Globalization and Cooperative Sector in India


Dr. A. Vinayagamoorthy
Department of Commerce, Periyar University
Salem-11 TN

Dr. Vijay Pithadia
Asst. Professor
R.K. College of Business Management
Kasturbadham, Bhavnagar Road, Rajkot-360020 GJ


Co-operation is a world-wide movement. It was introduced in India in the early years of this century in the wake of famines, which had resulted in economic hardship and an alarming increase in the indebtedness of the farmers to the moneylenders. Co-operative credit on easy terms appeared to be the best means of getting the farmers out of the vicious circle of indebtedness and poverty. The idea was to free the farmers from the necessity of having to borrow money on usurious rates of interest from Sahukars or village moneylenders. The Co-operative Societies Act, which was passed in 1904 envisaged the formation of village credit societies. In 1912, the Act was amended to enable formation of other types of societies for activities relating to sale, purchase, production, housing etc. This Act also provided for the creation of federations of primary societies and for supervision, audit, mutual control and overall development of the co-operative movement. In 1919, the subject of co-operation was transferred to the provinces and most of the provinces enacted their own laws to regulate the working of co-operative societies. To give a stimulus to the co-operative movement, the Government of India set up an Agricultural Credit Department in the Reserve Bank of India with a view to providing financial assistance and credit to the co-operatives.

Co-operation was introduced in India mainly as a defensive organization for dealing with problems of rural indebtedness. With the acceptance and implementation of a planned economic development wedded to the ideas of socialism and democracy, co-operation became a dynamic economic instrument for achieving the social objectives of the National plan.


The term globalization is often associated with international business. It is a process of development of the world into a single integrated economic unit. In India, globalization refers to the opening of the gates of the economy for mutual global co-operation by way of reducing control and bureaucratic delays and steering the economy towards better market orientation.

Globalization started from the 19th century and the period between 1870 to 1913 has been considered as first phase and the period from middle of 20th century is viewed as the second phase. The World Human Development Report, 1999 states that the most significant feature of the current phase is market economic policies spreading around the world with grater privatization and liberalization than in earlier decades.


It is a well-known fact that the year 1991 marked the beginning of a new era in economic policy of our country. To encourage privatization, policy changes such as deregulation of state enterprise, reduction in tariff barriers, creation of appropriate climate to promote private investment in infrastructure, manufacturing etc. provided for new direction and affected almost all the sectors of the economy, including co-operative sector. But the reform measures under the new economic policy, mainly concentrated only in removing the fetters on private enterprises and in stimulating higher economic growth by promoting industrial sector. The rural and agricultural sector remained somewhat neglected and also the effect of economic reforms on the economic fortunes of the common people was overlooked. Throughout the reform decade i.e., from 1991 to 2000, the role and relevance of the cooperative sector remained on the background, in spite of its predominant position in various fields of our national economy.

There are at present 5.04 lakh cooperative societies of different type with a membership of 22 Crores, covering 100 percent villages and 67 percent rural households. The transition from controlled economy to open competitive economy in the name of globalization or liberalization has thrown a whole lot of challenges to the cooperative sector. It was believed that cooperatives would not be able to survive in the face of stiff competition posed b private sector. In contrast, there were still few, who regarded cooperation as a dynamic enterprise, which had been able to survive for around 150 years. A study of functioning of cooperative societies in various segments such as agricultural credit, agricultural marketing, fertilizer distribution, agro-processing, dairy and sugar industries, has shown that there are some strong and viable cooperatives. But at the same time one must realize the fact that the co-operative structure, as it emerged, has shown the following weaknesses.


1. Weak structure at primary level

2. Lack of responsiveness from federal organizations towards the needs of their member organizations

3. Working of different cooperatives in isolation rather than unified system

4. Lack of participation of user-members

Some of the other weaknesses are, lack of professional management, lack of adequate infrastructure, lack of capability to withstand competition, over-dependence on government for financial assistance and restrictive provisions of cooperative law. Some of these main weaknesses observed in the cooperative movement; have to be tackled on war-footing in the years to come, in the best interest of the survival of cooperative movement.

