ICSSR SUPPORTD TWO-DAY NATIONAL

SEMINAR ON
GLOBLIZATION AND COOPRATVIE
SECTOR IN INDIA
at
Department of Economics,
Veer Narmad South Gujarat University, Surat

ROLE OF COOPERATIVE BANK IN

AGRICULTURAL
CREDIT: A STUDY BASED ON GUJARAT

Presented by
Yashodhara A. Bhatt
Research Scholar,
Department of Economics,
Veer Narmad South Gujarat University, Surat

Mrs. Kalavati T. Patel

Associate Professor,
M.T.B. Arts College, Surat

15-16 March 2013

ROLE OF COOPERATIVE BANK IN AGRICULTURAL

CREDIT: A STUDY BASED ON GUJARAT
Mrs. Yashodhara A Bhatt, Mrs. Kalavati. T Patel
ABSTRACT
The Agricultural cooperative banking sector is one of the main partners of Indian banking structure, through their
huge network of credit societies in the institutional credit structure. The cooperative sector has played a key role in the economy
of the country and always recognized as an integral part of our national economy. Gujarat is one of the fastest growing states of
India and development of cooperative sector played important role in agriculture sector of state. The co-operative system in
Gujarat has the capacity and potentiality to neutralize the adverse effects emerging from the process of globalization. After
economic liberalization under the new economic environment, cooperatives at all levels are making efforts to reorient their
functions according to the market demands. The paper examines the causes of slow progress and highlights the emerging role
and challenges of the cooperative sector. In comparison to the step-motherly treatment of the past, cooperatives are now
considered an important plank of development. The government is committed to cooperative development. Whilst the present
study focuses on several pitfalls and shortcomings, it also suggests strategies which can promote the concept of cooperation
among the masses. The present study attempts to bring to light the problems & prospects of cooperative sector in Gujarat under
free market economy

Introduction
The co-operative movement has played a significant role in the development of rural
economy of India. Since independence the co-operative movement has recorded substantial
progress. The emerging needs of the economy in the new competitive and de-regulated financial
environment, co-operative institutions have re-oriented their policies by drawing up their
prospective mission and strategy so as to make them globally competitive. Co-operatives are
businesses owned and run by and for their members. Whether the members are the customers,
employees or residents, where they have an equal say in what the business does and a share in
the profits. As businesses driven by values not just for profit, co-operatives share internationally
agreed principles and act together to build a better world through co-operation. Successful cooperatives around the world are allowing people to work together to create sustainable
enterprises that generate jobs and prosperity and provide answers to poverty and short term
business practices. Because of the increasing importance for co-operative and its contribution,
2012 has been recognized as the International Year of Co-operatives by the United Nations. This
is an acknowledgement by the international community that co-operatives drive the economy,
and are resilient to the global economic crisis, respond to social change and are serious,
successful businesses creating jobs in all sectors.
India is agricultural based country and its 70% population stay in rural area. The
cooperatives which are the life blood of the Indian economy and the mechanism for any
developmental programs. Especially in an agriculture dominated rural sector, cooperative banks
play a pivotal role in bolstering the common individual and financing his business and personal
needs. The cooperative credit structure is serving the Indian society since 1904 and since then it
Yashodhara Bhatt

