operative credit.

Small cultivators Large holding cultivators % increase
53 % 55 % 2 %
11 % 13 % 2 %
Asset value Rs 2500 or less Rs 10000 and above Difference Rs 7500

The question why this increase amount of credit to big farmers with more assets was

answered ,:They are able to raise a marketable surplus .The Government policy was thus

raising the surplus market .The production and income of the small scale farmer had to be

gradually raised and their natural output share had to be increased and that was the aim of

the co-operative (as it was from time immemorial in Rural India )and this did not happen

was the RBI report. The recommendations of the Rural credit summary committee was

followed by the recommendations of the committee on co-operative credit in 1963 .It

suggested organization of co-operatives on the basis of village community as primary

unit ,ensuring state participation in share capital of primary agricultural credit society ,co-

operative society membership to all classes of cultivators, short and medium credits

without mortgage of landed property and credit limits for central co-operative banks

liberalized to obtain larger funds from reserve bank. The Government /state agencies

provide finance indirectly or directly. Indirect credit was through the co-operative

society.(Reference :-K.Madhavadas.Governement financing in India. Agricultural co-

operative credit in S.E.Asia 1967. pp 174-175).It is worth stating that K.Madhavadas was

a native of Punnayurkulam ,a nephew of my father, and husband of my cousin late


The Government representative on board of Banks and societies was limited to 1/3rd of

board or three Government nominees whichever is less. Thus Government was playing

a complimentary role to RBI in the development of c0-operative credit. Direct financing

to farmers by Government had a very long history in India and this was called Taccavi

loans and based on it the British Government had Land improvement Act of 1883 (for

long term loan)and Agriculturists loan Act of 1884(for short term loans).The 1883 Act

was for construction of well, erecting embankments ,irrigation work, protection of land

from floods and erosions and was for 25 years or more and the landed property was

given as security at rate of 6 to 6 3/4th and loan repayable at equal installments

discharging by principal and interest. The 1884 Act was for current agricultural

expenditure including the rebuilding of houses lost in floods and had to be repaid after

the harvest.

In 1957-58 Government spent 258 million Rs with 0.06 %interest and in 60-61 Rs 421

million. In these years Govt loans throughco-operatives was limited to only three

states.The Government loan recovery was like the tax on land and yet there were

continuous overdue (since this was the rule in India even before British rule and the

rulers were very lenient in it ,before they were pressurized by the foreign regime to

collect it or evict )In 60-61 in the three states it was above 80 % and 50-80 % in another

6 states.The taccavvi loan had very long terms of repayment(which the people

considered as ancestral loan and continued to pay before and the rulers allowed overdue)

and very low credits .

In modern India the RCS committee noticed that Govt loans of taccavi nature was

tending to gravitate to the big and large landholders since their borrowing capacity was

four times that of the medium and ten times that of the small cultivators. Thus it was

taken by those who least need it. The RCS Committee general report directed the

government loan to periods of disasters like famine, food scarcity and floods and a co-

ordination between it and co-operative credit.(Report of the committee on Taccavi loans

and co-operative credit 1962 pp 83)

Its main suggestions were

1.Government loan to co-operative banks at interest rates which enable banks to keep

adequate margins between these rates and the rate at which they lend to the affiliated

primary credit societies

2.Before Government provide funds the question whether the co-operative credit

structure is able to undertake the responsibility should be examined ,because a weak co-

operative credit structure will find itself in a further mess if it takes itself this additional


3.The loan should be timely from February to May .

4.The financing should strengthen and not weaken the discipline of co-operative credit

structure. In federal co-operative structures the Govt loans are to apex banks and not

through central bank or a local society.

5.Terms and conditions of Govt loans were specific, clear and carefully considered by co-

operative banks before acceptance. For selection of area where the policy of distribution

of Govt loan to be done, the cooperative apex body was consulted. Full freedom given to

co-operative bank and society in dealing with individual loan application.

SBI and exchange banks had a commercial function and played little role in

Government loans(less than 1 %) and they financed the trade, to estate agriculture and to

areas where production is for market (just like the British period)and their indirect

finance of agriculturists was through merchants and dealers (as in the past Indian

history).Give loan to merchants ,commission agents on security of agricultural products

stored in a place approved by them at 6 to 9 % interest in the movement of the produce

from the Mandis to the consuming center /or different parts .Stocks so pledged were

insured against fire, and bank require insurance against additional risks like floods .It is

kept under lock and key by the bank subject to periodic inspection by a bank official.(All

these were done in the pre-British system by the erstwhile rulers and merchant class and

Brahmins and the entire people of the country and was not new. The system just changed

hands but survived with its own faults and advantages which we will discuss later).

