stakeholders in rural development

Name: Sabawoon Gahiz Father Name: Mohammad Yasin Enrollment No: 32SRD00805-12 _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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Declaration

I Sabawoon Gahiz hereby declare that the present assignment entitled on Stakeholders in Rural

Development is submitted in partial fulfillment of the requirement for the degree course of Post Graduate

Diploma Programme in Sustainable Rural Development (A Distance Mode Programme of NIRD and

UoH), is a bonafide record of work done by me.

I further state that no part of the assignment has been submitted for a degree or diploma or any other

similar title of this or any other university.

Place: AIRD/MRRD, Kabul Afghanistan

Date: November-2012

Sabawoon Gahiz


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POST GRADUATE DIPLOMA IN SUSTAINABLE RURAL DEVELOPMENT (PGD-SRD)

3rd Batch (2012), 2nd Semester Course SRD - 506: Stakeholders in Rural Development

ASSIGNMENT ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Block - 1: Rural Development and its Stakeholders

1. Write a commentary on the CPA with suitable illustrations?

Answer:

Consumer Protection Act, 1986(CPA)

Introduction:

Though consumer is the purpose and most powerful motivating force of production, yet at the same time

consumer is equally vulnerable segment of the whole marketing system. Attempts have been made to

guard the interest of the consumer in a sporadic way till 1986, when Government of India enacted a

comprehensive legislation-Consumer Protection Act, to safe guard the interest of the consumer than ever

before.

The Act enshrines the rights of the consumer such as right to safety, right to be informed, right to be

heard, and right to choose, right to seek redressal and right to consumer education.

Consumer Protection Act

The Consumer Protection Act (CPA) imposes strict liability on a manufacturer, in case of supply of

defective goods, and a service provider, in case of deficiency in rendering of its services. The term

“defect” and “deficiency”, as held in a catena of cases, are to be couched in the widest horizon of there

being any kind of fault, imperfection or shortcoming. Furthermore, the standard, which is required to be

maintained, in services or goods is not to be restricted to the statutory mandate but shall extend to that

claimed by the trader, expressly or impliedly, in any manner whatsoever.

The Act is applicable in all states in India except in Jammu and Kashmir. The act makes provisions to

include both tangible goods and intangible services (henceforth referred to as product) purchased from a

trader or service provider (henceforth referred to as company). The act can apply to any consumer who

uses the product for non-commercial activities, the only exception being use of it to earn his livelihood. In

other words, the act excludes commercial customers fully, but includes individual domestic customers,

groups of domestic customers, societies and not-for-profit organizations.


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The Act was passed in Lok Sabha on 9th December 1986 and Rajya Sabha on 10th December 1986 and

assented by the President of India on 24th December, 1986 and was published in the Gazette of India on

26th December 1986. This Act was enacted in the 37th year of the Republic of India and was amended

from time to time in the following years, i.e., 1991, 1993 and 2002.

Salient features of CPA

(I) It covers all the sectors such as – private, public, and cooperative, or any person. The provisions of the Act are compensatory as well as preventive and punitive in nature and the Act applies to all goods covered by sale of goods Act and services unless specifically exempted by the Central Government;

(II) It enshrines the following rights of consumers: (a) Right to be protected against the marketing of goods and services which are hazardous to life

and property; (b) right to be informed about the quality, quantity, potency, purity, standard and price of goods or services so as to protect the consumers against unfair trade practices; (c) right to be assured, wherever possible, access to a variety of goods and services at competitive prices; (d) right to be heard and to be assured that consumers’ interests will receive due consideration at the appropriate fora; (e) right to seek redressal against unfair trade practices or unscrupulous exploitation of consumers; and (f) right to consumer education;

(III) The Act also envisages establishment of Consumer Protection Councils at the Central, State and district levels, whose main objectives are to promote and protect the rights of consumers;

(V) To provide a simple, speedy and inexpensive redressal of consumer grievances, the Act envisages three-tier quasi-judicial machinery at the national, State and district levels. These are: National Consumer Disputes Redressal Commission known as National Commission, State Consumer Disputes Redressal Commissions known as State Commissions and District Consumer Disputes Redressal Forum known as District Forum; and

(IV) The provisions of this Act are in addition to and not in derogation of the provisions of any other law for the time being in force.

Definition of ‘Defect’ and ‘consumer’

Under the CPA, Consumer Forums at the District, State and National level have been specifically

constituted to adjudicate claims of consumers for any “defect” in goods. A “defect” has been defined in

Section 2(1) (f) of the Act as “any fault, imperfection or shortcoming in the quality, quantity, potency,

purity or standard which is required to be maintained by or under any law for the time being in force or

under any contract, express or implied, or as is claimed by the trader (which includes the manufacturer) in

any manner whatsoever in relation to any goods.”

It is important to mention herein that by virtue of Section 2 (1) (d) persons/entities who had purchased

goods for ‘commercial purpose’ (other than those persons who have purchased goods for using them to

earn their livelihood by means of self employment) are excluded from the scope of CPA; they cannot


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institute proceedings under the CPA even if there is any ‘defect’ in the goods purchased by them for using

the goods for commercial purposes.

Purview of a ‘Complaint’

According to the CPA, ‘Complaint’ means any of the following allegations made in writing by a

complainant :

i. Any unfair trade practice or a restrictive trade practice has been adopted by a trader, ii. The goods hired or bought suffer from one or more defects iii. The goods hired or availed of are deficient in any respect iv. A trader has charged price in excess of price fixed by law or displayed on the goods or any package

containing goods v. Goods which will be hazardous to life and safety when used are being offered for sale to the public

in contravention of the provisions of any law requiring traders to display information in regard to the contents, manner and effect or use of such goods.

Consumer Courts

A three-tier-system:

a) State Consumer Dispute Redressal Commission: claims above Rs. 20 lakh b) Consumer Dispute Redressal Commission or State Commission: Claims from Rs 5 to 20 lakh. c) Consumer Dispute Redressal Forum or District Forum: Claims up to Rs 5 Lakh

Complaint:

A complaint, hand written or typed, can be filed by a consumer, a registered consumer organisation,

Central or State Government and one or more consumers, where there are numerous consumers having

the same interest. No stamp or court fee is needed. The nature of complaint must be clearly mentioned as

well as the relief sought by the consumer. It must be in quadruplicate in District Forum or State

Commission. Else, additional copies are required to be filed.

Consumer Protection Councils:

Councils have been setup in all States and at the Center to promote and protect the rights and interest of

consumers. These Councils are advisory in nature and can play important role in recommending

consumer oriented policies to the State and Central Government.


