FBM 1202- COOPERATION, MARKETING & FINANCE

Lecture 12 CO-OPERATION

Co-operation is derived from the Latin word ‘Co-operari’, ‘Co’ means “with” and
‘operari’ means ‘to work’. Hence co-operation means Working Together with others for a
common purpose.
Co-operation is voluntary association of persons for achieving a common goal. In
brief, it is self-help made through effective organisation. Cooperation is based on the
principle of helping people especially marginalized individuals who are powerless and to
provide benefits (economic/social/moral) to them equal to rich, powerful and resourceful
persons through their joint efforts. Ex: Producer’s cooperatives, Consumer’s cooperatives,
Marketing cooperatives, Credit cooperatives, Multi-purpose cooperative societies, etc.
Definition:
According to Huber Calvert, “Co-operation is a form of organization, where in
persons voluntarily associate together on the basis of equality for the promotion of common
economic interest of themselves”
According to Sir Horace Plunkett, “Co-operation is self - help made effective by
organization.”
A Co-operative Society is an enterprise formed and directed by an association of
users, applying within itself, the rules of democracy, and directly intended to serve both its
own members and the community as a whole - Lambert.
Co-operation helps in protecting the weak, provides equal justice to all and promotes
welfare of the society. The motto of co-operation is “Each for all and all for each.” The
other basic ideas behind Co-operation are “Self Help and Mutual Help” and “Mutual
Aid”.
Cooperation has the following three elements:
i. Coming together of individuals on voluntary basis
ii. Equality among members irrespective of capital contributed ( one vote for each)
iii. An honest economic and social objective
The United Nations had declared 2012 to be the International Year of Cooperatives
(IYC). The founder of Irish co-operative movement Sir Horace Plunkett sums up
cooperation in three famous maxims- Better farming, Better business and Better living.

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PRINCIPLES OF COOPERATION:
Rochdale pioneers were a group of 28 weavers and other artisans in Rochdale region
of England formed against the advent of industrial revolution forcing many skilled workers
into poverty. Rochdale pioneers were most famous for designing the Rochdale principles
i.e. a set of principles of co-operation now followed worldwide.
The important principles of co-operation are:
1. Principle of open and voluntary association:
The admission and membership into a co-operative society is open to everybody
irrespective of caste, religion, any social and political affiliations. It does not allow any
discrimination. The membership is open as well as voluntary. It implies that there is no
compulsion exercised on any individual to join the cooperative. Once an individual joins as
a member, there is no compulsion on him to continue as such. At any time he has every
freedom to withdraw from the society.
2. Principle of Democratic organization:
Co-operatives are organized and managed based on the principle of democracy. The
society is managed by a group known as “Board of Directors”. Each member is given equal
right to vote irrespective of his share capital in the society. “One man one vote” is the
important principle of cooperation. The elected board of management will work based on
the acts, rules and laws guiding the matters of co-operation.
3. Principle of service:
Co-operatives main aim is to cater to the needs of its members. Unlike business
organizations, the cooperatives are more service - oriented rather than profit - oriented. This
spirit of service invokes loyalty among the members.
4. Principle of self-help and mutual help:
Cooperative societies thrive on the principle of mutual help. They are the
organizations of financially weaker sections of society. Cooperative societies convert the
weakness of members into strength by adopting the principle of self- help through mutual
co-operation. It is only working jointly on the principle of “Each for all and all for each”.
5. Principle of distribution of profits and surpluses:
Co-operatives are not interested in making profits like business organizations. But,
they are also required to run on same minimum profits through efficient working. In co-
operatives a certain amount of profits i.e. 25 per cent will be kept back as reserve fund and