has seen several ups and downs. Despite of several limitations such as restriction of area of
operations, limited clients, small volume of business, political interference, this movement is
standing since last 108 years and serving the societies. Gujarat located on the western most part
of India, has one third of coastline of the country. Since inception of the state, the structure of its
economy has changed significantly. Not only the States GSDP and Per Capita GSDP have
increased but it has shown all signs of a developed and urbanised economy. As per the quick
estimates, Gross State Domestic Product (GSDP) at factor cost at current prices in 2009-10 has
been estimated at Rs. 429356 crore as against Rs. 367745 crore in 2008-09, showing a growth of
16.8 percent during 2009-10. The share of Gujarat state for the year 2009-10 at current prices in
Gross Domestic Product at all India level works out to 7.00 percent. The per capita income at
current prices is estimated at Rs. 63961 in 2009-10 (which is higher than the national average of
Rs. 46492), as against Rs. 55140 in 2008-09, registering an increase of 16.0 percent over the
previous year. The production of total foodgrains during the year 2009-10 is estimated at 56.05 lakh
tonnes as against 63.45 lakh tonnes in the previous year, showing a decrease of 11.66 percent
over previous year. The production of cotton during the year 2009-10 is estimated at 74.01 lakh
bales as against 70.14 lakh bales (170 kgs. per bale) in 2008-09, showing an increase of 5.52
percent over the previous year. The production of total oil seeds during the year 2009-10 is
estimated at 30.10 lakh tonnes, which is 23.45 percent lower than that in 2008-09 (39.32 lakh
tonnes).
REVIEW OF LITERATURE / COMMITTEE REPORT
Credit is a crucial input process of development. For historical reasons, Indian farming
community failed to make huge investments in agriculture. There is an adage which says that
Indian farmer is born in debt, lives in debt and dies in debt. In order to mitigate the problems
of the farming community, the Cooperative Credit Societies Act was passed in 1904, which
permitted the formation of credit societies. They provided institutional support to farmers for
short, medium and long term purposes. Subsequently, tiers at state and district levels were too
conceived to strength these credit co-operatives. Apart from these cooperative institutions,
nationalization of commercial banks and introduction of regional rural banks also helped in
increasing credit supply to farmers. As mentioned before, by now the Indian credit cooperatives
have a century long history. During this period these institutional financing agencies failed to a
large extend, to meet the requirements (consumption and production) of the farmers. Some of the
factors responsible for their failure are inadequate supply of credit, poor recovery, demandYashodhara Bhatt

supply gaps, interference by politicians, lack of monitoring, mis-utilisation of credit, problems in

identification of target groups, high transaction costs, and lags in time, natural calamities and
competition from informal credit agencies.

Agricultural Credit
The Agricultural Credit Policy essentially lays emphasis on augmenting credit flow at the
ground level through credit planning, adoption of region-specific strategies, rationalization of
lending policies and procedures and bringing down the cost of borrowing. Bank credit is
available to the farmers in the form of short-term credit for financing crop production programs
and in the form of medium-term/longterm credit for financing capital investment in agriculture
and allied activities like land development including purchase of land, minor irrigation, farm
mechanization, dairy development, poultry, animal husbandry, fisheries, plantation, and
horticulture. Loans are also available for storage, processing and marketing of agricultural
produce.

National Bank for Agriculture and Rural Development (NABARD)

The NABARD provides refinance to the Apex Bank and CARD Bank. NABARD is an
apex institution accredited with all matters concerning policy, planning and operations in the
field of credit for agriculture and other economic activities in rural areas. It is an apex
refinancing agency for the institutions providing investment and production credit for promoting
the various developmental activities in rural areas. It co-ordinates the rural financing activities of
all the institutions engaged in developmental work at the field level and maintains liaison with
Government of India, State Governments, Reserve Bank of India and other national level
institutions concerned with policy formulation.

Primary Agricultural Cooperative Societies (PACS)

PACS are playing a crucial role in improving the economic and social conditions of the
common masses of Gujarat. They provide short-term and medium-term loan to the
members/farmers at reasonable interest rates to meet their various needs. They are providing
credit to the farmers for agriculture purposes at cheap and easy terms. PACS is the foundation of
the Cooperative Credit System on which the super structure of the short term cooperative credit
system is built.
Yashodhara Bhatt

Table 1
Area and Production of Principal Food Crops and Non-Food Crops during the Last Two
Years

Source: Socio-economic review of Gujarat 2011-12

According to Season and Crop Report (SCR) of 2006-07 (the latest year for which the
Land Utilisation figures were finalised), out of total reporting areas of 188.1 lakh hectares in the
State, 97.45 lakh hectares (51.81 percent) was net area sown. While 25.95 lakh hectare (13.80
percent) was barren and uncultivable land, 11.63 lakh hectare (6.18 percent) was under nonagricultural uses, 19.76 lakh hectare (10.50 percent) was cultivable waste, 18.33 lakh hectare
(9.75 percent) was forests, 8.53 lakh hectare (4.53 percent) was under permanent pasture and
other grassing land, 6.45 lakh hectare (3.43 percent) was current and other fallows.
Table 2
Area Irrigated by sources in
Gujarat