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Block - 2: Cooperatives and Other Formal and Informal Organizations

2. History of Indian Cooperative movement?

Answer:

Consumers’ Cooperatives in India:

In India a consumer’s cooperative store is a voluntary organization of consumers, organized to obtain

their requirements of consumer goods and services on terms of greatest advantage to them. This type of

cooperative undertakes retailing, wholesaling and, sometimes, the production and processing of consumer

goods. The immediate objective of consumers’ cooperative stores is to satisfy the requirements of

essential commodities of their members better and more economically than is done by existing

institutions or private trade. In other words, the consumers can obtain what they want and the quality they

want. In India consumers’ cooperative made progress only during the war period.

Importance of Consumer Cooperatives:

• To sell goods at correct weight and at reasonable price • To distribute the rationed articles • To reduce the price spread by linking the consumer with the producer by linking of Credit

Marketing • To maintain economics of scale in retail distribution by purchasing the goods in bulk. • To put check to the arbitrary price rise for essential commodities in the market by holding

Active Price Policy • To safeguard the interest of consumer against the exploitation nature of middlemen.

Organizational Pattern:

There has been no uniformity in the organisation of consumers’ stores in the country. The organisational

structure is generally a two-tiered one. Some States have adopted the unitary system while others have the

federal pattern. In some States the mixed pattern is also found. The deferent type of stores ensures

autonomy and decentralisation and inculcates cooperative spirit amongst the members. The unitary stores

enjoy all the economics of large scale. The functions of each tier are discussed here.

Primary Consumer Cooperative stores:

Membership and share capital:

Any person who is competent to contract and is residing within the area of operations of the society is

eligible for admission as members. The Government has approved the following institutions for the

purpose of eligibility for admission as members of consumers’ societies (including wholesale stores):

• Religious institutions; • Educational institutions; • Medical institutions; • Social organisations; • Canteens; • Joint stock companies, partnership firms; and


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• Local bodies Normally, the value of share is fixed at Rs.10. The maximum borrowing power of primary stores and

wholesale stores is normally fixed at eight times of the paid up share capital plus the reserve fund. It is,

however, competent for the society to borrow in excess of this limit with the previous sanction of the

Registrar and subject to such conditions as the Registrar may impose.

Functions of wholesale stores:

The Committee on Consumers’ Cooperatives summed-up the following as the functions of the wholesale

stores.

• Procure and store consumers’ goods for supply to primary stores. • Maintain close coordination with marketing, processing and industrial cooperatives of the

area for making direct purchase from them. • Undertake processing and manufacture of consumers’ articles as and when possible. • Supervise and advise members of primary stores on management, business techniques, etc. • Open branches, if necessary, to feed members stores. • Organise independent stores in new areas where consumers’ stores have not come up. • Take up import of consumer goods, on behalf of constituent stores and function as an agent of

Government for the distribution of short supply or controlled commodities through member stores or otherwise.

• Recommended loan applications of primary stores to District Central Cooperative Banks, etc. • Undertake generally all such functions as may help development of consumers’ movement

within its area of operation. State Federations:

The Government of India started a scheme for organizing separate federations of wholesale consumer’

cooperative societies in each state with a view to coordinating and facilitating the working of wholesale

stores and also to assist promotion, organisation and development of consumer cooperatives in the State.

These federations are expected to perform the following functions:

• To make bulk purchases of consumer goods from within the State and from other States mainly for sale and supply to affiliated societies and arrange for a proper storage, packing, grading, and transport of such commodities.

• To establish and run manufacturing and processing units for the production of consumer goods in collaboration with other cooperatives or directly by itself.

• To render technical guidance and assistance to affiliated stores in grading, packing, standardization, bulk purchasing, storing, displaying, pricing and other business techniques and methods to improve and develop their operational efficiency.

• To advise and assist affiliated wholesale stores in standardizing, accounting and stock control methods and practices.

• To supervise the work of affiliated wholesale stores.


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• To hold seminars, conferences, and meetings and undertake publicity, propaganda and education campaigns and similar other functions as may help the development of consumer cooperative movement within its area of operation.

• To build common cadres of employees of affiliated cooperative wholesale stores. • To arrange for the training of the employees of consumers cooperatives in coordination and

with the assistance of other concerned agencies. National Cooperative Consumers’ Federation of India (NCCF):

National Cooperative Consumers’ Federation of India Limited (NCCF) is the apex body of consumer

cooperatives movement in India. NCCF started functioning from January 1966. The main objective of

NCCF is to provide supply support to its member societies and other cooperatives for distribution of

consumer goods at reasonable rates, besides rendering technical guidance and assistance to consumer

cooperative societies in the field of packaging, standardisation, bulk buying, costing, pricing, account-

keeping and other modern business techniques and management methods to improve and increase their

operational and managerial efficiency. NCCF assists consumer cooperatives in the distribution of various

items of essential consumer goods throughout the country and thus exerting a healthy influence on market

prices of essential commodities of mass consumption. These cooperatives extend significant support to

the Public Distribution System prevalent in India for distribution of selected essential consumer goods.

It has also established showroom-cum-sales counters at different places in the country, mainly to project

its activities and to meet the local requirements of consumers of various items of daily use.

The Consultancy and Promotional Cell of NCCF has been providing technical guidance and assistance to

the consumer cooperatives throughout the country for improving their efficiency in the field of

Management Accounting System, Wholesale Stores, etc. The Cell also organises training programmes for

the functionaries of the NCCF and other consumer cooperative organisations from time to time.

Departmental Stores/ Super Bazaars:

The beginning of Super Bazaars was made in India through the establishment of the biggest departmental

store in Delhi on 15th July 1966. The opening of these stores proved to be indeed a landmark in the

consumer cooperative movement in India.

Most of these departmental stores deal in wide range of consumer articles, which include groceries,

cosmetics, toiletries, household goods, textiles, readymade garments, drugs and medicines, etc. A large

number of them are also selling fruits and vegetables, eggs, fish and meat. A few are selling articles such

as furniture, footwear, electronic equipment, etc., and are also running cafeterias. Some of them are

providing services such as dry-cleaning, tailoring, dental clinic, and cooking gas. Banking facilities have

been provided in the premises of some departmental stores in collaboration with the scheduled banks/


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cooperative banks. Some of these stores have given a lead in modern retailing techniques by providing

attractive lay-out and shop designs, artistic display of goods, fixing prices, self-service, pre-packing of

goods, price marketing, etc. A significant feature of their operation is the negligible proportion of

controlled articles handled by them and their complete dependence on non-controlled articles for their

business.

Active Price Policy:

With the object of counteracting the growing tendency towards monopoly price, the consumer

cooperative movement in some countries like Sweden has adopted what is called the ‘Active Price

Policy’. In brief, the Active Price Policy is a policy which, instead of giving the purchaser the whole of

the direct economic advantage in the shape of dividend on purchases, aims at reducing the rate of

dividend in order to permit the sale of goods as cheaply as possible. Thus, under Active Price Policy, the

purchaser gets a part of the economic advantage at the time he makes his purchase rather than making him

wait to receive it in a lump sum at the end of the accounting year. In other words, the Active Price Policy

envisages that the cooperative stores should sell their goods to the public at low prices, which are slightly

lower than the prevailing market price. This policy has enabled the Swedish Cooperative Movement to

achieve great success.

