CO-OPERATIVES IN INDIA, PAKISTAN AND CEYLON

CO-OPERATIVES IN INDIA, PAKISTAN AND CEYLON J. E. O’MEAR.41

NLESS one has had contact with co-operatives in Asia, there is U apt to be some element of surprise on first learning of the almost 50 years of co-operative organization behind the present development. Legislation providing for the incorporation of co- operative credit societies in India was passed in 1904, and, since that time, steady progress has been made in the organization of co-operative credit services for the cultivator. A second co-operative act was passed in 1912, the main provisions of which were to enable the co-operative technique to be applied to agricultural marketing, pur- chase of supplies and consumer goods, and provision of services.

Through the years, however, emphasis has been placed on the provision of credit to the peasant through local village credit societies, and, thus even now, the whole structure of co-operative development is narrowly based. Expansion and development in the fields mentioned in the legislation of 1912 have not kept pace with the development of the credit societies.

In India, where more than 70% of the total population is dependent upon agriculture the provision of credit to the peasant was, and still is, the important problem. No fault can be found with the Asian insistence on the solution of this problem. Today, as 50 years ago, the problems facing government in the agricultural field are enough to daunt the stoutest hearts. First of all there arise the uncertainties of nature. A large percentage of the agriculture in these areas is vitally dependent on the monsoon, the failure of which may plunge a state into the devastation of widespread disaster and famine. Only in areas where irrigation schemes are possible can there be some mitigation of the uncertainty of the monsoon. T h e newly formed independent movernments are making tremendous efforts to bring under irrigation more and more acres, and in the last five years considerable progress has been made.

The provision of co-operative credit facilities is directed towards the improvement of the human element in agriculture. During the last half-century there was a more or less universal state of indebtedness among the farming population. Adequate marketing facilities were lacking. Social conditions demanded lavish expenditure on unproductive celebrations, and there was a general condition of apathy towards progress, contentment with conditions, and resig-

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3.

IEconomlcs Dlvlslon. Marketing Servlca. Department of Agriculture. Ottawa. Mr. O’Meara was a member of the Canadian Mlsslon on Agriculture and Co-operatlvea to Iodla. Pakistan and Ceylon in 1953.

28 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS

nation to fate. Thus, the first efforts were directed towards a solution of the indebtedness problem. While some of the indebtedness could be traced to improvidence, the lack of adequate credit agencies was one of the chief reasons. The farmer everywhere needs short term credit to finance his crop, intermediate term credit for animals and tools, and long term credit for land, buildings and farm machin- ery. Such facilities were non-existent in the Indian village; credit was available from the indigenous money-lender or the local shop- keeper or dealer who demanded exorbitant interest as well as in many cases a lien on the crop. T h e Indian peasant was in many cases in virtual bondage to his creditors.

T h e type of co-operative credit society considered suitable to Indian needs was taken from the Germans and based on the Raif- feisen model. The German plan was to found an institution to provide cheap short-term credit to the small farmer. Alone such a man could do nothing, but joined together and prepared to pledge individual unlimited liability they were able to borrow sufficient funds at reasonable rates to satisfy their needs. The principle of unlimited liability in the Raiffeisen society is basic. From it the other features follow. Membership is restricted to a limited area where farmers are personally known to one another: only the solid and industrious are admitted to membership; loans are restricted to productive purposes. This was the type of society introduced into India in 1904 with minor modifications. One of the most important of these was the requirement that each member provide some of the original capital. This requirement still exists, but in the great majority of cases the money available for loan in a local society is provided from some other source than from members’ savings.

Here is where the North American differs with the principles of co-operative credit. The founder of credit unions in, North America, Alphonse Desjardins, disliked the principle of unlimited liability, believing that this would deter savings and deposits by those who had the ability to save and make funds available. Des- jardins linked savings and credit with limited liability and thus was conceived the North American prototype of the Raiffeisen society.

In the early stages of the development of the Indian local primary co-operative credit society the amount available from the members was pitifully small. Consequently, outside borrowings were made by the societies by soliciting deposits from non-members, and in 1907 a central co-operative bank was opened in Madras which was to act as a general financing agency of the local societies. This bank was to be the repository of the surplus funds (if any) of the

CO-OPERATIVES IN INDIA, PAKISTAN AND CEYLON 29

local societies, and it was also to be the magnet for the hidden wealth of the country which had been put into gold and jewellery. Thus other sources were to be tapped to flow down through the central banks to the village society. As the local societies grew in numbers the need for central banks became obvious and these organizations were organized, and finally an apex bank operating province or state-wide was organized in nearly every state.