Yashodhara Bhatt

Table 3
The Working of Credit Co-Operative Societies in Gujarat

Source: Socio-economic review of Gujarat 2011-12

The working capital of State Co-operative Bank, Central Co-operative Bank, Industrial
Bank, Land Development Bank and Non Agricultural Credit Societies have increased (5.36%)
while, the working capital of Agricultural Credit Societies have decreased (23.26%) at the end of
the year 2008-09 as compared to the year 2007-08. The loan advance issued during the year
2008-09 has increased in case of Non-Agriculture Credit Societies as compared to previous year.
The proportion of overdues to outstanding in case of State Bank, Central co-operative Bank,
Industrial co-operative Bank, Land Development Bank and Agricultural Credit Societies have
increased, while it has decreased in case of Non-Agriculture Credit Societies at the end of year
2008-09 as compared to the previous year.

Rastriya Krushi Vikas Yojana : Under this scheme subsidy is provided to Agriculture Produce
Market Committees for Cold-Storage, Godown, Solid Waste Management and New Market
Development.
Soil Testing Laboratories : Under the Rastriya Krushi Vikas Yojana, Rs. 10.00 lakh is given for
establishing Soil Testing Laboratories by Gujarat State Agricultural Marketing Board. During the
Krushi Mahotsav 60 Soil Testing Laboratories were established.

Yashodhara Bhatt

Gujarat State Seeds Corporation Ltd.

The Corporation has made production/purchase of 2.02 lakh quintal seeds during the year
2009-10 as compared to the production/purchase of 2.07 lakh quintal seeds during the year 200809. The Corporation has distributed 2.03 lakh quintal seeds worth Rs.85.06 crore during the year
2009-10 as against the distribution of 2.06 lakh quintal seeds worth Rs. 103.65 crore during the
previous year. During the year 2009-10, the corporation has distributed seeds to the farmers of
other states too. The Corporation is engaged in seeds production mainly reserved by Agricultural
Universities and notified by the Central Government and tries its best to produce new research
varieties for the farmers as early as possible. The Corporation has given greater importance to the
quality of seeds. For this purpose, utmost care is taken at every stage of seed production,
processing, packing and storage of the seeds. The Corporation has constructed its own scientific
storage godowns for 9.96 lakh quintals of seeds. The Corporation has also installed seed grader
and processing plants at various district and taluka places of the State.
Gujarat Agro-Industries Corporation Ltd.
The Corporation works as a Nodal Agency for implementation of Bio-gas plants under 20
points programme of Honourable Prime Minister of India. The Corporation provides all the
services for fabrication and installation of gobar gas plants for small and marginal farmers of the
State. During the year 2009-10, the Corporation had installed 8750 bio gas plants and sold 81383
grain storage bins. During the year 2010-11 (April-October-2010), the Corporation has installed
183 bio gas plants and sold 43463 storage bins. 3.27 The Corporation had issued Onion Export
No Objection Certificates (NOC) of 319925 MT during the year 2009-10, while during the year
2010-11 (April-October-10), Onion Export No Objection Certificates (NOC) of 129620 MT has
been issued. The Corporation had sold 411534 tonnes of fertilizers during the year 2009-10
while during the year 2010-11 (April-October-10), 258336 tonnes of fertilizers have been sold.
The Corporation had sold 812 tonnes dust pesticides and 258 Kilo liters of liquid pesticides
during the year 2009-10 while during the year 2010-11 (April-October-10), it has sold 682
tonnes of dust pesticides and 147 kilo liters of liquid pesticides. 3.30 The Corporation has started
a Research & Development Centre for Onion at Talaja, District Bhavnagar.
The following projects are under implementation by the Corporation.
1. Banana Pack House, Jhagadia, Dist. Bharuch.
2. Centre for Perishable Cargo at SVPL Airport, Ahmedabad.
3. Integrated pack House for fruits and vegetables at Naroda.
Yashodhara Bhatt