In India, the consumer cooperatives have been following the traditional policy of selling at market price.

Lately, however, they have started following the “Active Price Policy”.

Causes for Slow Growth of Consumers’ Cooperatives in India:

The Committee on Consumers Cooperatives (1960-61) reported various reasons for the slow progress of

consumers’ stores in the country. Even after taking various measures the reasons found by Committee still

continues. They are:

• Weaker organizational structure • Small and uneconomic size • Dependence to a large extent on the sale of controlled commodities • Inadequacy of funds and heavy working costs; • Lack of business knowledge or experience on the part of members of managing committees; • Lack of loyalty on the part of members; • Dependence on honorary services and lack of interest in management; • Lack of properly trained and experienced staff and inadequate supervision of personnel; and • Keen competition from private trade and very low margin of profit.


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Block -2: Cooperatives and Other Formal and Informal Organizations

3. Describe the various structural and functional issues in the field of cooperation?

Answer

Introduction:

The choice of organisational structure is a basic issue at the micro level. The success or failure of

cooperative enterprises among others depends on the structural and functional characteristics of the

cooperative organisations. There are a number of pertinent factors which determine the characteristics of

a cooperative organization which include: a) type of service required, b) location and size of area of

operation, c) size of the potential members, d) existing customers, practices and traditions, e) available

management talent or capacity, and f) relevant cooperative laws and regulations.

Objective:

To familiarise the reader with various Structural and Functional Issues in Cooperation.

Classification of Cooperative Organisations:

Different criteria have been used to classify the structural and functional aspects of a cooperative

organisation. Some of the prominent typologies of cooperatives and their implications are discussed

below:

Voluntary vs. Compulsory Cooperation: Introduction:

Voluntarism is the spirit of cooperation. According to Calvert, ‘the absolutely necessary principles are

that people should associate voluntarily on terms of equality in order to secure the satisfaction of some

common need. Cooperation is an organisation which places great stress on human development and

motivation. Cooperative organisation should therefore be established on the basis of complete freedom to

join or leave’. This aspect was particularly emphasized by Rochdale Pioneers. Motivation will be lacking

in compulsory cooperation without volition or concrete compensation. Voluntary membership not only

strengthens individual responsibility, but it differentiates cooperation from State action.

According to Dulfer, voluntary cooperation is strengthened by the following two factors:

• motive of solidarity, i.e., the felt obligation of individual to the group, and • Motive of rationality, which means that the decision to join the cooperative may clearly seem

to be the optimum alternative of the individual economic aim.


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The cooperative ideal of voluntarism results in the evolutionary, bottom-up approach to cooperative

development. The cooperative organisation emerges out of the existence of a real need for cooperative

action and the realisation of such need by the group of potential members, which finds expression in the

form of cooperative organisation. This is an ideal method of creating genuine cooperative organisations.

Merits:

The voluntary cooperation has the following merits:

• It creates value system inherent to the cooperatives. • It promotes a sense of solidarity and harmonious relationship among members. • It develops a lot of resilience in the cooperative to face competition.

Demerits:

There are some operational demerits of voluntary cooperation. They are:

• It is slow process and requires continuous discussion and dialogue to convince every one concerned.

• It needs constant motivation and moulding of attitudes by means of effective leadership and publicity.

Against the ideal model of voluntary cooperation, the more expedient alternative, namely compulsory

cooperation, has been advocated by certain co-operators, particularly in developing countries.

In the words of Calvert, ‘There is much the same excuse for fostering compulsory cooperation in

backward tracts as there is for introducing compulsory education. The end becomes so desirable that the

means appear to become less important. Compulsory cooperation wisely conducted is compulsory

education in business methods’.

This model has largely been followed in socialistic countries where the over-riding authority of State has

a say in every aspect of economic and social life of the people and cooperatives are no exception. In

mixed economies as well, a section of powerful cooperative opinion is in favour of compulsory

cooperation as a means for achieving social justice and speedy development. Eminent Indian co-operators

like D.R.Gadgil belong to this school.

According to Dulfer, the compulsory cooperation may be of three kinds: first is legal compulsion, by

which individuals are obliged by legal regulation to enter an organisation and to take on duties

accordingly. Apart from legal compulsion, political and ideological means may be used to force

individuals to participate in cooperatives out of fear of certain reprisal by authorities of the political party.

The third way of compulsion is through a centralised economic system, which by implication, means that


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an individual can preserve his social status and economic existence only by participation in the prescribed

form of cooperative and the individual is left with no other economic alternative.

Merits:

The compulsory method of organising cooperatives has no great merit except that:

• It brings quick result, and can be helpful in replicating the success example in other countries or regions.

• It can be used as a means for implementing the socio-economic policies of the State. Demerits:

The compulsory cooperation is a top-down and bureaucratic type of development, alien to cooperative

values; and, as such, it has the following demerits:

• Since the Government spearheads the organisation of cooperatives there is minimum involvement of members.

• There is very little scope for leadership development in this approach. • Cooperatives cannot develop as a popular movement and the credibility and image of

cooperatives will be affected. • There is a danger of cooperatives inheriting the dysfunctions of bureaucracy and cooperatives

getting the image of a big bureaucratic edifice. Therefore, whatever is the merit of compulsory cooperation, it can never substitute voluntary cooperation

and the result can never be same. Nevertheless, there are certain circumstances, wherein the compulsory

membership can be adopted as a temporary measure for larger socio-economic development. These are as

follows:

• In some special projects, the voluntary participants of the project are legally obliged to take up membership in cooperative.

• In certain situations where the cooperatives are the monopoly institutions in rendering certain services, there is no other choice left to the individuals except joining the cooperatives.

• When a large segment of the beneficiary group get admitted into a cooperative, the minorities join the cooperative out of social compulsion.

Limited Vs Unlimited Liability:

Opinion is divided among co-operators as to the type of liability suitable for a cooperative organisation.

Limited liability was permitted in the case of cooperatives of England by the Industrial and Provident

Societies Act 1862. The unlimited liability was adopted in the Raiffeisen Credit Societies of Germany. In

India, the unlimited liability was adopted in the Primary Agricultural Credit Societies (PACS) of the

Raiffeisen model in the early period.


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Limited Liability:

Limited liability means that a member of a cooperative society is liable to the debts of the society up to

the unpaid balance of his shareholdings or up to a multiple of his shareholding as specified in share

certificate.