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the remaining 75 per cent can be distributed among the members based on their contribution
to the share capital.
6. Principle of political and religious neutrality:
The important strength for growth of the cooperatives is the unity among the
members and non-interference of political parties. The members of the cooperatives should
continuously work for the growth of the society with harmony, integration and un-
biasedness towards any religion or political party. The political and religious differences of
the members should be kept away for the smooth running of the cooperatives.
7. Principle of Education:
If the members in cooperative society are illiterate, their participation is poor in
running the cooperatives and they cannot understand what is going on in the society.
Hence, first such type of illiterate members should be made literate. For promoting
awareness and efficiency in the operations of cooperatives, education to members and
training to office bearers and executives is necessary.
8. Principle of thrift:
The cooperatives must aim at inculcating the habit of thrift i.e. “propensity to save”
among the members. Thrift and service are part and parcel of cooperation. The members
who save their money with cooperatives should get incentives. Thrift is very much basis of
self-help, but it must precede credit. It implies that in sanctioning of credit, a priority should
be given to the members who save.
9. Principle of publicity:
The cooperatives should make sincere efforts to tell their members about the society
and all the dealings of the society should be made public.
10. Principle of honorary service:
The honorary personnel will simply supervise and direct operations of cooperatives.
But to have efficiency in the society, trained secretaries with salaries are needed. But if the
societies are started with poor members, it is better to have honorary office bearers, because
such societies cannot afford to pay salaries to such office bearers.

Advantages/ benefits of Cooperation:

a) Economic benefits- These benefits can be in terms of availability of loan at low rate
of interest, low marketing cost per unit of output in sale of agricultural produce
through cooperative marketing society, etc.

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 b) Moral benefits- It boosts the moral of the members as it increases among them the
habit of savings and thrift.
c) Social benefits- The society as a whole is also benefited. The members plan and carry
such activities, which are beneficial for the whole society viz., water management
decisions, joint decisions for removal of social evils etc
d) Educative benefits- The members also get benefits in terms of improvement of their
understanding power through opening of schools or start of literacy campaigns in the
society.

History of Cooperative Movement

Co-operatives started out as small grass roots organizations in Western Europe,
North America and Japan in the middle of the last century. However it is the Rochdale
Pioneers that is regarded as the prototype of the modern co-operative society and the
founders/ pioneers of the Co-operative Movement.

In 1844 a group of 28 artisans working in the cotton mills in the town of Rochdale, in
the north of England established the first modern co-operative business, the Rochdale
Equitable Pioneers Society. The weavers faced miserable working conditions and low
wages, and they could not afford the high prices of food and household goods. They decided
that by pooling their scarce resources and working together they could access basic goods at
a lower price.

The Rochdale systems is considered to be an important model of co-operation

because of its contribution to co-operative thought in the form of principles which have
practical relevance even today.
Robert Owen (1771–1858) is considered the father of the cooperative movement.
Owen believed in putting his workers in a good environment with access to education for
themselves and their children. He put his ideas into effect successfully in the cotton mills of
New Lanark, Scotland. It was here that the first co-operative store was opened.