4. Iradiaation plant, Bavla, Dist. Ahmedabad.

Gujarat State Land Development Corporation Ltd.
Gujarat State Land Development Corporation (GSLDC) implements various soil and
water conservation activities on watershed basis. The main objective of the Corporation is to
harvest rain water through soil and moisture conservation activities by creating rain water
harvesting structures for percolation of rain water in the sub soil and to bring water levels of well
upward. Such measure includes Contour bunding, Nala plugging, Water harvesting structures,
Farm ponds, Land levelling, Deepening of village ponds and creating vegetative hedges. During
the year 2009-10, GSLDC had covered 279834 hectares area under Soil conservation works and
constructed 10152 Farm ponds, 2034 Sim talavadis, 1580 village ponds and 25819 water
harvesting structures with the cost of Rs.579.65 crore, having benefited 128836 beneficiaries.
During the year 2010-11 (April-October-2010), GSLDC has covered 135151 hectares area under
soil conservation works and constructed 2236 Farm ponds, 4058 Sim talavadis, 478 village
ponds and 10718 water harvesting structures with the cost of Rs.336.43 crore and benefited
66988 beneficiaries.

CAUSES OF SLOW PROGRESS

It is therefore necessary to know the causes of poor performance of the movement and on that
basis take such steps as would promote a faster growth of cooperative movement in Gujarat.
Government Interference:
The cooperative movement in India was initiated in 1904 under the auspices of British
government. Right from the beginning the government has adopted an attitude of patronizing the
movement. Cooperative institutions were treated as if these were part and parcel of the
administrative set up of the government. The government interference thus became an essential
element in the working of these institutions. As a result peoples enthusiasm for the movement
did not grow. The movements independence and self-reliance existed only on paper and files.
After attainment of independence in particular after beginning of the planning, some healthy
changes in the attitude of the government did take place. It was not given proper importance that
it deserves in any plan. But even the cooperative movement has not become full-fledged people
movement. Even today quite often cooperative societies are imposed upon the people. This does
bring about an increase in the membership of the societies. But the spirit of cooperation cannot
flower fully in these circumstances. Neither it growth took place according to any plan nor did it
Yashodhara Bhatt

become a peoples movement. It just grew very slowly and that too haphazardly. It was a state
driven institution.
Mismanagement and manipulation:
The essence of the cooperative movement is that it gives the farmers the status of shareholders
and assures them agricultural, educational and medical facilities. The relationship between the
shareholder farmer and the cooperative is simple - the farmer is committed to contributing a
certain amount of cane per season and the mill is bound to take this cane. The strength of the
movement was the involvement of the farmers who were shareholders in the sugar mill
regardless of the size of their holdings. Over the years, this truly democratic idea got corrupted
and farmers with larger holdings grew more powerful. In practice, this altered the power
structure of the cooperatives. In the elections to the governing bodies of the sugar factories,
money became such a powerful tool that the top posts of chairman and vice-chairman usually
went to the richest farmers even though the majority of members were farmers with small- or
medium-sized holdings.
Lack of Awareness:
People are not well informed about the objectives of the movement, the contributions it can make
in rebuilding the society and the rules and regulations of cooperative institutions. Unfortunately,
no special efforts have been made in this direction. People look upon these institutions as means
for obtaining facilities and concessions from the government So long as people expect to get
something from the govt, they see to it that societies somehow continue to function. Lack of
education, dirty politics of the village, casteridden elections to the offices of cooperative
societies, bureaucratic attitudes of the govt officers at the lower rank are some of the hurdles in
spreading the correct information about the cooperative movement and in educating the people
abut its true character and vital role in the society.
Restricted Coverage:
The cooperative movement has also suffered on account of two important limitations on its
working. One is that the size of these societies has been very small. Most of these societies are
confined to a few members and their operations extended to only one or two villages. As a result
their resources remain limited, which I make it impossible for them to expand their means and
extend their are of operations .Two, the most of the societies have been single purpose societies.
For this reason these societies are unable to take a total view of the persons seeking help, nor can
they analyze and solve problems from different angles.. the help these societies render thus can
Yashodhara Bhatt