Several committees have since then recommended for the adoption of limited liability principle. The

Cooperative Planning Committee stated that, ‘We recommend that except where unlimited liability has

produced good results, the liability of cooperatives may be limited’. Subsequently the All India Rural

Credit Survey Committee (1954), Committee on Cooperation (1960), All Indian Rural Credit Review

Committee (1969), etc., have also recommended the desirability of adopting limited liability principle,

particularly at the primary level.

Limited liability is a privilege of modern times to be enjoyed, subject to certain conditions or restrictions.

Limited liability is of two kinds: a) liability limited by shares, and b) guaranteed limited liability. In the

second type, the liability is limited to such amount as each member undertakes to contribute to the assets

at the time of liquidation. The extent of members’ contribution is usually in proportion or multiples of

share capital.

The theoretical arguments on the question of liability have in recent time lost their relevance. The nature

of liability is not the real test of cooperation. However, the recent world opinion is in favour of abolition

of the principle of joint and several liability and what is found to be most essential for the success of

cooperation is good organisation, sound economic purpose rather than most complete form of liability of

members.

Unlimited Liability:

Unlimited liability means that a member is liable to the debts of the cooperative up to the last pie of his

property. It is still viewed by certain cooperative fundamentalist that the unlimited liability is in

conformity with cooperative values and reinforces the principle of ‘each for all and all for each’, and

strengthens mutualism, whereas there are others who view this as a stumbling block to the progress of

cooperative movement. The classical cooperative tradition of small society, i.e., closed communities, is

no longer relevant to the contemporary reality. The corporate character of cooperatives has since

transformed.


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Merits:

The unlimited liability has been found to carry with it certain advantages of considerable importance in a

cooperative society. The merits of the system are as follows:

• It is the cheapest form of liability, and it is the only security that can be developed in a poor community.

• It would oblige each member to watch his associate as well as himself. • It creates confidence among intending depositors. • It secures careful discrimination and selection of members for purpose of lending. • If a society accumulates its own funds and reserves, the risk of unlimited liability is reduced.

Demerits:

The unlimited liability is not favoured by many due to the following reasons:

• Majority of rural people do not understand the full implications of unlimited liability.

• Well to do persons are scared of unlimited liability, who may otherwise contribute to strength

the cooperative society.

The original unlimited liability adopted in Germany provided that a creditor may sue any member for his

debt and recovers the same from him and leaves him to recover it from other members. But when society

is a corporate body it is the society and not the members which enter into contract. Accordingly, the

unlimited liability of members is termed unlimited contributory liability, that is to say, they are liable to

make contribution to any deficiency of the assets on winding up. Thus, the unlimited liability is actually

the unlimited contributory liability. In this connection, it is pertinent to quote from the Report of the

Maclagan Committee that, ‘where there is a deficit it should after the full payment of shares (if any) be

recoverable by a series of per-capita levies upon the members up to the full extent of their property, direct

proceedings by a creditor, against individual member being forbidden. The unlimited liability comes to

effect only when the assets are insufficient to meet the liability, where upon members have to contribute

on a pro-rata basis’.

Safeguards:

There are a few safeguards against the impending risk in the adoption of unlimited liability. They are as

follows:

• Members must be selected carefully and admitted formally. • Members must be allowed to withdraw, if they desire so, when they feel that they cannot bear

the liability.


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• The liability of a past member must continue for a period, so that the surviving members can decide to liquidate the society if they feel that the liability is too great for them.

• The members must not be allowed to transfer their share to any one they please but must transfer to or through the society.

• The members must be able to expel any member whose liability has become worthless and take action against defaulters.

• Amendment of bye-laws, especially to change the liability must require a considerable majority.

• Reserve fund must be built to protect liability. Limits may also be placed on payment of dividends.

• Members must have the right to secure independent inspection of accounts. • There must be intimate mutual knowledge among members and no external pressure is

exerted from outside to make the society to what the members think unwise.

Federal Vs Unitary Structure:

Cooperatives may be structurally classified as a) federal type and b) centralised or unitary type. The

structural question arises when the primary cooperatives have the need to organize on ‘regional basis’ or

to develop ‘hierarchical structure’ for undertaking certain specialized functions. Evolving a clear

structural pattern is a pre-requisite for the effectiveness of cooperatives.

Federal Structure:

The federal pattern is the widely prevalent pattern of cooperative development. The federal structure is

created by means of horizontal combination of member units at different levels. In a federal system,

individuals are members of local associations governed by local boards of directors elected from among

their membership and managed by paid executives and staff hired by the boards. Each local association is

a member of the central organisation, which has its own board of directors, chief executive and staff. The

central board of directors consists of directors elected by the elected representatives of member

associations. The federal organisation takes up a variety of functions, including finance, promotion,

marketing and research, which maybe delegated to it by the affiliated primaries. Federation may be either

a pure federation or mixed federation. A pure federal structure is composed of primary societies and

central organisations at secondary and apex levels, respectively. On the contrary, a mixed federation is

one in which the federal organisation can admit individuals as its members along with the affiliated

societies.

Merits:

The federal structure has the following merits:


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• It is perfectly in conformity with the cooperative ideology, and it strengthens cooperative democracy.

• The policies are more relevant to primary members at grassroots level, and the contact with them is more easily maintained through local and district associations.

• The federal structure is an ideal means for decentralisation of authority and responsibility. The structure is built from the bottom upwards and the importance of local association is always recognised. The federal organisation exists for the benefit of its member societies.

Demerits:

The notable demerits of the federal pattern are:

• When the primaries are weak, the federal structure tends to pool the weakness of the constituent societies. A strong superstructure can never be built on weak foundation.

• The pure federal structure develops a built-in vested interest whose policies are more oriented towards the affiliated units to the extent that it fails to develop an independent identity. Certain amount of laxity and ineffectiveness thus becomes an inevitable feature of the federal structure.

Unitary Structure:

An alternative pattern of organisation is the formation of cooperatives at central level, having wider area

of operation, admitting individuals as members and operating through branches which serve as the limbs

of the central unit. In the centralised pattern each individual holds direct membership in a single large

association governed by a single board of directors and operated by a manager and his staff. The scattered

branches and plants serve the needs of members, and are supervised by the central management in

accordance with the policies established by the board of directors.

Merits:

The unitary structure has certain operational advantages, viz.

• It is a pattern which is organizationally easier and operationally convenient. It can be established in a short time.

• Planning, implementation and control are made easy. Unitary structure is particularly valuable where strong control is required.

• The structure is cost effective. The volume of transactions associated with this structure would help to reduce the cost and market price.

Demerits:

The critics of the unitary pattern put forth the following negative arguments:

• The cooperative values of participation of primary members in the organizational process and diffusion of ownership is sacrificed.


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• The concentration of authority in the hands of a few leads to authoritarianism and bureaucratization of administration which tend to become insensitive to the needs of primary members.