Cooperative movement in India

The Co-operative Movement in India took its origin in the beginning of the 20th
Century and was sponsored by the British Government to solve the problem of rural poor.
In India the Co-operative Movement was sponsored by the Government and not by the
people like that of the western countries.
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 In olden days rural credit service was dominated by non-institutional financial
agencies (i.e. private money lenders) charging exorbitant interest rates from farmers. In
extreme cases or out of distress the poor farmers have to sell their belongings to clear their
debts. This precarious situation triggered a lot of agitation by farmers against private money
lenders in certain areas. In 1875, the farmers of Pune and Ahammed Nagar rose up against
the money lenders and snatched away bonds etc and destroyed the documents in fire.
During this time Government passed various Acts such as Deccan Agricultural Relief Act,
1879, Land Improvement loans Act, 1883 and Agriculturists Loan Act 1884.
Nidhis or Mutual loans associations started in Madras (Chennai), UP and Bengal in
1850 paved the way for the introduction of co-operative credit societies in India. In 1882, Sir
William Wedderburn, a District Judge of Poona in Bombay province, started agricultural
banks.
In 1892, the Madras government appointed Federick Nicholson to study and
examine the village banks organized on cooperative lines in Germany. After coming from
there Nicholson submitted a report and raised a slogan “Find Raiffeissen”.
During 1901, Indian Famine Commission and another committee headed by Sir
Edward Law recommended the formation of credit societies on Raiffeissen model (In
Raiffeisen Model, unlimited liability was an important feature). These recommendations
resulted in the enactment of Cooperative Credit Societies Act (1904). The act suggested for
the classification of cooperative societies into rural and urban. The principle of “one man
one vote” was also specified in the Act.
Realizing the defects noticed in the Co-operative Credit Society Act, 1904, that is, i)
no provision for purposes other than credit, i.e., marketing and ii) unlimited liability, the
Government passed Co-operative Societies Act, 1912.
In 1914, the Government of India appointed a committee under Sir Edward
Maclagan to look in to the performance of the societies. He presented his report in 1915.
The Mac Lagan committee’s recommendations and Cooperative Societies Act of 1912
introduced the cooperative planning process in India.
The important observations of Mac Lagan committee were:
 Illiteracy among the members.
 Misappropriation of funds.
 Rampant nepotism.
 Undue delays in sanctioning of loans.
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 Irregularity in repayment of loans.
Some suggestions offered by Mac Lagan committee for the effective functioning of
cooperatives:
 Dealings should be restricted to the members only.
 Honesty should be the main criterion for extending a loan to anyone.
 Careful scrutiny of applications before advancing a loan and effective follow up for
proper utilization of loan amount.
 Loans should not be advanced for speculative purposes like investment in stock markets,
lotteries etc.
 Ultimate authority should be with all the members but not with the office bearers.
 Thrift should be encouraged among the members etc
In 1919 as per the Montage-Chelmsford Reforms Act, Co-operations became a State
subject. The Madras Province in 1932 enacted the Madras Co-operative Societies Act which
was in force at Malabar region of Kerala.
The Madras Province appointed a Committee on Co-operation (1939) under
T.Vijaya Raghavachary to study the conditions of the co-operative movement in the state.
The committee suggested several amendments to 1932 Act.
The Reserve Bank of India was established in 1935 with an Agricultural Credit
Department. The RBI conducted enquiries and advised the provincial governments to
improve the working of credit societies.
In 1945, the Government of India appointed the Cooperative Planning Committee
under the chairmanship of R.G. Saraiya for drawing up a plan for future development of the
co-operative movement. It recommended that the rural credit societies should function as
multi-purpose societies so as to attend to all economic activities of the farmers. It paved the
way to linking credit with marketing of agricultural produce.
Post-Independence Era:
After independence, Co-operation was included in the State list as per Article 246 of
Constitution of India. To organize co-operative societies having jurisdiction over one state,
a Central Act- the Multi Unit Co-operative Societies Act, 1942 was enacted which was
totally amended as Multi State Co-operative Societies Act on May 13th 2002.
Planning commission was established in March, 1950, prepared first five year plan
(1951-1956) in 1951 under which main objectives with regard to cooperatives were
 Involvement of cooperatives in rural development programmes.
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  Development of well organized credit system.
 Extending cooperatives to the fields of farming, industry, housing, marketing etc.
 Training of higher level personnel engaged in cooperatives.
During the year 1951, All India Rural Credit Survey Committee (AIRCSC)
appointed under the chairmanship of Sri. A.D. Gorwala pointed out two main drawbacks of
cooperative credit. They were
 Cooperative credit was unevenly distributed.
 Cooperative credit was inadequate and mostly lent to the asset-oriented large
cultivators rather than small and marginal farmers.
He also pointed that weakest link in chain of cooperatives was the primary credit
societies. The All India Rural Credit Survey Committee also observed that “Cooperation
has failed in India but must succeed”. This All India Rural Credit Survey Committee also
recommended an integrated scheme as a remedy for the then existing situation. The
important recommendations of it were
 State/Govt partnership in cooperatives at all levels.
 There should be coordination between cooperative credit, marketing and
processing.
 Development of adequate warehousing.
 Giving adequate training for cooperative personnel engaged at all levels.
Under Second five year plan (1956-1961), on the recommendations of All India
Rural Credit Survey Committee during the year 1956, National Cooperative Development
and Warehousing Board (NCDWB) were established. Apart from this, the second five year
plan initiated the setting up of producers’ cooperatives and processing cooperatives.
The Committee on Co-operative Credit (1960) headed by Vaikunt Lal Metha
recommended measures to secure a balance between economic viability and the co-
operative ideology, liberalization of rules and procedures for disbursal of credit. It
recommended big sized societies, granting short-term loans for landless people, linking
credit with marketing, etc.
The Committee on Taccavi (Govt) loans and cooperative credit under the
chairmanship of Sri. B.P Patel in 1961-62, stressed that the cooperatives should provide
loans to the farmers for carrying out agricultural operations and land improvement. These
loans should be given only to the farmers under distressed conditions.