The security of gold and silver and ornaments and other articles like produce of the

temple lands called Nidhi (treasures)by the old economists were existent and the British

saw such nidhi in Madras and Andhra and devised the law in their model.(Padmanidhi

,Samkhanidhi etc in relation to Vishnu temples ).The mutual loan societies (called

chittikkuri /changhathikkuri in the south. See Logan’s manual ) had gradually developed

into a semi banking institution for mutual help and this was to facilitate savings ,relieve

members from old debts, accumulate funds for loans for emergency purposes for all

members of community. There were several distinctive features of considerable value in

this system. It encouraged thrift, mobilized small savings, promoted co-operative

effort, inculcate in the members a habit for punctuality and planning for future

expenditure. It was based on associations, confidence and honest dealings and these were

existent in India for co-operative living and agriculture and this system ,though criticized

by the foreign merchants, administrators and military in initial stages were taken up by

them and used for improvement of their trade, administration and military shows its

utility value as well as strength.

All such systems were incorporated into the new nation in its initial economic and

agrarian policies. The rural credit survey found( 1951-52) certain salient points existing in

different regions of the country.

1.Proportion of dormant societies were more in West Bengal and Bihar

2.Proportion of rural population covered by cooperatives was very low in Bihar, West

Bengal and Rajasthan.

3,Resource position and level of advances was poor in these three states.

4.Proportion of co-operative borrowing to total borrowing was highest in Maharashtra

and Gujarat ,and followed by Madras presidency and AP and Punjab. Very low in Bihar

and Rajasthaaan

5.While advances were low ,proportion of overdue also was high in Bihar and West


These suggested that the co-operatives were well developed in Maharashtra ,Gujarat and

followed by Madras and Andhra(The western and southern India) and very low in Bihar

,Bengal (The Eastern India) and Rajasthan(this being not an agrarian state its condition

is different).Punjab and UP had an intermediary position.

When we assess the conditions of one region and apply or project the theory onto another

these factors are applicable. What situations prevailed in these states in preindependent

and independent India and at present should be seen in continuity ,not projecting

everything as a wastebasket theory of one or another type, is the lesson from this. If poor

conditions existed in Bengal and Bihar then, how it continued over the years and

perpetuated by whom and why is also another side of the coin to be considered which is

not in the scope of this book.

It was on the basis of recommendations of V.L.Mehta committee on co-operative credit

(1960) the agricultural refinance corporation of the second plan was formed .


Year Advance Outstanding
1951-58 11.29 7.81
55-56 23.80 12.98
59-60 100.65 74.54
60-61 146.66 89.40
61-62 192-92 122.80
62-63 220.28 134.32
64-65 283.49 148.63

The launching of intensive agricultural production programme was launched in 1960-61.

The principles of co-operative movement was not new in India as we have seen. Since

ancient times it was practiced in various ways. The joint family system

(brotherhood, mutual help)the panchaayaths,(principle of community self help) nidhi in

temples (based on mutual association, confidence and honest dealings ) existed for

millennia (Mamoria C.B.and Saxena R.D Cooperation in India.1960. pp82-83).The

theory of co-operation in India meant better living for all and for moral upliftment of

all. The Mclagan committee report on co-operation in India (1915 . pp 2) observes:-“By

the union of forces material advancement is secured ,and by united action self-reliance is

fostered ,and it is from the interaction of these influences that it is hoped to attain the

effective realization of the higher and more prosperous standards of life which has been

characterized as better business, better farming and better living”. Basically the approach

touches upon all aspects of life. The means for raising productivity ,improving technology

,expanding employment and basic necessities of every member of the community. The

features of the ancient co-operative societies were

1.Organisation of free individuals in self-regulated action ,emphasizing the idea of self-

help ,act of association being both voluntary and a recognition of equality as Athman

/God’s children.(Swaathanthrya,karma,swadharma and samathwa as yoga).

2.Economic benefit was secured through trading and commerce in the widest sense as

dharma(Vaanijyadharma,and Arthasasthra)

3.It is not a seeker after a particular or sectarian privilege but one who conducts business

as dharma for the benefit of all in an unselfish spirit(Nishkaamakarma) who was

respected. The motto was each for all and all for each.

4.The co-operation was concerned with the user, his dharma and honesty ,not on his

wealth or asset ,for benefits to society are commensurate with the use made.

4.It decreased destructive competition among its members by this principle

5.It enabled the realization of advantages of large scale operations

6.Helped to pool the resources of people with small and limited assets and obtain the

benefits of strength through unity

7,Created the feeling of self-help and solidarity and enable its members to resist

exploitation not by social and political upheavals but by circumventing the channels

which lead to such exploitation

8.It combined the high aspirations of calm and strong decisions and strenuous actions. It

sets itself to develop the spontaneous energies of the individuals(based on their three

guna)while training them to collective actions by the aid of collective resources and for

attainment of collective needs.

Early phases in British India.

Here I just point out some attempts by the British legislature to understand the problems

of India and to give help if possible.