• There will be no mutual knowledge and understanding among the members and thus, the democratic control will lose its spirit and real significance.

Thus, the economic gains attributed to the unitary pattern probably have to be achieved at the cost of

democratic members’ participation.

Univalent vs. Polyvalent Cooperatives:

The pattern of cooperative development in different countries gives rise to two structural models: 1)

Univalent or single-purpose cooperatives, and 2) Polyvalent or multi-purpose cooperatives.

Single purpose cooperative:

Single purpose cooperation is a fundamental type, which started with Rochdale tradition. In this pattern

the cooperative organization at primary level concentrates on only one main function. In some European

countries, such as Denmark, the organizational pattern has been conceived essentially in terms of

individual functions. In almost all the Asian countries, the cooperative movement began with single

purpose, namely, credit, and the dictum that banking and trading should no be combined was applied in a

rather misconceived manner.

Merits:

The protagonists of the single purpose model attribute to it the following merits:

• It leads to specialization, efficiency and expertise in the selected field of activity. • Because of the homogeneity of membership, members’ loyalty and ties with the organization

may be strengthened. • Vertical integration facilities provision of comprehensive services connected with all aspects

of a particular function. • The managers and employees can be trained easily and hey become thorough with the

practical aspects of operation. • Single purpose cooperatives are more suitable to the target group or commodity oriented rural

development projects. Demerits:

A single purpose cooperative organization is beset with certain limitations. They are:

• The subsistence nature of the rural economy of several developing countries offers limited scope for the formation of functional cooperatives, since they have not achieved the degree of development to support functional cooperatives.


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• The primary cooperatives catering only one need of the members find it difficult to achieve economic viability.

• The members have to approach different functional cooperatives for satisfying various needs, and, in the process, dissipate their resources and time.

Multi-Purpose Cooperative:

It is F.W. Raiffeisen who first combined credit with supply and marketing function, which has since then

become a universal phenomenon. The multipurpose idea slowly gained ground, particularly in Asia,

following the success achieved by the multipurpose cooperatives of Japan. In India and Sri Lanka the

primary agricultural cooperative credit societies were reorganized on multipurpose basis, covering all

aspects of the life of the rural population.

Merits:

The strength of the multipurpose concept lies in the following merits:

• It provides multipurpose services to the small farmers in a single window. • Farmers need not waste their time and energy in moving from one agency to another for

getting the required inputs and services. • The cooperative society becomes a centre of multifarious services. The members keep in

constant touch with the society and develop lively interest in the working of the society. • The managers of the cooperatives gain better knowledge of the members’ situations. • The financial involvement of members in a multipurpose society is relatively smaller than in

the case of several single purpose societies. • There is greater chance of hiring qualified managers on the basis of increased turnover and

reduction of fixed cost per unit. Demerits:

The multipurpose model is not without limitations.

• The combination of business transaction of diverse nature needs business acumen and skilful management, which are lacking among the cooperatives.

• The required managerial talent and manpower are not readily available in the cooperative sector of many developing countries.

• The mix-up of functions renders the financial control difficult; and the computation of unit cost of different services poses a real problem; as the fixed cost is distributed among different kinds of services.

• The success of multipurpose cooperatives depends on the effective coordination and high degree of integration.

Multipurpose ideas found acceptance widely and it has been regarded as the most suitable approach.

However, the functional pattern has regained its significance, particularly in the context of the

development of weaker sections and diversification of rural economy. In the opinion of Committee to


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Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD), ‘a

group engaged in a single activity with several linkages, as in the case of animal husbandry, has a

common economic identity and social coherence and as such can be more effectively catered to by an

organization exclusively of that group’.

In practice the choice between single-purpose and multipurpose depends on: a) the need of the members,

b) the economic structure and development standards of the region, c) legal and institutional tradition and

availability of managers.

Conventional vs. Integrated Model:

Conventional Model:

In the early periods of cooperative development, cooperatives were meant to provide certain common

services to the members, as manifested in classical Rochdale and Raiffeisen societies. In this model, the

cooperative organization serves as an executive unit of members’ enterprises. The cooperative

organization does not acquire the status of a full-fledged enterprise. Being an ancillary organ of the

member economics, its functions are purely determined by the needs of member economies. Thus, the

main focus in this type is on the members’ economies.

In the second stage of cooperative development, the cooperative establishment acquired some degree of

independence. Gradually the close tie with member economics was relaxed. For the reasons of

competition the cooperative organization had to be developed as an independent firm with an aim system

independent of the member units. It is not always necessary that a cooperative society should be oriented

towards the members’ units. The relationship between members’ units and the cooperative enterprise is

quite similar to the relation between ordinary partners in the market. Management has become

professionalized and specialized. In the long run members may lose interest in the cooperative

organization, and may cease to use its services, while the cooperative enterprise may expand its business

with non-members.

This conventional model is most commonly prevalent in the cooperative movements anywhere in the

world. The characteristic features of this model are:

• There is lack of balanced development between the member units and the cooperative enterprises.

• The aim systems at these two levels are not properly coordinated. • The cooperatives tend to lose cooperative character in the long run.


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Integrated Model:

In this type the member economies being independent legal units are bound by the cooperative enterprise

in such a way that the cooperative management makes decision not only for cooperative establishment but

also for the operations and economic interests of member economies. This is a complex form of

organization but is highly relevant to the developing countries. In the integrated type, the aim system of

the individual member economies is linked t the aim system of the cooperative enterprise and influences

the same. A common operational strategy is pursued to achieve the objectives of both.

Dr. H. Munkner has defined such integrated structure as ‘coordinated distribution of tasks and functions

between various organizations in such a way that each member unit of the joint organization takes over all

those functions and tasks, which can be executed by the respective unit with best expertise and minimum

cost’.

It is, therefore, a voluntary collaboration of independent economic units for common objectives, with

functional dichotomy at the two levels. The following are the characteristics of such integrated model:

• The economic units are independent and autonomous in the matters of finance, decision-making and internal management.

• They agree to work together on the basis of a common plan and the member-units voluntarily accept the joint leadership, while they delegate some of the decision making power to the higher level units.

• The integrated system can achieve the full economic advantage by means of joint action, strengthening the market position, increasing efficiency and reducing cost.

Collective vs. Cooperative Organizations:

The word cooperation connotes the two prevailing basic patterns of cooperatives, namely, collective

enterprise and cooperative service type society. The former is a form of collective production in both

manufacturing and agriculture, which in its classical industrial form is workers’ cooperative society. The

latter type of cooperatives covers various economic activities for the promotion of individual economies

of the members of the cooperative group, i.e., their households, business or farms.