The current status of cooperatives reflects both a threat and an opportunity. It is a threat, because cooperatives have failed, to a large extent, in delivering efficient goods and services unlike the private sector and an opportunity, because the new economic scenario will offer enough opportunities, which could be effectively utilized by the cooperatives to prove their case of continuation. Some of the new challenges to be faced by cooperatives in the new millennium are briefly categorized as follows:

New Challenges

1. A borderless system of economic activity is coming into being. Big multinational companies will take full advantage of the borderless world, without hindrance of national boundaries to undertake large-scale economic activities, which will dominate the world market. Such a new economic scenario, presented a threat to cooperative movement's ability to survive.

2. Since the government now has withdrawn support, due to changed economic priorities, many cooperatives encounter difficulties in generating their own resources and have to completely reorganize themselves to survive and succeed in a competitive environment, without depending n any state support.

3. At present, there are about 207 national and 8 international organizations, which are the backbone of ICA and there are about 754 million individuals spread over 90 countries of Asia, Africa, Europe and America, who are members of ICA. With such a huge and diversified structure around the world, one cannot question the ability of the cooperatives to survive and succeed, but what needs to be deliberated upon is, the new direction towards which cooperative movement should move with firm determination.

4. Internal and structural weaknesses of cooperative institutions, combined with lack of proper policy support have neutralized their positive impact and resulted partly in the mismanagement, inefficiency and corruption in the financing of cooperatives. This has necessitated the need for a clear cut policy on co-operatives, to enable sustained development and growth of healthy and self-reliant cooperatives.

Keeping in view the challenges ahead, cooperatives have to reorient their strategies, in the changed economic environment of our economy. Some of the strategies to reorient and renew their development thrust in the new environment are:

Development Thrust

1. To face the challenges in a liberalized economy, the cooperatives have to reorient their structural functioning and management. It may include:

i. Enhancing the competitive strength in cooperatives by their merger and division, wherever necessary
ii. Non-viable societies that do not have scope for revival should be liquidated.
iii. Ensure active participation of members in their day-today business and de-listing or removing the inefficient or inactive members from membership.
iv. Federal organizations of cooperatives must give sufficient financial and other support to their constituent societies.

2. With the growing diversification and size of operations in cooperatives, there is a need for constituting two separate boards namely, policy-board, consisting of elected representatives of the members and executive-board, consisting of senior executives headed by the chief executive, with clear demarcation of areas of their powers and functions. In other words, besides elected cooperators, there should be a provision to co-opt outside experts in areas, requiring high degree of specialization or technical and managerial expertise.

3. Large-scale enterprises in the cooperative sector may require huge funds. To mobilize more funds, cooperatives may enter capital market and mobilize funds by means of deposits, debentures etc. At the same time, cooperatives must evolve deposit-insurance scheme, to instill confidence among the depositors, both in urban and rural areas. Effective deposit mobilization will help them to build their own bendable resources, for profitable and diversified lending. They have to adopt efficiency parameters, in terms of cost-effectiveness and a reasonable return on investment, if they have to survive in the competitive atmosphere.

4. According to some experts, there are a number of agricultural commodities like rice, sugar, fruits, vegetables; spices etc. that have strong competitive advantage in export markets. This has positive implications for agricultural cooperatives. Moreover, some cooperative thinkers interpreted that the historical attributes of cooperatives namely, countervailing power, access to capital on favorable terms, scale-economies and income improvement, provide them with necessary strength, to overcome the challenges of a competitive market.

5. Intensified enrolment drives to cover maximum number of small and middle sized agrarian producers, processors etc., intensified linkages with NGOs or Self-help Groups or panchayats and intensified efforts on the part of the government of India and promotional bodies like NCDC to attract funds and other forms of assistance from international agencies like world bank, Asian development bank, EEC, FAO, ILO, etc. for specific development projects in the cooperative sector, will go a long way in strengthening cooperatives, in order to complete in the new economic environment.