1.The recommendations of the famine committee 1901 .Sir Edward Law’s committee

which lead to Indian co-operative societies Act of 1904.

2.Co-operative society Act of 1912.

3.Committee under Sir Edward Maclagan 1914.Report submitted in 1915.It was an

important landmark in the co-operative movement and had made several observations on
the rural credit societies. The salient features he pointed out were

A. They know the co-operative principles and have proper selection of members

B.Honesty is their chief basis of credit

C.Dealings with members only

D.Loans are not given for speculative purposes

E.Scrutiny before advancing loans and vigilance afterwards exercised

F.Ultimate authority is in the hands of the members ,not in the hands of the office bearers

G.Encouragement of thrift and constitution of an adequate reserve fund aimed at

H.Only one vote for one member and maximum publicity in the society is allowed

I.Capital raised as far as possible from savings among the members and neighbors

J.Punctual payments of loans adhered to.

He also noticed the defects in some regions as follows:-

A. Illiteracy and ignorance of masses

B.Criminal negligence of the managerial committee and staff ,misappropriation of

funds, frauds

C.Nepotism in advancing loans and punctuality being not enforced .(very lenient)

D.The delay caused in lending support drives people to moneylenders in agricultural


E.The working of society on mercenary grounds under a registrar of co-operative

societies have no humanitarian concerns.

(These are important features and to be compared with our own conditions still existing )

4.The Government of India Act of 1919.By this co-operation became a provincial


Followed by Co-operative society Act of Bombay 1925

Of Madras in 1932

Of Bihar and Orissa in 1935

Of Coorg in 1937

Of Bengal in 1941

Other provinces followed the central Act of 1912 .Rapid growth of movement occurred

between 1919-1930 and Mr Ramdas Pantulu called it the period of expansion (pp 555-

556 Mamoria 1969).

5.The period of depression and after (1928-35 to 1945):-

1929-33 saw the great depression. It was a rude shock to the movement .The prices fell

sharply. Heavy burden of debts on people and they lose interest in the movement .In 1937

a new Agricultural credit department of RBI was set up which stressed need for

multipurpose co-operative societies. With second world war ,the growth of consumer

stores and marketing societies ,milk supply unions ,motor transport societies ,fruit

growers and cane growers associations came up. There was large turn over, accelerated

payments ,shrinkages in overdue and societies gained strength and vigor once again. In

1945 the co-operative planning committee was appointed to bring 30 % rural population

and 50 % villages within the ambit of a reorganized society within a period of 10 years

(by 1955).This urged the RBI to provide greater assistance to the co-operative societies.

Therefore what we see as a post-independent process of co-operative movement is as old

as India itself and has a continuous history to trace.


The 15th conference of registrars of the co-operative societies recommended the linking

of credits and marketing. Assistance for construction of godowns where the rat and damp

will not destroy the grain was asked for.(This is the old granary of Mohanjodaro,the ara

/pathayam etc of the kerala agricultural people ).They also recommended setting up of

processing plants by grant of liberal loans and subsidies and the necessity for training the

expert staff .

Rural banking committee(1949-50)suggested formation of rural co-operative banks and

expansion of urban banks, central banks and provincial banks to serve most of the needs

of the rural area. A major development was in 1951,the appointment by RBI of a rural

credit survey committee(RCSC) which submitted report in 1954.It noticed substantial

deviation from co-operative principles and policy .It concluded “co-operation has failed

but co-operation must succeed”.

The reasons for failure were functional and structural deficits ,administrative deficits and

dearth of suitable personnel to conduct the affairs of the society ,lack of training

,background of mass illiteracy ,and deficiency of communication networks in villages, and

also storage and other vital requirements. It recommended an integrated scheme with three

fundamental principles for rural credit.

1.State participation at various levels

2.Co-ordination of credit and other economic activities especially processing and


3.Trained and efficient personnel responsible to the needs of the rural population should

be in the administration.

It also recommended the nationalization of the Imperial bank of India to undertake

marketing and processing of co-operative societies. In March 1955 ,the recommendations

were approved first by the 2nd co-operative congress n Patina and later by the 1st

conference of ministers for co-operation in 1955 itself at New Delhi. These

recommendations were the basis for the second five year plan .(Also refer The Ministry

of community development .Panchayathi Raj and co-operation sahakaari samaaj 1962 pp

48-52) .In the second plan building up of a strong co-operative sector was one of the

central aims of National policy and pilot projects had to be undertaken on co-operative

farming and co-operative societies. It is here the earliest pilot projects done at

Punnayurkulam in these lines by the initiative of .K.G.Karunakara Menon is significant.