INDIA

In 1950-51 there were in India 115,000 local societies, 505 central banks and 15 apex or provincial institutions. While there are some thrift societies and others with limited liability, and also some change in the thinking regarding the necessary amounts of members’ own share capital, the amount of savings in the form of deposits is very small. An Indian co-operator, writing recently in the Year Book of Agricultural Co-operation,2 says: “. . . There are in all villages non-borrowers who can afford to save and invest in the societies especially in areas where agricultural conditions have brought comparatively larger incomes,” and later, “The real reason appears to be that village societies have not emphasized the thrift aspect and have not carried on a systematic campaign to inculcate in the minds of the members the paramount value of thrift.” Credit union people in North America and especially the “caisse populaire” people in Quebec would say that the unlimited liability feature of the village society is not attractive to the “non-borrowers who can afford to save.” The Indian co-operator, quoted above, further stated: “. . . The bulk of the working capital of agricultural credit societies comes from borrowings.”

When a Westerner looks at progress in co-operation in India he is usually amazed at the number of societies reported. T h e statistics cannot be questioned but further examination reveals that in 1950-5 1 the average membership in the village credit societies was 45 persons. This is in keeping with the Raiffeisen principle of keeping the membership small and select, but the western idea of co-operative credit is to spread the credit facilities to as many people as possible in one society within the bond of association, gather. the accumulated savings and make the society stand on its own feet. It is obvious that a society consisting of 45 illiterate poverty-stricken peasants in an Indian village can never become a force in the community. No offices can be maintained, no paid employees kept and with little or no savings heavy borrowings from

ZYear Book of Aprlcultural Co-oueratlon 1952, The Horace Plunkett Foundatlon. London.


governments or central banks must be made in order to provide a credit service to farmers. When this occurs, naturally strict supervision is required and then there appears a host of inspectors and sub-inspectors hired by government or supervising unions who in effect administer the affairs of the local societies. Thus, the com- bination of a policy of not allowing credit societies to grow to a point where they are self-sufficient in management and control, and the stifling hand of government and supervising staff, prevent the local credit society from attaining its rightful place in the community as the financial arm of the member.

The non-agricultural credit societies or urban banks present a different picture. These are usually located in cities and are organized with limited liability. These urban societies cater to traders, artisans and employed workers, and provide a variety of banking facilities, issue drafts, collect cheques, etc. T o be fair, however, one must remember that in the towns and cities there is a much higher standard of education than in the village and thi t returns of trade are far more constant than those of agriculture. T h e average membership of the urban banks was about 280, which is more like the average size of western credit unions. Total working capital of the 7,800 urban banks was nearly 45 per cent greater than the total working capital of the 115,000 rural village societies. It would be an interesting experiment to transplant the principles and methods of the urban bank into the village. There are many, no doubt, who would shrug this off as impractical and impossible, but some western observers who have seen the operation of credit unions ,in im- poverished fishing villages would be willing to try in the belief that there are “non-borrowers who can afford to save” in the Indian village, and who would do so in a large society with limited liability, efficient management and a service motive.

Despite the fact that the legislation was widened in 1912 to allow other forms of co-operative endeavour, there has not been the progress in these other fields that there has in co-operative credit. Even despite the large number of societies of all types reported in the statistics the vast majority of the 250 million culti- vators in India remain untouched by the co-operatives and the advantages accruing therefrom. A committee, appointed in 1926, to survey the state of co-operation in one of the provinces reported on the obstacles to co-operative development. Among others the committee listed inadequate supervision, insufficient member education, corruption, lack of enthusiastic leaders, and the idea that the co-operative was only another money-lender. T h e problem of re-


construction here and in other provinces was to create a loyal and informed membership, and a leadership independent of the Civil Service. This was successfully done in some states, but even now the control and authority of the Indian Registrar of Co-operative Societies is to a westerner somewhat overwhelming. In one state alone in India the registrar heads a staff of 4,000 employees. Training institutes are specially set up to recruit and train more and more inspectors and sub-inspectors to cope with the flood of new societies being organized everywhere and in all fields.

