CHAPTER - 1 INTRODUCTION AND RESEARCH METHODOLOGY 1.1 Introduction The cooperative movement started in Europe in the nineteenth century, basically in Britain and France. The first consumer cooperative was set up in 1769, in Fenwick, East Ayrshire, when neighborhood weavers mauled a sack of oats into John Walker's whitewashed receiving area and began offering the substance at a rebate, framing the Fenwick Weavers' Society, by 1830, there were a few hundred co- operatives. Some were at first fruitful, yet most cooperatives established in the mid nineteenth century had flopped by 1840. It was not until 1844 when the Rochdale Society of Equitable Pioneers set up the "Rochdale Principles" on which they ran their cooperative, that framed the reason for advancement and development of the modern cooperative movement . Robert Owen Robert Owen (1771– 1858) is considered as the father of the cooperative development. A Welshman who ended up noticeably fruitful in the cotton exchange, Owen put stock in giving his workers a decent situation with access to education for themselves and their kids. These thoughts were actualized effectively in the cotton factories of New Lanark, Scotland. It was here that the main co-operative store was opened. Owen's thought was of shaping "towns of co-operation" where laborers would drag themselves out of neediness by developing their own particular nourishment, making their own particular garments and eventually getting to be noticeably autonomous. He endeavored to frame such groups in Orbiston in Scotland and in New Congruity, Indiana in the United States of America, yet the two groups fizzled. William King Despite the fact that Owen propelled the co-operative movement, others –, for example, Dr. William King(1786– 1865) – took his thoughts and made them more workable and down to earth. He put stock in beginning little, and understood that the common laborers would need to set up co-operatives for themselves, so he saw his part as one of direction. He established a month to month periodical called The Co- operator, the main release of which showed up on 1 May 1828. This gave a blend of 1 co-operative logic and down to earth guidance about running a shop utilizing co- operative principles. Dr. William exhorted individuals not to cut themselves off from society, yet rather to shape a general public inside a general public, and to begin with a shop. The Rochdale Pioneers The Rochdale Society of Equitable Pioneers was a group of 10 weavers and 20 others in Rochdale, England, that was formed in 1844. As the mechanization of the Industrial Revolution was forcing more and more skilled workers into poverty, these tradesmen decided to band together to open their own store selling food items they could not otherwise afford. With lessons from prior failed attempts at co-operation in mind, they designed the famous Rochdale Principles, and over a period of four months they struggled to pool one pound sterling per person for a total of 28 pounds of capital. On December 21, 1844, they opened their store with a very meager selection of butter, sugar, flour, oatmeal and a few candles. Within three months, they expanded their selection to include tea and tobacco, and they were soon known for providing high quality, unadulterated goods. 1.2 Co-operative Movement in India The Co-operative Movement in India was born out of the distress and turmoil that prevailed in the last quarter of the 19th century. The Industrial Revolution had given a death blow to village industries and driven people to agriculture, the only avenue of employment and livelihood. The consequent sub-division and fragmentation of holdings had made agriculture an uneconomic proposition.This, combined with the rigidity of land revenue collection, uncertainty of rainfall and, therefore, of crop production, compelled the agriculturist to knock at the door of the money-lender who advanced money cither by purchasing the crop at a throwaway price or by charging a sky-high rate of interest.The deteriorating condition of farmers under the heavy strain of increasing indebtedness and frequent famines not only proved the inadequacy of legal measures but also emphasized the need for the provision of cheap credit through an alternative agency. The primary objective of this movement was to relieve the peasants from the clutches of moneylenders and from the vicious circle of indebtedness through supply of credit at lower rate of interest. Co-operatives today cover the entire spectrum of activities in rural areas and serves as an alternative source to villagers who otherwise were dependent on moneylenders for supply of credit. The co-operative movement is 2 responsible for comprehensive development of primary agricultural credit societies to function as multi-purpose, viable units. Though co-operative movement in our nation began as a credit movement, ultimately non-credit