Context: Government has set up a new Ministry of Cooperation.
Facts:
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Over 300 million people are members of around 800,000 co-operatives in India today.
Analysis of existing Cooperatives in India:
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Agriculture Cooperatives:
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In 1991 it improved the terms of trade for agriculture and benefitted millions of farmers.
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Agri-exports zoomed, but this led to higher domestic prices.
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Milk Cooperatives:
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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”.
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As a compromise, Narasimha Rao partially de-licensed the sector through the Milk and Milk Products Order of 1992.
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It was after 10 years in 2002 that the dairy sector was fully de-licensed during Atal Bihari Vajpayee’s tenure.
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The developments in the dairy sector proved that competition between cooperatives and corporate dairy players has benefitted millions of farmers around the country.
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The Amul model included collecting milk from millions of small and marginal farmers.
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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.
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With the entry of the private sector, the growth of the dairy sector accelerated at double the speed.
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Now, growth in the organized private sector is faster than in cooperatives.
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Also, despite the grand success of Gujarat’s milk cooperatives in Gujarat, the model did not spread to other states as successfully.
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In UP, the biggest producer of milk, cooperatives, are nowhere in the scheme of things.
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Finance Cooperatives:
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There are cooperatives in the financial sector, be it rural or urban.
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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.
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Cooperative Banks:
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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.
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State Cooperatives:
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Subsidy based Karnataka model distorts price to benefit milk farmers.
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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.
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KMF procures a lot of milk and then dumps it at lower prices in the market for consumers.
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This depresses prices in adjoining states like Maharashtra, affecting the fortunes of Maharashtra milk farmers.
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If Maharashtra and Karnataka were two different countries, Maharashtra would be challenging Karnataka at the WTO.
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There is a question about the role of the new Ministry of Cooperation in such cases.
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Sugar Cooperatives:
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Sugar cooperatives of Maharashtra initially succeeded but are in the doldrums now.
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A Vaidyanathan Committee Recommendations:
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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.
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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?
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During Operation Flood, it received a lot of capital in highly concessional terms.
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But its success also owed a lot to Kurien who believed in professionalism and business and, therefore, kept politics away.
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He supported dairy farmers strongly, at times even at the expense of consumers.
Way forward:
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Cooperatives desperately need technological upgradation.
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Ministry of Cooperation should give soft loans for innovation and technology upgradation and extend the same terms to the private sector.
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A level-playing field is critical to see which model suits India the best.
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Ensure no political interference in the operation of cooperatives.