December 13, 1989

Shri Ram Memorial Lecture Cooperatives and Capital

December 13, 1989 – New Delhi

Twenty-third Shri Ram Memorial Lecture

Cooperatives and Capitalism : Institutional Structures for Development

By Dr. V. Kurien

istinguished guests, ladies and gentlemen,

I feel honoured by this invitation extended to me to address such a distinguished audience as is present here today.

Delighted as I certainly am in being here, I must say that in accepting this invitation, I have felt a tinge of apprehension. After all, what has a man like me who has spent all his working life – some 40 years in all – as an employee of a farmer’s cooperative in common with leaders of business and industry such as you? Isn’t the ideological distance between us too great to permit us to explore together a common ground between the competing ideologies of cooperation and capitalism as institutional structure for development?

Perhaps, there are vast differences of approach between us. The free market doctrine that most of you espouse suggests that means of production go where they get paid the most; but I have been among those who have advocated that talent and resources must go where they are needed most. In your corporate business, capital is the pivot of decision making; but in our cooperatives, the member is supreme and service to him is central to their management. You are used to a handful of shareholders calling the shots. With us power must rest with leaders elected by each member casting his single vote regardless of the number of shares he holds.

With such diametrically opposite positions, I wondered, what good would it do if I talked to such a gathering? But you can now see that I have decided to set aside all these doubts and apprehensions to be with you today. I have not done so without valid reasons.

Firstly, I have always had a high regard for Lala Shri Ram as a pioneer of Indian capitalism. Although, I never had the privilege of knowing him personally, I always thought of him as a man not only of great talent and ability but also of integrity and patriotism. Not many remember that despite being a capitalist himself, Lala Shri Ram was the co-signatory of the Bombay Plan which had a good deal of socialism in it. I therefore viewed this invitation as an opportunity to pay my tribute to the memory of this great Indian.

Secondly, in my opinion, cooperation is not just an ideology; to me, it appears to be a logical necessity if we, as a nation, want to come to grips with the most important issues facing our rural society.

Thirdly, I believe that, like other enlightened citizens you – the businessmen and industrialists – too are interested in vital issues facing our society. Therefore, I reasoned, you would be interested in discovering our experience of developing and managing businesses of farmers through cooperatives, and their contribution to the development of our agriculture.

Then, I also thought that after all, it is not that I have nothing whatever in common with you. Way back in 1944, I began my professional career as a young engineer with Tatas. In fact, I might say, that it was as an apprentice officer in Tata Steel that I was given first – and probably my best – lessons in professional management.

And lastly, I too am a businessman, though not usually listed as one. As the chairman of the Gujarat Cooperative Milk Marketing Federation, I am the elected chairman of 1.3 million farmers and with a sales turnover of about Rs. 500 crores a year, which should increase to some Rs. 1000 crores in the next five years, a business that was not inherited, but was built brick by brick over the past 40 years from scratch. Yes, I, too, am a businessman like you, and in inviting me today, you are paying me this compliment.

Early thinking on economic development

Our beginnings were turbulent days indeed. Indian nationalism was fighting its last battles against the colonial rule. There was also much thinking about the route to rapid economic development that India might choose once it became independent. India, in those days, had no industrial infrastructure to speak of. There was a long way to go; but pioneers like Lala Shri Ram had raised the hope that our nascent capitalism might provide answers to some of the crucial questions of economic growth. Many a young man were looking forward to participating in this nation building task through the corporate industrial route in an independent India. I too was looking forward to such a career for myself. My destiny, however, had other plans for me.

Tryst with a cooperative

In 1946 the farmers of Kaira, a prosperous agricultural district in western India, where I have been working now for 40 year, struck against the exploitative trade practices of Polson, a prive monopoly milk contractor. Under the enlightened leadership of Sardar Vallabhbhai Patel, the farmers decided to organise their dairy business on co-operative lines. By a quirk of fate I stumbled onto this small town of Anand – the centre of this experiment – and unwittingly ended up working for this young cooperative.

Working for farmers has never been popular with most young urban professionals in our country; when I started my career, I aspired to be no different. As a young city-slicker, fresh with an American degree, I looked at this mall evolving cooperative with an equal measure of disdain and amusement; however as much I tried to run away from it, I found myself increasingly attracted to it. I decided to sell such talents as I possessed not to the highest bidder, but to this cooperative where those talents were most required.

What made me do it was a sheer excitement of the struggle that the young cooperative was waging against business interests whom it threatened; against self-seeking politicians and bureaucrats who found the potential strength of organised farmer power represented by Amul disconcerting. Helping to shape a cooperative of milk producers, owned and commanded by them through their elected representatives and with the help of professional managers employed by them was a reward unto itself. And therefore I stayed on. Amul grew rapidly during the fifties. However, even before it grew to its full potential, farmers from neighbouring districts began to establish their own dairy cooperatives adopting the cooperative principles that Amul had tested and developed; they built their own dairy plants with managerial and technical expertise offered generously by Amul. They too established strong village cooperatives and their own milk and milk product processing systems. They joined together into a federation to market their products nation-wide under a common brand name.

Anand Pattern and Operation Flood

Thus, the Anand Pattern was born. It exemplified an institutional structure owned and commanded by tiny milk producers who collectively owned large modern dairy factories, employing high calibre professionals to manage their affairs; matching wits with multinationals in city markets and yet responding constantly to changing needs of farmer members at grassroot levels.

