The third point to be noted is that it was inevitable, in the circumstances we have described, that a government department charged with the promotion of the new policy should be established and that, as progress was achieved, this department should grow in numbers and importance.

From the commencement, the aim of the official staff was to instruct the community as a whole in the benefits of co-operation and to attract, select and train individual members of it for the work of managing the new societies in accordance with co-operative principles. When it is realised that the office holders in all co-operative organisations, from the village societies in their many thousands to the provincial banks and federations, are almost without exception non-officials elected by their fellows, the extent to which this aim has been achieved will be appreciated.

THE

CO-OPERATIVE

CREDIT SYSTEM.

371. The co-operative movement in this country was thus initiated by a Government which, since it had no co-operative experience in India to guide it, had to depend on the agency of an official staff to carry its policy into effect. These special features, which marked the inception of the movement, need emphasis as they have influenced it throughout its course and explain many later developments.

The original Act, as we have seen, was framed to meet the needs of primary credit societies only; it made no provision for the higher finance of the movement or for non-credit activities. These omissions were supplied by the second Act which was passed in 1912 and is still in force throughout the country, except in Bombay and Burma, where it was replaced by local legislation in 1925 and 1927 respectively. But though the limitations imposed by the original Act were removed and non-credit activities have taken numerous forms, the preponderating element is still credit. There are two main reasons for this. The most powerful obstacle in the path of rural development and the most crushing burden on the people is indebtedness. Where they are so bound to the moneylender that all their produce must be sold to him and all their purchases made from him; where the interest charges on the loans they take from him are such that they absorb what little surplus there may be and the enhanced return in a bumper year or from some improvement in seed or implements merely serves to stay the pace at which these charges mount up, it is hopeless to expect that they should lend a willing ear to the advice of the agricultural expert. Societies for purchase and sale are not for those whose every transaction must pass through the single channel of the village moneylender.

The second reason for the preponderance of the credit element lies in the well known educative value of the good credit society. Experience has amply proved the advantage of this type as a foundation for more ambitious schemes. It affords an excellent training in the handling of money, in expending it on productive purposes, and in the elements that combine to build up sound credit. It readily lends itself to organisation for mutual help throughout the country side; and, wisely guided, it encourages and stimulates the practice of thrift and illustrates vividly the advantages of even the smallest savings when they are made regularly over a series of years. We see no ground for adverse comment in the fact

that the credit aspect bulks so largely in the co-operative movement; on the other hand, it appears abundantly clear that the movement must, in the main, continue to be directed towards the expansion of credit societies until the burden of outside debt has been considerably eased. There is ample evidence that those charged with its direction are fully alive to the advantages to be gained from the application of the co-operative principle in directions other than credit. But their most important duty must, for many years to come, be that of developing a rural credit system covering the whole field of village life, and we think it should be left to their unfettered judgment to decide what part of the resources at their disposal should be directed towards the extension of the non-credit movement.

THE PRESENT POSITION OF THE MOVEMENT.

372. We have pointed out that it was in the absence of any demand from the public that the Government of the day decided to embark on an attempt to educate the people in the principles and practice of co-operative credit. In the special circumstances of rural India, such education could only be conveyed through the spoken word of touring officers, supported, supplemented and replaced by non-officials as these became available for the work. The effect of their efforts has been considerable and some elementary knowledge of the meaning and potentialities of co-operation has spread over a very wide area. So far as numbers go, the movement has made remarkably rapid progress. In 1927, there were in British India some 67,000 agricultural societies, 1,388 unions and 521 central societies. The agricultural primary societies had over two-and-a-quarter million members and their total working capital exceeded 24 crores of rupees. The statistical progress of the movement since 1915-16 will be evident from the Table given below.

The following Table is also interesting as showing the extent to which the rural population in the different provinces has been touched by the co-operative movement:

It will be seen from the above Table that, except in the Punjab, Bombay and Madras, the movement in the major provinces has so far reached only a small part of the rural population. We have left out of account, in this Table, figures affecting the movement in urban areas. In all provinces, there are districts where considerably greater progress has been made than in others. For instance, in the Dharwar district of Bombay and the Jullundur district of the Punjab, one-fourth, and in the South Kanara district of Madras, nearly one-fifth, of the population is now within the movement.

The main results achieved may be said to be the provision of a large amount of capital at reasonable rates of interest and the organisation of a system of rural credit which, carefully fostered, may yet relieve the cultivator of that burden of usury which he has borne so patiently throughout the ages. Knowledge of the co-operative system is now widespread; thrift is being encouraged; training in the handling of money and in elementary banking principles is being given. Where the co-operative movement is strongly established, there has been a general lowering of the rate of interest charged by moneylenders; the hold of the moneylender has been loosened, with the result that a marked change has been brought about in the outlook of the people.