PAKISTAN Since independence and partition in 1947 the problems facing

co-operative development in Pakistan are staggering to both foreign observers and local leaders. Before partition, only the Punjab had a record of good co-operative effort, and even after partition the movement in that province was shaky. A large proportion of the co-operative leaders were non-muslim who fled to India. Not only leaders but clerks, accountants, guards, sweepers, etc., were affected. Let it be said here, however, that the co-operatives were the first to recover from the shattering effects of the partition, and having done so the government turned to the co-operatives for assistance. The banking system of Pakistan had to be completely rebuilt, and since the co-operatives had the nucleus they were pressed into service as government treasuries and into the business of financing trade and commerce and individual refugees. T h e co-operative banks financed the revival of sugar, flour and textile mills and it can rightly be said that it was the hard core of co-operative endeavour left in the West Punjab that responded first and effectively in the national emergency. Much praise is due for such efforts, but it is sad to relate, the retirement of co-operatives from such fields has been slow and reluctant. We now have the credit societies and co-operative banks tom from their original purpose and into com- mercial banking where in some cases they intend to stay. While one may forgive co-operative banks for reviving industry by financing mills, etc., one cannot condone a reluctance to leave such fields and return to the role of providing credit to the peasants. Indeed, in our view, investments of co-operative banks in risk capital of factories, mills, etc., is a direct violation of good banking principles and a cavalier and risky treatment of the finances and savings of member societies.

In East Pakistan severe disruption of the co-operative organization occurred at the time of partition, when local societies lost their deposits in the provincial bank in Calcutta. Conversely, the


latter, of course, lost its outstandino loans to the local societies. A new central bank had to be set up in Dacca and thousands of local societies were declared insolvent. A drive was put on to close out practically all the local societies and convert them into multi-purpose societies which would perform more than credit services for the villager.

In this province of Pakistan the principal cash and export crop is jute and one would expect to find there a strong jute marketing co-operative. There are such organizations, but in many aspects they are to western eyes strange and unorthodox, yet apparently doing a valued and worthwhile service. Prior to the organization of the jute co-operative the ,individual grower was at the mercy of the shrewd and unscrupulous market trader. Even before he got to the market with his jute the grower had to contend with the village merchant or money-lender. However, if he succeeded in getting his crop to market at all he was harshly treated and often cheated.

The coming of the co-operative changed all this. However, the co-operative came from above via the government and is controlled by the registrar and his staff and is managed and directed by a 50.- ernment servant who is at the same time the controller of jute prices. This, of course, has made a Feat change in the jute marketing process. The co-operative receives the raw product, sorts and grades it and passes it on for baling prior to despatch to the mills for processing. In the assembly and shipping of jute it is strange, yet somehow acceptable, that the central co-operative banks should be the collecting agency in the field.

It is interesting and surprising to note here that when the growers' central co-operative passes on the jute for baling it does so to another co-operative. That there should be two co-operatives in the same marketing line performing two closely allied services is, to us, a case of one more society than is necessary. But when one examines the organization of the baling co-operative and finds it is owned by 20 central co-operative banks, 40 multi-purpose societies, 12 other co-operatives and some individuals, the picture gets con- fused. Here is a case where co-operative banks and other co-operative societies have invested at risk in shares in a fifth wheel society. In our view the baling process is a natural one for the growers' co-operative to control and not allow fancy dividends as a result of baling charges borne by the growers to be paid out to other societies.

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CEYLON

The history of co-operative development in Ceylon is not as old as in the sub-continent, but it is in many respects quite similar. There is the usual emphasis on rural village credit societies, but in addition there are some sincere attempts at co-operative education among members and officers of the societies.

British officials first introduced co-operation to Ceylon in 191 1 and a full-time registrar was appointed in 1926. While illiteracy was not the problem it was in India, deference to government and village headmen made an independent self-reliant movement difficult. Repeated attempts were made over the years by the registrars to encourage independent democracy in the societies, but they were not entirely successful.

At first, co-operatives were mainly engaged in the provision of credit and only slowly did other types appear. It was not until the war that the situation changed. Much of the development at that time was the result of a drive by the government to organize units for the effective and honest distribution of the staple commodities such as rice, sugar, flour and cotton cloth, much of which had to be imported and which were in short supply or difficult to obtain because of Japanese successes in Burma and the presence of the Japanese fleet in the Indian Ocean.