Collective Enterprise:

The production cooperatives are based on membership of persons who no longer carry on their economic

activity separately but do so as member-workers in and owners of the communal cooperative enterprise. It

is essentially a self-managed workers’ enterprise in which the people working in it can become members

by owning share. The operations of the enterprise are completely centralized. The member-enterprises

cease to exist and the members get income from their labour. In this type of organization social and


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economic motive of members interact with ideological considerations. Politically motivated members

attach higher value to a particular life-style and socialist ideals than to economic consideration. In

agriculture, this form is manifested in collective farms and cooperative settlements, land colonization

societies and communes where the private property is abolished or cultivation is undertaken jointly and

the cooperative farm is a single enterprise. Communes of china, Kibbutz settlements of Israel and

Kolkhoz of Russia are the prominent examples of this type. In the industrial field, the workers’

cooperatives are still a rather insignificant sector compared to other sectors. The workers’ self-managed

cooperatives of France and Italy have been very successful. The Mandragon cooperatives of Spain and

Longo Mai Cooperatives of France are interesting examples of successful collective enterprises in

industrial production. The experience of Mandragon Cooperatives suggest that the workers’ cooperatives

is likely to succeed when the level of consolidation is high, all those who work in the enterprise are

members, the wage differential between the highest paid and lowest paid is low, and the internal

democracy works well.

Operational constraints:

The workers’ cooperatives encounter the following operational constraints.

• Division of labour is a day to day problem which has to be planned and executed thoroughly. • Usually in the collectives, labour efficiency is found to be low, and proper motivation and

incentives must be provided to the workers. • Allotment of work is an intricate problem and distribution of managerial and non-managerial

work or pleasant and unpleasant work leads to strained relations among members. • The success of the collective enterprise depends on the ideological orientation of the

members, and the level of involvement and high degree of social cohesion. • When the collective enterprise employs hired labour, there arises a clash of interest between

the member-workers and non-member workers. Van Dooren has identified a few essential conditions for the success of the collective enterprises:

• Competent management ability to comprehend problems, • Clear allocation of responsibilities within the cooperative, • Just division of various tasks among the members backed by progammes of education and

training, • Member participation in decision making and operation, • Attention to economic and moral incentives in order to strengthen loyalty and group

solidarity, and • Preference for a rather limited size of cooperative group, particularly in the initial state of

formation.


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Service-type Cooperative:

This type of cooperatives may be called ‘Cooperative Proper’. They provide services for the benefit of the

family or business, which operates on an individual basis. In the case of service type of cooperatives,

there is only incomplete and partial integration of members and member-enterprises in the cooperative. In

this pattern the cooperative organization is conceived as one wherein there is economic cooperation

between, otherwise totally independent, family and business units. Otto Schiller’s scheme of individual

farming on cooperative lines or cooperative production promotion societies is an example of this type,

apart from the classical pattern of consumers, marking and supply cooperatives. It is neither a

challenging model of cooperative development nor does it involve any ideological orientation. In this

pattern the cooperation organization simply serves as an executive arm and provides services for the

benefit of the family or business units undertaking production on an individual basis. Nevertheless, the

service-type cooperatives may face certain operational constraints, such as:

• Aims system associated with this kind of cooperative is complex. • Management decision making, planning and control have to be exercised at two levels, i.e.,

the level of the joint enterprise and the member-economies. • It requires high degree of coordination and development information and educative

communication. In the opinion of Dulfer, this model corresponds to the educational model of cooperative organization

and, therefore, highly suitable for development projects.

Formal vs. Informal Cooperatives:

Formal Cooperative (FC):

Formal Cooperative is 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 cooperation that flows from social feeling, coupled with the economic rationale of

synergistic effect of collective action, has led to the genesis of formal cooperatives. This formal

cooperative favours a creation of new social order and new moral world.

Cooperative is an organization of the weak and the vulnerable and a means of self-defensive mechanism

against unequal competition. It seeks to remedy the economic inequality and the evils of concentration of

income and wealth and prevents the exploitation of the weaker sections by the economically affluent. It

evokes a sense of brotherhood and harmony, honesty, integrity and fairness in dealing with fellow human

beings in all social and economic transactions.


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Though the principles of cooperation are followed in the formal cooperatives worldwide people adapt

them to suit the politico-economic systems of their respective country. The formal cooperatives as a

golden-mean between capitalism and socialism coexist with these two good old economic systems. Their

presence is formally recognized in almost all countries in the world.

Informal Cooperative (IC):

Informal cooperative is a voluntary association of poor people who are having same/similar socio-

economic background and are involved in solving their common problems through self-help and mutual

help. It creates small saving among the members and the amount is kept with bank. The SHG has 15 to 20

members. (Note: Though the word cooperative is used by formal cooperative institutions, it is used

purposively here to indicate SHGs because it has the values and principles of formal cooperative

institutions in their operation.)

The credit for the fast development of self-help group (SHG) movement in India goes to the pioneering

attempt made by Prof. Mohammed Yunus in Bangladesh – the winner of Noble Prize 2006. It is he who

introduced the concept of micro credit (through SHGs) for the first time among the poor women in late

seventies under the Grameen Bank. This has got momentum at a later stage in almost every corner of the

world. Eventually, NGOs in India plunged into action and the NABARD supported such efforts by the

NGOs. And today, we have a variety of micro credit and micro finance institutions in India. The growth

in the movement is drastic and remarkable.

Common Characteristics of Informal Cooperatives:

The following are the common characteristics of informal cooperatives:

• Each SHG has 15 to 20 members. • The members of SHG live below poverty line. • The members have identical interest/common occupation/social heritage, homogeneity and

affinity. • SHGs create self-help, awareness, and bring economic and social empowerment to the poor. • SHGs develop confidence among the members especially among the rural women. • They inculcate the habit of thrift and savings among members. • It has full support from Government and non-government organizations. • It maintains simple records and documents, which show the details such as meetings held,

savings made, and expenses increased, etc. • It follows the principle of collective leadership. • The SHGs get loans in small quantity from banks and NGOs.


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The primary objective of informal cooperatives includes economic and social empowerment of rural

masses through skill development; helping them financially and technically.

Formal and Informal Cooperatives:

Both the formal and informal cooperatives have emerged during the 20th century. The formal cooperatives

were sponsored at the beginning of the century and the informal cooperatives have emerged

spontaneously at the end of the century. These cooperatives have commonality in several respects. They

are, in brief, as follows:

• Association of human beings, the poor and the marginalized • Voluntary and democratic associations • Democratic control and management • Autonomy and independence • Common economic and social development as the explicitly stated goal • Promotion of self-help through mutual help • Promotion of economic self-dependency. • Inculcation of the habit of thrift and savings • Emphasis on social, moral, and ethical values • Mutual trust • Concern for the community • Distributive justice • Network with external agencies • Linkages with other development players • Consistent member education

Despite these commonalities, one could also notice some differences, especially in their way of

functioning between formal and informal cooperatives. The following are some of them.