6. For the development of rural sector, which is still very largely in the Informal spheres, the parameters of the new system do not apply. In such cases, we should identify:

i. The areas where the cooperatives cannot penetrate or cover,
ii. The areas where the cooperative sector has a comparative advantage, and
iii. The areas where cooperatives can build up strategic alliance with private sector, public sector and International agencies. Such an understanding will greatly help in the vertical and horizontal integration of support services for agro-industrial production processes.

7. For building up professionalism in the management of the cooperative enterprises, it is necessary on the one hand to upgrade the quality of the staff with latest developments and on the other hand, develop proper and cordial relationship between the managers and members of board of directors. Proper and continuous training must be provided to both cooperative leaders and profession executives.

8. It is only now that cooperatives have an opportunity to thrive for years, despite their relevance restricted by a hostile legal and policy environment fell far short of their promise. The extensive powers conferred on the registrar of cooperative societies, are a drag on the efficiency of the cooperative system. The dawn of the new era began in 1995, when Andra Pradesh legislature passed the AP mutually aided cooperative societies Act, 1995. by the end of 1999, three more states viz., Bihar, Jammu and Kashmir and Madhya radish have enacted similar parallel acts for self-reliant cooperatives. Maharastra, Tamil Nadu, Orisssa, Punjab and Himachal Pradesh are considering similar laws. Recently, Karnataka state legislature has passed & implemented Souharda cooperative society Act since 2000. It is this, changing environment that provides the opportunity for genuine cooperatives, to arise and compete. Parallel-laws for self-reliant cooperatives; provide a legal environment that allows cooperatives to function as autonomous, democratic, member-sensitive, member-controlled, self-reliant enterprises.


In a developing country like India with huge deficits in terms of quality and quantity, the State has to shoulder the primary responsibility of providing cooperative credit. Considering the low living standards of common man, incomplete and imperfect markets, and other socio political considerations it is the primary duty of the government to ensure that its citizens have easy access to cooperative credit.

The need of the hour for the cooperative sector in the era of liberalized environment is to seize every opportunity available to it. Thus, the future vision of cooperative movement will have to be based on efficiency parameters relating to promotion of excellence, improvement of operational efficiency and strengthening of financial resource base.


1. Daya, R. (1999), Internationalization and Cooperatives in the Nest Millennium,The Cooperator, Vol. 37, No.6

2. Dubashi, P.R. (2002), Cooperatives in the Next Millennnium, The Cooperator, Vol. XXXVII, No. 9

3. Dubashi, P. R. (1999), Cooperation and Second Generation of Economic Reforms,The Cooperator, Vol. XXXVII, No. 5

4. krishnaswamy, O. R. and Kulandaiswamy, V. (2000), Cooperation: Concept and Theory, Arudra Academy Coimbatore, Tamil Nadu.

5. Mishra, R. V. (1999), Cooperative Sector: Problems and Prospects, The Cooperator, Vol. 37, No.6

6. Ramesh, R. S. (2000), Challenges Before Cooperatives under Liberalized Economic Regime, The Cooperator, Vol. XXXVII, No. 10.

7. Subramanyam, B. (1998), Cooperative Credit Structure: A Perspective for 2000 A.D., Cooperative Perspective, pp. 6-14, July-Sept, 1998.

8. Government of India- Reports of the Ministry of Finance, New Delhi, (1993-1998)

9. Annual Credit Plans Lead bank office, Anantapur, Reports (2002-2005)

10. Ruddar Datt & KPM Sundharam, 'Indian Economy', S. Chand & Company Ltd., Ram Nagar, new Delhi 110 055.

11. Sami Uddin and Mahfoozur Rahman, (2001) Cooperative Sector in India, S. Chand & Company Ltd, Ram Nagr, New Delhi- 110 055.

Dr. A. Vinayagamoorthy
Department of Commerce, Periyar University
Salem-11 TN

Dr. Vijay Pithadia
Asst. Professor
R.K. College of Business Management
Kasturbadham, Bhavnagar Road, Rajkot-360020 GJ

Source: E-mail May 31, 2007


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