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 During Third five year plan (1961-1966), the emphasis was placed on the
revitalization of dormant societies apart from increased emphasis on cooperative credit and
cooperative farming. During this period National Cooperative Development Corporation
(NCDC) was established in 1963 and also National Federation of Cooperative Sugar
Factories (NFCSF). An expert committee under Dr. Dantwala was appointed in 1964. It
recommended that the primary marketing societies should take up both marketing and
credit activities.
All India Rural Credit Review Committee (AIRCRC) was constituted during July,
1966 under the chairmanship of Sri. B. Venkatappaiah to review the progress of rural credit
in the context of IV Five Year Plan. It warned that the lower rung of the rural community
should be financed in terms of social justice and as per the recommendation of this
committee, 45 Small Farmers’ Development Agencies (SFDAs) were established in the
selected districts. The committee recommended for the reorganization of primary societies
into viable societies, rehabilitation of weak central co-operative banks, etc. Rural
Electrification Corporation was also set up in 1969 to promote and finance the rural
electricity co-operatives.
In the year 1967, Vaikunth Mehta National Institute of Cooperative Management
(VAMNICOM) was started in Poona.
Fourth five year plan (1969-1974), gave impetus for the rehabilitation and
reorganization of District Cooperative Credit Societies for the smooth flow of cooperative
credit. During this plan, Indian Farmers Fertilizer Cooperative Limited (IFFCO) was
established at Kandla, Gujarat.
During Fifth five year plan (1975-1979) new fertilizer projects were initiated with
the success during fourth five year plan. National Bank for Rural Development (NABARD)
was established for providing credit to agriculture and allied activities under Sixth plan
(1980-1985). The strengthening of dairy cooperatives was also given importance in this
period.
Seventh five year plan (1985-1990), stressed up on
a) Organizing of special cooperative loan recovery camps
b) Strengthening of National and State Consumer Federation (NSCF)
c) Introduction of single window system of credit in Andhra Pradesh.
Eighth five year plan (1992-1997) emphasized replication of Anand Pattern of
cooperatives for milk and strengthening of processing cooperatives.

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 During Ninth Five Year Plan (1997-2002) measures have been initiated to revitalize
the co-operatives to make them vibrant democratic institutions with economic viability and
active involvement of members by the Government. These include the framing of national
policy on cooperatives and finalisation of a new Multi State Cooperative Societies Bill to
replace the existing Multi State Cooperative Societies Act, 1984.
Tenth Five Year Plan (2002-2007)
The following initiatives were taken with respect of cooperatives during tenth five year plan
 To make a special study of the role of the cooperatives and challenges to be met in
the wake of globalization of Indian economy and also the issues relating to
competitive efficiency of the cooperatives, constraints and remedial measures for
improving the commercial and economic viability of the cooperatives with regard to
modernization, diversification, technology up gradation, quality improvement,
marketability and export promotion, etc.
 To study the regional disparity in the development of cooperatives, identify the
factors inhibiting the development of cooperatives in the states and suggest suitable
programmes for encouraging cooperatives in the cooperatively underdeveloped
states.
 To suggest measures for human resource development in the cooperatives.
 To review the role and functioning of consumer cooperatives and suggest suitable
measures for their improvement

Types of Cooperatives
I. The two major types of Cooperatives are:
(i) Agricultural Cooperatives and
(ii) Non-agricultural Cooperatives.
Agricultural Cooperatives
Specifically organized to cater for agricultural sector needs. Agricultural cooperatives
can be found in consumption, production, marketing and credit.
Forms of Agricultural Cooperatives
(i) Agricultural Producer Cooperatives
(ii) Agricultural Produce Marketing Cooperatives
(iii) Agricultural Thrift and Credit Cooperatives
(iv) Agricultural Consumer Cooperatives
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 (v) Multipurpose Cooperative Societies
Non- Agricultural Cooperatives
Exist among craftsmen, artisans, small business concerns, civil servants. Developed
in the areas of services, supply of goods and credit.
II. Based on functions and activities:
1. Agricultural Cooperatives
2. Service Cooperatives Marketing
Financing
Insurance
3. Consumer Cooperatives
4. Industrial Cooperatives
5. Multipurpose cooperatives
Note: No. 2 -5 are non-Agricultural Cooperatives.

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