activities were introduced in the co-operative structure. Even though, the credit activities still constitutes the most significant element of the co-operative movement. At present co-operatives are destined to emerge as dominant undertakings in vital sectors of the economy like agriculture, fisheries, industrial development, and handloom sector etc. 1.3 Early History of the Co-Operative Movement in India The prevalence of widespread distress in the country, the growing volume of rural debt and the machinations of the money-lender led to certain voluntary efforts in the field of rural credit. In the Madras Presidency were organised ‗Nidhis‘ or Mutual- Loan Associations. Based on the Co-operative Principle, these associations achieved considerable success. By 1901, there were 200 nidhis with more than 36000 members and subscribed capital of more than 2 lakhs of rupees. In the Punjab, a society on co- operative lines was started as early as 1891 at Panjawar in Hoshiarpur district for controlling .The state of Mysore introduced Agricultural Banks‘ in 1894, while U.P. established village banks and set the beginnings of distributive co-operation. All these efforts were purely voluntary, strictly non-official, and, at best, en- joying only government patronage. The first official step was taken when Sir William Wedderburn made, after the Deccan riots, the proposal for the establishment of agricultural banks as a remedy against rural indebtedness. In 1881, some Bombay capitalists drew up a scheme for starting an agricultural bank in Poona. Even a bill to that effect was introduced in the Legislative Council by Mr. Mandlik. Meanwhile, Wedderburn tried but failed to enlist public support for his scheme and it could not take practical shape. The interest of the govt. now turned to voluntary mutual credit associations modeled on Raiffeisen co-operative societies of Germany. In 1892, the Madras Govt. deputed Fredrick Nicholson to Germany ―on special duty for the purpose of enquiring into the possibility of introducing into this Presidency system of Agricultural or other land banks.‖ In his Report, Nicholson stressed the point that ―the substitution of organized credit for that of the money-lender is a necessary development of civilization —the individual system must be eventually passed as general wealth, order, business confidence, and habits of business associations develop.‖ 3 He summed up his report in the two words: ―Find Raiffeisen‖. The Government, however, took no immediate action on the report which was submitted in 1895.While Nicholson‘s enquiries were in progress, Mr. Dupernex began ex- perimenting with ‗Peoples Banks‘ in U.P., Maclagan; and Crosthwaite started similar societies in Multan district of the Punjab and Mr. Lyon in Bengal. The interest shown by local agriculturists in these societies and the powerful support lent by the Indian Famine Commission (1901) induced the government. to set up a committee under the president ship of Sir Edward Law to report on the introduction of co-operative societies in India. The Committee reported favorably in 1903 and the first Co- operative Societies Act was passed in 1904. 1.4 Co-Operative Societies Act 1904 The main provisions of the Act were as follows 1) Any ten persons living in the same village or town or belonging to the same class or tribe could form a co-operative credit society ‗for the encouragement of thrift and self-help among the members‘. 2) Societies were classified as Rural and Urban. A society in which 80% of the total membership was agricultural was classed as rural, and the one in which 80% of the membership was non-agricultural, was classed as urban. 3) Rural society was to have unlimited liability but urban societies were free to opt for either limited or un-limited liability. 4) Rural society was not permitted to distribute profits, but in the case of urban societies, profits could be distributed after carrying 25% of the net profits to the Reserve Fund. 5) Loans could be made only to members usually on personal security or on the security of some immovable property. 6) Loans could also be made by one credit society to another with the sanction of the Registrar. 7) No member could hold shares in a society for more than Rs. 1000. 8) The organization and control of the movement in each province was put under the charge of a Registrar of Cooperative Societies. 9) The societies were exempted from the payment of stamp and registration duties as well as the Income Tax. Even with the passing of the Act, the movement did not make the progress expected of it. By 1911, there were only 8177 credit societies all over the country 4 with a share capital of Rs.50.5 lakhs and a membership of a little over 4 lakhs. For this, the fault lay with the Act itself. In the first place, it permitted the registration of only credit societies but gave no legal protection to non-credit societies.