Are Cooperatives a good solution? – UPSC GS2

Context: Government has set up a new Ministry of Cooperation.
Facts:
  • Over 300 million people are members of around 800,000 co-operatives in India today.
Analysis of existing Cooperatives in India:
  • Agriculture Cooperatives:
    • In 1991 it improved the terms of trade for agriculture and benefitted millions of farmers.
    • Agri-exports zoomed, but this led to higher domestic prices.
  • Milk Cooperatives:
    • In 1991, the finance minister wanted to delicense the dairy sector as well, but there was stiff opposition from Verghese Kurien, the “Milkman of India”.
    • As a compromise, Narasimha Rao partially de-licensed the sector through the Milk and Milk Products Order of 1992.
    • It was after 10 years in 2002 that the dairy sector was fully de-licensed during Atal Bihari Vajpayee’s tenure.
    • The developments in the dairy sector proved that competition between cooperatives and corporate dairy players has benefitted millions of farmers around the country.
    • The Amul model included collecting milk from millions of small and marginal farmers.
    • Then, processing as per food safety standards, and distributing to consumers in metro cities to start with, and then to second and third-tier cities.
    • With the entry of the private sector, the growth of the dairy sector accelerated at double the speed.
    • Now, growth in the organized private sector is faster than in cooperatives.
    • Also, despite the grand success of Gujarat’s milk cooperatives in Gujarat, the model did not spread to other states as successfully.
    • In UP, the biggest producer of milk, cooperatives, are nowhere in the scheme of things.
  • Finance Cooperatives:
    • There are cooperatives in the financial sector, be it rural or urban.
    • But the performance of these agencies when measured in terms of their share in overall credit, achievements in technology up-gradation, keeping NPAs low, or curbing fraudulent deals has been poor to average.
  • Cooperative Banks:
    • It is often believed that urban cooperative banks had huge transactions during the de-monetization phase and were one of the main factors responsible for the failure of demonetisation.
  • State Cooperatives:
    • Subsidy based Karnataka model distorts price to benefit milk farmers.
    • In its eagerness to please milk farmers, the Karnataka Milk Federation (KMF), which sells its products under the brand name of Nandini, gives them Rs 5 to Rs 6 extra per liter.
    • KMF procures a lot of milk and then dumps it at lower prices in the market for consumers.
    • This depresses prices in adjoining states like Maharashtra, affecting the fortunes of Maharashtra milk farmers.
    • If Maharashtra and Karnataka were two different countries, Maharashtra would be challenging Karnataka at the WTO.
    • There is a question about the role of the new Ministry of Cooperation in such cases.
  • Sugar Cooperatives:
    • Sugar cooperatives of Maharashtra initially succeeded but are in the doldrums now.
A Vaidyanathan Committee Recommendations:
  • Recommendations of 2005 Task Force on Revival of Rural Co-operative Credit Institutions, led by the eminent economist, A Vaidyanathan should be key to reforms. 
  • It recommended that the reform of co-operatives should make member-centric, democratic, self-governing, and financially well-managed institutions.
How Amul model got succeeded?
  • During Operation Flood, it received a lot of capital in highly concessional terms.
  • But its success also owed a lot to Kurien who believed in professionalism and business and, therefore, kept politics away.
  • He supported dairy farmers strongly, at times even at the expense of consumers.
Way forward:
  • Cooperatives desperately need technological upgradation.
  • Ministry of Cooperation should give soft loans for innovation and technology upgradation and extend the same terms to the private sector.
  • A level-playing field is critical to see which model suits India the best.
  • Ensure no political interference in the operation of cooperatives.