The government turned to the registrar of co-operatives and perhaps it is flattering that it did so, but it seems hardly fair to call the results “co-operative” or a “movement.” As a result of the drive 4,000 “co-operative” stores were set up. While not handling rationed foods at the start the stores later made a rule that such commodities would be sold only to those who lodged their ration books with the store. As a result the stores finally held over two-thirds of all ration books issued. In the city of Colombo distribution of rationed foods was handed to the co-operatives.

Regional wholesale unions were set up to distribute supplies to the stores and these dealt principally in rationed goods and in Colombo the stores drew their supplies direct from government.

This seems to be clever use by government of a co-operative network to distribute goods in short supply. As long as rationing and control remain in effect, Ceylon will no doubt report a large number of co-operative store societies. What will happen when rationing ends will be interesting to observe. The Co-operative Department of government has a well-equipped and well-staffed propaganda division which is attempting to instill understanding


of co-operative principles among the people and it may be that when rationed goods come off the controlled list there may remain the seed of the co-operative loyalty so essential to continued understanding and success. There remains doubt, however, that more than 30 percent of the present stores would survive complete de- control.

Perhaps the most astonishing co-operative in Ceylon is the Co-operative Wholesale Establishment which was set u p in 1943 as part of the registrar's department. It is astonishing in its size, its facilities, its staff and its services, but most astonishing of all is the fact that the chairman (general manager) is a government servant and that three of the eight directors are government servants appointed by the government.

The wholesale was in 1949 converted to a statutory corporation, and it is intended, however, eventually to hand over the ownership and control to member societies.

The problem of financing co-operatives which plagues so many in other countries seems not too difficult in Ceylon. In order to provide assistance to farmers the government prefers to give it through co-operative societies. Therefore, supplies of barbed wire, fertilizer and other farm supplies as well as money to advance to farmers as loans have been liberally provided to over 300 co-operative agricultural production and sale societies. 'Thus, one society which comes to mind had over 50 per cent of its operations financed by government. Total share capital provided by members amounted to one per cent of the total liabilities. T h e president of the society is nominated by the government and is in addition the chief executive officer and at the same time a government employee. As long as financing of this sort is available it is unlikely that any great degree of co-operative ownership or self-reliance on the part of the cultivator will ever be achieved.

CONCLUSION

Although much of what has gone before has implied criticism of government and its attitude toward co-operatives perhaps it can be conceded that in crucial times drastic measures are necessary. Throughout these three countries there is a firmly held belief that co-operative methods are the solution to all problems. Perhaps in these circumstances they are, and western co-operators would be the first to allow adaptation and fitting of co-operative techniques and principles to new and changed conditions.

However, at times government can go too far. For example,


the Indian Five-Year Plan calls on every department and ministry of government to foster co-operative methods of business and sug- gests that public works, etc., be entrusted to co-operatives and further that every department and ministry should build u p co- operatives in order eventually to replace “contractors and other middle men.” A recent official report from Pakistan3 recommends a National Co-operative Organization under “efficient government control” with a government official as secretary in order to provide almost complete government control at the start. Even the recent report on the economic development of Ceylon by the International Bank for Reconstruction and Development praised the co-operatives and urged the government of Ceylon to provide more funds and encouragement.

I t is to be hoped that when possible, government control, preferences, subsidies and extensive aid will be removed and that co-operatives in these countries can become a really democratic people’s movement to social and economic betterment.

That this is possible is seen in some states of India where prominent men have become interested in co-operatives and with wise intelligent guidance have promoted housing, milk distribution, consumers’ co-operatives and farm supply stores. Government officials have moved to the background and allowed the co-operatives to proceed to develop as they should. As a result of a strong non-official leadership some very fine examples of basically sound co-operatives can be found.

The task ,is formidable and the number of dedicated leaders is few, but perhaps some day as these countries gradually climb out of their present depressed and backward condition that with this new age will come a deliverance of the co-operatives into the hands of their rightful owners-the people.

3Report of the Pakistan Agricultural Enquiry Commlttee 1951-52, Government of Pakistan. Karachl.

Documents

CO-OPERATIVES IN INDIA, PAKISTAN AND CEYLON