not be adequate. By assessing the persons and the problems only from one angle , these societies
neither help properly the person nor make a optimal use of their resources . Under these
circumstances it has not been possible for these societies to make much progress.
Functional Weakness:
The cooperative movement has suffered from inadequacy of trained personnel right from its
inception. Lack of trained personnel has been caused by two major factors. In the first place,
there has been a lack of institutions fort this purpose of training personnel. Secondly because of
it unsatisfactory working of cooperative institutions, efficient personnel did not feel attracted or
motivated towards them. The functioning of the cooperative societies, too suffer from several
weakness. 6 Some of these are, taking no care of the need of credit seekers or their repaying
capacity at the time of granting loans, making no adequate provision for the return of loans,
unsatisfactory keeping of accounts, factional politics in it management, lack of coordination
among various divisions of the cooperative structure, too much dependence on outside sources of
finance, lack of adequate auditing. Such weakness have prevented theme from progressing on
healthy lines. Thus there are several pitfalls. Poor infrastructure, lack of quality management,
overdependence on government, dormant membership, non-conduct of elections, lack of strong
human resources policy, neglect of professionalism, etc. are the limiting factors. Indian
cooperatives are also unable to evolve strong communication and public relations strategies
which can promote the concept of cooperation among the masses.

SUGGESTIONS AND RECOMMENDATIONS

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

Enhancing the competitive strength in cooperatives by their merger and division,

wherever necessary.

Non-viable societies that do not have scope for revival should be liquidated.

Ensure active participation of members in their day-today business and de-listing or

removing the inefficient or inactive members from membership.

Federal organizations of cooperatives must give sufficient financial and other support to
their constituent societies.

Yashodhara Bhatt

10

The Cooperative Banks should try to increase their deposits by opening branches in
business areas, improve the services to their clients, introduce different types of deposit
schemes and offer competitive rates of interest.

Cooperative Banks should change their loan policies on the basis of crop loan systems.

The Cooperative Banks must maintain adequate liquid resources, margin, properly
scrutiny of loans and should try to qualitative improvement to the staff.

Cooperative Banks should try to co-ordinate between the Board of Management,

Members, Depositors and Employees of bank.

Accountability and transparency need to be brought in the implantation of the schemes.

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:

The areas where the cooperatives cannot penetrate or cover,

The areas where the cooperative sector has a comparative advantage, and

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.

CONCLUSION
Cooperative banks belong to the oldest forms of the collective action in India playing
essential role in the realization of the agricultural and in local development. They serve both
rural and urban population, and are main banks in India supporting development of agriculture
and rural areas. Their key role is to give credits financing various rural based entrepreneurships.
Agricultural credits play a number of significant functions of which the primary include the
intensification and growth of the agricultural production. In a developing State like Gujarat 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.

Yashodhara Bhatt

11

REFERENCES
1. Departmental Report of Co-operative, Govt. of Gujarat Year 2011-12.
2. Dasgupta R. (2005), Microfinance in India.
3. Jadhao S P, Present Scenario of Banking Sector in India, International Research Journal
2010 June.
4. Misal S M, Cooperatives and Rural Development: Indian Streams Research Journal 2011
March.
5. Rajivan A. (2008), Microfinance in India, Yojna, January
6. NABARD, ( 2000) Statistical Statements Relating to Co-operative Movement in India
1997-98 - Part I and Part , Delhi.
7. Socio-Economic Review of Gujarat, 2011-12
8. Sharma, Mandira and Kumar, Rajiv (2008), Rural Short-term cooperative credit structure,
Economic and Political weekly, March 1, pp. 13-18.
9. www.coop.cg.gov.in
10. www.agri.gujarat.gov.in
11. www.gujagro.org

Yashodhara Bhatt

12