Formal Cooperatives Informal Cooperatives

Formal association Informal association

Universal principles Regional/Local principles

Large size (minimum 25 members) Small size (10-20 members)

Indirect Politicization Purely non-political

Voluntary but target orientated participation Voluntary but demand orientated participation

Legal provisions govern leadership Rotational leadership, not legally governed.

Democratic management Participatory methods in management


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Faith on credit-worthiness Faith on trust-worthiness

Lending on collateral Lending without collateral

Banks/Cooperatives are more with what they are “lending against”.

SHGs are more concerned with what they are “lending for”.

Recovery and monitoring by the professionals Recovery and monitoring by the peer groups

Legal action against the defaulters Peer group pressure against the defaulters

Repayment in lump-sum Repayment in easy installments

Block -3: Credit and Micro Finance

4. Role of commercial banks in Rural Development?

Answer:

Direct and Indirect Advance of Commercial Banks:

The commercial banks provide short term, medium term and long term loans directly to the agriculturists.

The crop loans are provided to meet the cost of raising crops in a year and it has to be repaid within one year

soon after the harvest of the crops. The medium and long term loans are provided to meet the investment

costs retailing to various agricultural development program. This category of loans are provided for minor

irrigation works, like digging of new wells, deepening of existing wells, purchase of electric/diesel pump sets,

purchase of farm machinery, dairying, poultry plantation, horticulture, construction of bio-gas plants, etc.

The commercial banks also finance agriculture and allied sector indirectly through certain agencies like

Farmers Service Societies, Primary Agriculture Credit Societies, Co-operative financed by the commercial

banks for extension of electrification, energisation of wells, etc., for agricultural purposes. The dealers in

chemical fertilizers are provided with credit facilities and they also account for indirect financing of

agriculture by commercial banks.

Developments in Cooperative Banking:

The co-operative credit structure has two aims, namely, production credit (short term credit structure) and

investment credit (long term credit structure). The short term credit structure comprises Primary Agriculture

credit Societies (PACS) at the base level, District Central Co-operative Banks (DCCBS) at the intermediated

structure level and State Co-operative Banks at the apex level. The long term co-operative structure came into

existence as Central Land Mortgage Bank in the twenties, primarily, as surveyors of credit for redemption of

debts. It evolved over the years to meet investment credit needs of the farmers and later came to be known as

State Land Development Banks (SCARDBS). They have either a unitary structure with branches in some


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state or federal structure supporting Primary Co-operative Agriculture and Rural Development Banks

(PACRDBS) and their branches in other states. PACS form a pivotal part of the short term structure of co-

operative credit institutions. As at the end of March 1997, there were around 91720 PACS with a total

membership aggregating to 982.2 lakh, of which borrowing membership constituted 40.2 percent. As most

PACs are totally dependent on the finance provided by DCCBs, resource mobilization is a weak spot in their

growth. The total deposits and loans of PACs as on March 31, 1996 aggregated Rs.3450.2 crore, Rs.10459

crore, respectively.

Initiatives of NABARD in Promoting Rural Development:

In the last few years, the Indian economy has emerged as one of the fastest growing economies in the

world. However, the vulnerability of the Indian economy with respect to the performance of the

agricultural sector despite other macroeconomic indicators and sectors gaining in strength is well

known. For example, the Indian economy grew at an estimated 3.7 percent in 2002-03 against 5.6

percent during 2001-02. This was largely because of the negative growth of 4.4 per cent in the agriculture

sector. Many economists and policy-makers increasingly believe that the future growth of the domestic

economy, to a large extent, will depend on the robust performance of the agricultural and rural sector. The

manufacturing and service sectors cannot sustain the economy’s growth if the rural sector underperforms.

The contribution of the banking and financial sector to the current economic growth of the Indian

economy is very significant. This is reflected in the growth in aggregate deposits and advances for scheduled

commercial banks, which stood at 15.4 percent and 27.9 percent during 2004-2005. However, the access

of banking services to the rural, agriculture and the common man in general is not as promising.

As Mr. V. Leeladhar (Deputy Governor, RBI, on the occasion of the Commemorative lecture at the

Fedbank Hormis Memorial Foundation, Ernakulam) said “Despite making significant improvements in

all the areas relating to financial viability, profitability and competitiveness, there are concerns that

banks have not been able to include a vast segment of the population, especially the underprivileged

sections of the society, into the fold of basic banking services.”

The focus of Indian banks on financial inclusion i.e. delivery of banking services at an affordable cost of

the low-income groups has been dismal. In India, the focus of the financial inclusion at present is more

or less confined to ensuring a bare minimum access to a savings bank account without frills to all. Having a

current account/savings account on its own, cannot be regarded as an accurate indicator of financial

inclusion.

Need For Banking in Rural and Agricultural Areas:

The rural population in India suffers from a great deal of indebtedness and is subject to exploitation in the

credit market due to high interest rates and the lack of convenient access to credit. Rural households


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need credit for investing in agriculture and smoothening out seasonal fluctuations in earnings. Since

cash flows and savings in rural areas for the majority of households are small, rural households

typically tend to rely on credit for other consumption needs like education, food, housing, household

functions, etc. Rural households need access to financial institutions that can provide them with credit

at lower rates and at reasonable terms than the traditional money-lender and thereby help them avoid

debt-traps that are common in rural India.

Current Trends: A Pointer To Financial Exclusion:

Rural Credit: The 2001 census reveals the low level of banking usage among Indian households in

general (35.5%) and rural households in particular (30.1%). This reflects on the latent demand for general

banking needs in rural as well as urban segments.

The debt profile of rural households indicates that the major source of credit to rural households,

particularly poor income working households, has been informal sector loans like money-lenders, which are

usually at very high rates of interest. The terms and conditions attached to these loans impact the poor

adversely. This reflects the inadequate institutional credit flow to rural areas. As on 31-3-2003, rural and

semi-urban centers had a Credit/Deposit (CD) ratio of 42% and 35% respectively as compared to a CD

ratio of 69.5% and 59.3% for urban centers and national level. These trends broadly indicate that despite

the widespread banking network in place, there is a continued migration of rural/semi-urban savings to

urban/metro centers, thereby causing a banking divide between rural and urban areas.