1

Inculcation of the habits of thrift has produced results no less remarkable than those following the obtaining of credit on reasonable rates. At the end of 1925-26, the two million members of agricultural societies owed their societies a sum of Rs. 18 crores, of which nearly Rs. 63 crores was their own money. Of this sum, Rs. 23 crores was the share capital subscribed by them, deposits by members amounted to Rs. 11 crores, and the reserve fund was nearly Rs. 3 crores. Thus, out of the total capital advanced to members, more than one-third was collected from their own savings. In the Punjab, the members held Rs. 61 lakhs as share capital and Rs. 25 lakhs as deposit; while the reserve fund of the societies amounted to Rs. 88 lakhs. In Bombay, they held Rs. 15 lakhs as share capital and Rs. 70 lakhs as deposit and the reserve fund was over Rs. 30 lakhs. The figures for Madras were Rs. 52 lakhs, Rs. 7 lakhs and Rs. 23 lakhs respectively. While there is undoubtedly considerable room for improvement, the fact that so much money has already been saved, which, but for the existence of the co-operative societies would, in all probability, have either been frittered away or gone in the pockets of moneylenders, is in itself no small achievement. There are many societies now which are able to finance their members without having need to borrow from outside. There are members whose own shares or deposits amount to a sum which is enough to meet their normal requirements. When this state of things is reached, it undoubtedly affects for the better, not only the economic, but also the moral, outlook of the men concerned. 373. On the technical aspects of the credit movement, we shall have but few comments to offer in the course of this chapter. The Committee on Co-operation of 191415, which was presided over by Sir Edward Maclagan, made an exhaustive enquiry into these, and its report contains an authoritative series of recommendations to which there is little need for us to add. The Committee was mainly concerned with credit societies as they existed at the time, but it is clear that many of the defects then found still persist, and that although, in most provinces, its recommendations have been accepted and incorporated in the policy of the co-operative departments, there is still ample room for further action everywhere on the lines suggested in its report. In all provinces, failures have frequently been due to the neglect of the wise precautions advocated by Sir Edward Maclagan and his colleagues, and we can only recommend that everyone connected with the movement should study this most valuable report afresh and should strive to secure a wider attainment of the standards therein prescribed.

DEFECTS.

We make this suggestion, as our enquiries have shown that progress has not been uniform in all provinces and that increase in numbers has not always been accompanied by improvement in quality. Neglect of the advice given by the Committee on Co-operation has, in some instances, led to serious consequences. In the Central Provinces, a thoroughly unsound system was allowed to develop into a top-beavy organisation. Little attention was paid to the education of members in co-operative principles and too much power was left in the bands of

central banks. The concentration of both authority and of fluid reserves at the centre provided opportunities for errors which precipitated a severe financial crisis; and it was only the assistance provided by the local Government, in the form of a large loan and a guarantee of a substantial cash credit, which saved the movement from immediate collapse. It is estimated that several hundred societies will have to be liquidated before the evil effects of past mistakes can be completely eradicated. In Berar, where conditions of agriculture as well as of land tenure are very different from those in the Central Provinces proper, the state of the movement is more satisfactory.

In the United Provinces, where the condition of a large number of societies gave cause for anxiety, a committee, known as the Oakden Committee, was appointed in 1925. This Committee, after careful enquiry into the state of co-operation in the province, issued a strongly worded report. It found that the village society was mostly a sham; the principles of co-operation were not understood; the staff appointed to teach was itself untaught, insufficiently trained and unfit for the work it was supposed to do. The Committee's conclusion was that a general dissolution of the movement could only be avoided by drastic reorganisation. The local Government have accepted this finding and has sanctioned measures to give effect to the Committee's recommendations. In Madras, considerable anxiety has been caused by the steady increase in overdue loans and a committee which sat to enquire into this and other defects has recently submitted its report. In Burma, we found a considerable body of opinion in favour of a regular enquiry being held into the causes of the stagnation which has set in in Upper Burma; for some years past no progress has been made and several hundred societies are in process of liquidation, a situation which is causing some uneasiness. The Central Provinces, the United Provinces and Madras are the only provinces in which such an enquiry has so far been held and we consider that it might be undertaken with advantage in other provinces. The financial solvency of the movement generally is beyond dispute; it is the working of the societies that is defective. The members of societies delay the repayment of loans even when able to repay; understanding of the principles of co-operation and knowledge of the essentials of rural credit are lacking; office-holders refrain from taking action against defaulters and the spirit of self-help is not as prominent as it should be, if the movement is to be a live force in village life. Even where defects. are obvious and admitted, there is reluctance, as dangerous as it is regrettable, to liquidate societies whose condition is beyond remedy.

For these disquieting conditions there are several causes, of which lack of training and of understanding of co-operative principles is the most important. The democratic principle is not so potent a force in checking abuses as is sometimes supposed. Members take insufficient interest in the working of their society; they exercise little restraint over their president and committee, and hesitate to evict from office an incompetent or dishonest neighbour. The office-holders, on their side, dislike incurring the unpopularity attendant on stringent action against recalcitrants and the recovery by legal process of overdue debts. The

MO Y 286-29