Temperature 29.05 C New Delhi, IN
Monday, August 08, 2022
No Image

Innovate, design new products to cope with change

Cooperatives need to change with time. These changes would have to be in terms of their outreach model, the products they offer, the way they function, operational systems and the way they approach agriculture and farmers

Dr D V Deshpande and Dr SKK Mishra

Cooperatives in India

The history of cooperatives in India is more than a hundred years old [Cooperative Societies Bill 1904]. A cooperative is defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. The cooperatives, apart from maximizing benefits to the members, also aim at the outreach of their services to all the members.

The Cooperatives in India are divided into financial and non-financial cooperatives structure.  The financial cooperative or the cooperative banks in India are again classified into Short Term Cooperative Credit Structure (STCCS) and Long Term Cooperative Credit Structure (LTCCS), catering to short-term credit, medium and long-term credit requirements of their members, respectively.

The STCCS mainly caters to providing short term, medium term production credit and other financial services. The three tier structure consists of State Cooperative Banks (StCBs) at apex, District Central Cooperative Banks (DCCBs) at intermediate and Primary Agricultural Credit Societies (PACS) at ground level. At present, there are 92,789 Primary Agricultural Credit Societies (PACS) at village level, 371 DCCBs with 14,060 branches at district level and 33 StCBs with 1131 branches functioning at state level (NAFSCOB, 2017)

On an average, there is one PACS for every 6-7 villages in India. PACS have a total membership of 114 million rural people making it one of the largest rural financial systems in the world.

Five factors which affect Agriculture and Cooperatives

Agriculture dominates low-income economies, 55 % population depend on it for employment and it contributes 15% in terms of contribution to GDP. In general terms, cost-reducing innovation and investment are central to speeding up agricultural growth. Rapid growth in agriculture and in GDP goes together. Success in agriculture helps sustain the momentum of the whole economy. Sustained agricultural growth also substantially contributes to the reduction of poverty. Incentives to farmers to invest and produce are a key stimulant to agricultural growth.

Agriculture and Diversification

The global environment is changing, and new forces, such as integrated food chains, are shaping the way in which food is produced, distributed, and consumed throughout the world. In India also, farmers collectives like “Farmer Producers’ Organisation (FPOs)” are being formed and supported by Government and NABARD. Producers especially farmers are orienting themselves for meeting the changing demands generated by market oriented economy, rather than selling the output that they have traditionally produced.

Traditional agriculture was subsistence model wherein seed, manure and labour was in a major way generated in the household. On the contrary, the new agriculture promoted by the green revolution is critically dependent on improved seed and capital intensive farm management crop doses.

Changing Consumer Demands

As a consequence of changing demographics, urbanization and rising incomes, the new definition of food security is emphasizing the balanced diet. As a result, the market for dairy products, fruits and vegetables has expanded rapidly over recent years. These trends are also felt by the farmers and critically affect their well-being.

Technological advances in production and marketing

The development of new production technologies have enabled supply-side growth and diversification in production systems. New production technologies and management techniques, such as improved agricultural machinery, biotechnology, new pest and disease control products, improved methods of seedling production, drip and controlled irrigation, improved package of crop wise farming systems and   integrated pest management, etc., have enabled better productivity .

Advances in communication (mobile, television and media), logistics infrastructure (cold storage, trucks, etc.), marketing systems, as well as storage facilities (refrigeration and controlled atmosphere storage) have further induced the supply-side growth. In addition, progress in food technology—for example, processing of dairy products, horticulture fruit & vegetable crops —has enabled the manufacture of a much greater variety of consumer products.


There are 93 million mobile users today and the number is currently is more than the number of borrowers from the banking system. Mobiles are now being used for multiple purposes like banking, fund transfer, mobile banking, dissemination of information on crop wise farm practices and weather advisory and also concurrent crop wise price information. This is likely to have a very profound impact on the way financial cooperatives operate.

 Distress and its impact on agriculture

Since the mid-1990s, large sections of the farm households have been facing a great deal of distress as a consequence of decline in agricultural income, erosion of their repayment capacity and increased debt burden. The variation in monsoon creates deviation in production of food grains from its long term trend.

Deficient rainfall years witness:

(a) Poor agricultural growth and great fluctuation/volatility in both production & prices leading to urban migration of labour.

(b) Distress amongst farmers in general, and of small and marginal farmers, in particular.

Rain-fed areas are particularly prone to year-to-year fluctuations of production and degradation of environmental resources. It many times leads to defaults on repayments for formal agricultural loans. Government in view of the critical importance of agriculture and farmers has extended loan waiver on short term crop loans.

Exposure to price fluctuations

In the present liberalized trade and market regime, farmers are exposed to price volatility because of fluctuations in domestic production and wide fluctuations in international prices. Government declares Minimum Support Prices for selected food crops.

These five factors critically affect the existing crop production systems, marketing channels, the health of rural financial systems both in formal and informal sector and therefore the entire well-being of the cultivators in rural India.

Road Map for Revival

Accordingly the future road map of growth for rural cooperatives would consist of a strategy which encompasses the following broad 7Ps’ Framework:

  1. Product strategy: Presently financial cooperatives are predominantly doing crop loaning which is regulated by GoI policy and has very thin margins. Which types of financial products other than crop loans are required by the farmers need to be investigated? These products can be in credit as well as non-credit segment.
  2. Processes: What kinds of business processes can help banks to reach farmers, our main clients and provide hassle-free near doorstep service to the customers without jeopardising financial viability?

How do we design an efficient hub & spoke model to overcome the hurdles in the agent led branchless banking? This would involve relooking at PACS as viable special purpose vehicle which would efficiently provide services like weather information, agricultural input supply, vet services, aggregation of farmers produce as done by FPOs and also providing credit.

  1. Partnerships: What are the constraints faced by the underserved and/or excluded segments in accessing financial services from different types of service providers? Are the bank – non-bank partnerships with extension agencies, Seed Companies, marketing chains and agro producers etc. attempted?
  2. Protection: What measures and mechanisms are needed to protect both the providers and the receivers of rural finance from abuse and misuse of such services? Whether enough risks mitigants are there for the borrowers given the higher vulnerability in the sector? Are lenders protected against ebb & flow of uncertainty in credit culture?
  3. Profitability: Whether the business strategies and delivery models are geared to provide affordable and acceptable services to the rural clientele while ensuring profitably on a sustained basis? How do we tap into the customer willingness to pay through an appropriate pricing model?
  4. Productivity: How do we increase the productivity of financial services provided in the rural areas? What are the strategies needed to synergize other resources with finance (say, under a “credit plus” approach) to ensure more productive and optimal use of financial services?

Profitability and productivity would require change in work processes, greater research in what our customer requires and what we can deliver, systematically bridging this gap, more use of IT based work systems, NPA identification and new NPA resolution methods

  1. People: Are the frontline staff of the cooperatives well-equipped to meet the needs of driving the process of financial inclusion in terms of knowledge, skill and attitude? Young blood in Cooperatives should be encouraged and the decision makers should facilitate the changes in the organisation as per the emerging needs


In addition to these seven factors, the faith of the clients /customers can be restored by strict implementation of the Corporate Governance practices with focus on transparency and accountability.

The cooperatives need to design their strategies on the above lines so that they can meet the challenges of the future and not only survive and grow but also meet the expectations and aspirations of the poor farmers and other key stakeholders.