Agricultural Credit:

An equally important concern that needs attention is the flow of institutional credit to agriculture. The

progress of agricultural credit in India has depended crucially on government intervention over the years

i.e. package of incentives and policy measures, which the RBI and the Centre formulate and implement. The

growth of commercial banks’ lending to agriculture and allied activities witnessed a substantial decline

in the 1990s as compared to the 1980s. Credit flow to the agriculture sector from all formal sources

amounted to Rs. 70,810 crore in 2002-03 and Rs. 86,981 crore in 2003-04, much below the levels

envisaged in the Tenth Plan. Agriculture’s share in scheduled commercial banks’ total outstanding

credit as on 31st March 2005 was only Rs. 1,12,475 crore. The total agricultural lending by commercial

banks is lower than credit in “personal loans” which stood at Rs. 2,66,988 crore, comprising advances


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for housing and consumer durables. In recent years, retail advances have increased by 41.2 per cent in

2004-05 as compared to the growth of 27.9 per cent in the overall loans and advances of Scheduled

Commercial Banks. As a result, their share in total loans and advances increased significantly during

the year ended March 2005. However, according to a recent study, only 15 out of 85 banks registered

an increase in return on assets as at the end of 2004-05 over 2003-04. Hence, the argument that rural

credit drives down the banks profits and increases NPA is not justified. NPA in rural credit are far less

and the rate of retrieval of rural credit NPAs is faster than other advances. The annual growth rate of

farm credit is around 15% and this growth in rural advances essentially comes from advances like gold

loans for agriculture and Kisan Cards. About 70% of the present rural credit stock of over Rs. 115243

crore is Kisan Credit Cards spread over 4.8 crore of such card holders. This shows the narrow focus

of the banks towards short term production loans rather than for term loans.

Post reforms, the banking system has mobilized more deposits from farmers and extended less credit to

a declining number of farmers. These are reflected in the figures for farmer borrowings and deposits

in the last decade as in Table A.


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Many scheduled commercial banks are shying away from agriculture and priority sector lending even

though the commercial banks have an excess investments portfolio beyond the required limits of 25

percent. Furthermore, scheduled commercial banks are resorting to the soft window option of investing

in the Rural Infrastructure Development Fund (RIDF) of NABARD. Table B illustrates the growing

contributions to the corpus of RIDF received by NABARD by way of deposits from Scheduled

Commercial Banks against their shortfall in priority sector/agricultural lending during the preceding year.


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Policy Initiatives by Government/RBI:

To meet the gap that existed in meeting the credit needs of the rural poor, the Government appointed

a working group on rural credit, the Narasimhan Committee in July 1975. Based on its recommendations,

Regional Rural Banks (RRB) emerged in 1975. These banks were meant to take banking to the rural

masses, particularly in areas without banking facilities, make available cheaper institutional credit to the

weaker sections of society, mobilize rural savings and channelize them for other productive activities in

rural areas and bring down the cost of providing credit in rural areas. The number of RRBs increased

dramatically over a period of time. At the end of the fiscal year of 2002-03, there were 196 RRBs

spread with a network of 14,350 branches, accounting for 44.5 per cent of the total rural network of

all scheduled commercial banks (including RRBs). The bulk of the loans from RRBs have been given to

priority sectors, which accounted for over 70 per cent of the total. Agriculture alone took up 46 per cent

of the priority sector advances. RRBs have also taken a lead role in the financing of Self Help Groups

(SHG’s) mostly comprising women leading to their economic and social empowerment. Cooperative

banks were formed to promote the rural credit. Cooperative banks and RRBs differ in their ownership

and management. Cooperative banks are state-government run banks while RRBs are managed by the

sponsor bank with an equity stake of 35%. The Central Government and State Government hold 50%

& 15% equity stake in RRBs. Since independence, the RBI has taken a number of measures to augment

the flow of rural credit. It has a unique system of extending General Line of Credit-I for seasonal

agricultural operations and General Line of Credit-II for the handloom sector out of the created

money. The RBI has also been issuing directives for a long time now regarding ‘social and development

banking’ like imposing a cap on the interest rates and sectoral allocation of credit and expansion of rural

branches. The RBI has also made it mandatory for commercial banks to lend 40% of their advances to

the ‘priority sector’. The Service Area Approach was introduced by the Government in 1989, which

imparted development orientation to agricultural lending. Other major innovations in the field of rural

credit delivery in the 1990s were the successful introduction and implementation of Kisan Credit Cards

(KCCs) and the extension of micro finance in the form of Self-Help Group (SHG).

Block-4: Conflict and Conflict Management

5. Write a critical essay on the consequences of conflict in rural development?

Answer:

Consequences of Conflict:

Our focus here is on the consequences of conflicts that arise among the stakeholders in rural development.

These consequences may have diverse impacts. Conflicts do not always produce negative consequences

but may bring in positive impact also. The outcome is dependent on the nature of the conflicts. Some


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conflicts bring in a constructive development for a society. Some individual and groups enter into a

conflict for the betterment of the society. The negative implications vary depending on the severity of

conflict. In some cases if the conflict is properly and timely addressed, losses to that society can be

minimized. If a conflict is ignored it may adversely affect the communities involved in the conflict.

Economic Consequences:

Conflict also has economic consequences. It can lead to unemployment and loss of income owing to

disruption of economic activity, destruction of infrastructure, uncertainty, increased cost of undertaking

business, and capital flight. The development of hostile relations disturbs the progress of development

projects and would indirectly affect rural employment. The loss of employment sometimes may create a

situation for forced migration.

Damage to Infrastructure and Economy:

Attacks on the source of resources, irrigation infrastructures, community halls, rural roads, and other

community materials by conflicting parties bring lots of loss to the nation. Due to this, the local rural

livelihood system will be affected.

Disturbed Communication:

The major direct impact of the conflict so far as most ordinary individuals and households are concerned

has been a widespread reduction in physical mobility and travel as a result of a sense of personal

insecurity. The inter area and inter village conflicts disrupt the travel and transport throughout the

conflict-affected areas. It may have a serious effect on livelihoods for some.

Impacts on food and livelihood security:

The conflict, either inter- or intra-stakeholder, brings certain loss to livelihood securities. The damage of

individual crop or resources by conflicting parties brings loss to that particular individual. If conflict

arises among the stakeholders it creates a doubt over implementation of the project, which disturbs the

livelihood system of the whole community.

Local governance structures:

If the conflicts keep continue among the stakeholders it disturbs the local administrative structures. It also

disturbs the local governance structure. If the villagers keep on fighting with each other it will disturb the

functioning of local community level development organisations.


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Disruption of Social Capital:

If the conflicts persist among the villagers or stakeholders it will disturb the social capital among the

villagers. It will develop a situation where everybody will have a suspension on others. It will disturb the

trust among villagers and other line departments.

Upsetting of local traditional culture:

If the conflict continues among the stakeholders it will disturb the local culture and it generates

factionalism and groups among the villagers or local communities. The elders may lose their importance

in the villages. It will disturb the celebration of local festivals and other functions that enhance social

harmony.

Loss of Property:

Conflicts bring a loss to both individual as well as community property. If the conflicts continue, both the

conflicting parties will try to damage the property of the other.

Injury to Health:

Conflicting stakeholders may enter into fighting. Due to these, both the hostile groups not only try to

damage respective properties but also cause certain injury to individuals and their health.

stakeholders in rural development

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