The National development council resolution(1959) said the basic objective of the co-

operative policy was rebuilding the rural economy and increasing agricultural

production. A working group was set up under its recommendations in 1958 for

implementing its resolutions. The policy letter of 1959 May states the salient features of

the policy as:-

1.Organisation of village community as primary unit

2.Societies to function as multipurpose societies

3.Organisation of the new and revitalization and reorganization of the old societies to be

Taken up immediately

4.Village panchayath and co-operative society should be co-terminus to their jurisdiction

5.Loans on basis of purpose ,not on basis of property

6.Membership made universal

7.Co-operative marketing,storage,processing accelerated and expanded

8.Staff of co-operative departments strengthened and adequate arrangements made for


9.Movement must be in hands of nonofficial

10.Takavi and loans channeled through co-operatives

The functions of village panchayaths and co-operatives were clearly demarcated with full

co-operation between the two. The board cannot nominate the chairman. The board

chairman should be an honorary worker and a popular leader with enthusiasm and

ability of integration .The interest was at uniform rates. The activities of the co-operative

was supervised by the supervising unions and state Governments and local defects

rectified by them .These gave proper timely support and help to rural population .

The Mysore conference of state ministers of co-operatives(1959 third conference)was

followed by setting up of an expert committee on co-operative credit under V.L.Mehta

(reported in May 1960)The 4th conference was in 1960 at Jaipur and working group of

Panchayath and co-operatives under chairmanship of S.D.Misra was formed in 1961 to

study the panchayathi raj and the co-operative movement in detail. In the 5th conference at

Luck now the committee for co-operative administration (1963)was set up. It was under

chairmanship of V.L.Mehta.

The 4th plan gave emphasis to consolidation ,elimination of existing weaknesses and a

viable co-operative credit system.Programmes for high yielding paddy and high fertilizer

responsive seed programmes were resorted to.It tried to strengthen the co-operative in

fisheries,diary and animal husbandry.And it studied the areas where the co-operative

movements were failure(Bengal and Bihar and Rajasthan).The people were still

considering the Government as the totally responsible body for whatever they go through

(Registrar as representative of Govt treated as Brahma, Vishnu ,Shiva of the society pp

578 ).They were too illiterate to understand that they too are responsible partners in the

movement. The problem of greedy moneylenders and intermediaries still persisted and the

needs of the agriculturists was not totally met with. The uneven development in different

states were due to the prior conditions of the development, the nonofficial leaderships

available, the presence or lack of official imagination and vision, flexibility of rules and

procedures, nature of economy ,level of thinking, savings and assets available, land

ownership patterns and distribution etc.

The co-operative credit system was reorganized in two parts .

1.The short and medium credit as a three tier system

2.The long term credit

The three tier system:-

1.The apex bank(in some the entire state is the apex )

2.The central bank(the district)

3.The primary agriculture /credit society at village level as the base

The long term credit:-

The central mortgage bank for each state at apex level

The primary level mortgage bank at Taluka /District level

In Kerala state in 1965-66 the movement was developed well but had still to make an

impact on rural economy but the foundation stone was laid very strongly.

There were 2104 societies ,and the membership was 1238000,share capital in Rs was

428 laks,deposits were 443 lakhs and loan advance during the year was 1197 lakhs and

percentage overdue was only 21 %.

The story of Punnayurkulam and its co-operative movement and farming experiments in

kol puncha in the period of 1947- 1969/70 is worth mentioning since it is the most rice

producing area in entire South Malabar and after this period this potential is neglected /or

not tapped properly by any of the subsequent state Governments .The laws are

implemented with machinelike accuracy and the results awaited ,but no sincere efforts to

revitalize the agrarian production has been undertaken after 1970.This is where the

present study is important.

Community development programmes and reconstruction of rural areas in

preindependent India were experimented in Bengal at Sriniketan (Ravindranath Tagore)

,Marthaandam project (in 1921 by the Travancore Rajah)in Baroda(19310and

Gurgaon.The Firka development in Madras presidency was based on Gramaswaraj

which merged with the National Extention Service(NES)in 53-54.It was a co-ordinated

project of agriculture ,food and nutrition related to public health and veterinary science

,industries and communication .The sarvodaya scheme started in Preindependent India in

Bombay. In post independent India The Etawah and Nilokdhari projects were also done as

pilot projects.

Any big project needs great effort and very cautious and well thought out

procedures. The organizations should have skill to do it, ample finance to do it ,trained

personnel to help, and therefore the expansion programme can happen in a phased way

only. The need for honest and efficient organization and administration in survival and

success of any project cannot be underestimated. What we need is not new policies but

good leaders who have the knowledge and the will to serve the nation selflessly. There is

no dearth of laws .No dearth for policies in Indian constitution .The revitalization should

start at the base of the pyramid ,in each village by local leaders with sincere leaders at the

apex who know the needs as well as the regional peculiarities of land and its produce and

the variability of climatic conditions and the compassionate heart to rise up to occasions

of natural calamities.

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