Largely due to the efforts of the National Dairy Development Board, established by the Government of India in 1965 to replicate Amul, the spirit of the Anand Pattern has spread far and wide over the past 25 years. In the middle of the third phase of Operation Flood – the world’s largest dairy development programme aiming to restructure and modernise India’s dairying on cooperative lines – there are now some 180 Anand Pattern district unions like Amul at various stages of development in different parts of India; these are affiliated to over 50,000 village cooperatives of which some six million milk producers are members. Together, these dairy coops procure over 10 million litres of milk from their farmer members every day and pump Rs. 12,500 million towards payment for milk procured from the farmers every year. Some six million litres of milk are marketed in some 500 urban demand centres; the rest is converted into a variety of milk products.

The spirit of the Anand Pattern has by no means remained confined to dairying. The Dairy Board has been called upon to apply the basic principles of the Anand Pattern in fields other than dairying such as oilseeds and edible oils, where already farmers from 6,000 village oilseeds growers cooperatives have formed into seven state oilseeds growers federations; fruits and vegetables, rural health and salt farming.

Traders as an exploitative class

In a country like ours, where agricultural production is in the hands of a large number of tiny producers, the most important ingredient in the task of agricultural development is the forging of linkages between producers and consumers. In the Indian agricultural economy, these linkages were traditionally provided through the emergence of a trading class. Early on, the trader realised that in order to earn, you did not necessarily have to produce. He discovered that by merely buying a commodity and selling it, you could make good money; that by buying a commodity, storing it for some time and then selling it, you could make even more money; that by buying it, hoarding it, and speculating on it, one could easily become a millionaire. Thus, the class of private traders which traditionally provided the link between the rural producer and the urban consumer emerged as a powerful and exploitative class.

Since agricultural production is seasonal, the prices of agricultural produce keep fluctuating across the year. And, since the markets for the agricultural commodities – such as, for example, oilseeds – are controlled by the private traders and speculators, a marginal increase in production leads to massive fall in producer prices; contrariwise, a marginal reduction in output, and the prices of farm produce to consumers go sky-rocketing. In the first case, it is the farmer who ends up losing; in the second, the urban consumer; but the trader always makes his kill either way.

How can agriculture develop in such a situation? How can we expect our small farmers to take to modern technology when they have to contend with a trading class living off their meagre incomes? How can we expect that they make investments to raise their productivity when there is no assurance of even a modicum of stability in the economic returns from their labours? The principal lesson from the Dairy Board’s work is that it is only by a large number of tiny producers organising themselves into a cooperative which assumes command of the procurement, processing and marketing of their produce that they can be assured of a fair and stable price for their marketed surpluses. It is only by enabling such cooperative organisations to emerge and develop into strong and viable institutions that our small farmers will turn to modernity and technological progress and increase the productivity of agriculture.

Strong Cooperatives

But this needs strong cooperatives. This is easier said than done. For, every time farmers organise to create their own institutional structure, they are faced with opposition from vested interests. And such opposition is not always limited to small time traders; as they have grown larger and stronger, farmers’ organisations have had to take on larger and stronger adversaries. Indeed, the history of Amul is but a history of farmers’ struggle with vested interests from large private and multinational businesses. One such multinational found it so lucrative to do business inIndia that in the second year after production, it declared a dividend of 90 per cent; in the fourth year of 110 per cent. One has been hearing that profit motive fuels the engine of capitalism. But this was no profit. This multinational was looting our country. Naturally, when Amul crossed its path, the multinational in question reacted viciously. And, understandably so; for which country in the West – even amongst those most devoted to capitalist ideology – would permit such loot in the name of free enterprise? Who were the guilty men in India who closed their eyes and let this happen? How many of them own shares in such multinational companies?

Luckly for us, Operation Flood and the Dairy Board enjoyed support from the highest levels of our political leadership. Therefore, we could take such multinationals on. This, however, has not meant that opposition has subsided. In fact, I understand, that a federation of India businessmen recently argued in a petition, no doubt drafted by a multinational company who is their mentor, to the World Bank that they should refuse finance to Operation Flood. Why? Because, they argued, Operation Flood restricts competition in Indian dairy products’ markets.

Rules of fair competition

Notably, this federation found only cooperatives restricting competition; they seem to have no objection to the traditional milk traders who continue to dominate the Indian dairy business. It is the cooperatives – which provide inputs and services, which supply the fluid milk to our cities, and which pay our farmer fair and remunerative prices for his milk – that, they feel, are inhibiting competition.

Large private corporations in the advanced Western countries are hailed as pioneers of technical change in their countries. But not so in a Third World country like India. It is well to remember that it was the cooperative at Anand that pioneered the manufacture of milk powder from buffalo milk for the first time when internationally renowned experts of several countries opined that it was not technically feasible. When a multinational company was asked to produce condensed milk in India instead of importing it, it said it could not do so as it was too complicated and a difficult product for the ‘natives’ to manufacture. The Government of India, therefore, asked Amul to pioneer, and when this was done and imports banned, the multinational company pleaded for permission to set up a plant in India and agreed to let the “natives” run it. When yet another multinational refused to manufacture baby food in India instead of importing it, again it was the cooperative at Anand that was asked by the government to initiate its manufacture, forcing the multinationals to follow suit. And, of course, we have the classic case of the multinational I mentioned earlier which made malted milk food in India and declared dividends of over 100 per cent. It was again the cooperative that was asked to discipline them. And the cooperative did it, with no foreign collaboration and an India trade name.

India is a large country. There is plenty of room for competition; our only request is that it be a fair and reasonable competition. It is not fair to expect a cooperative to bear the costs of providing feed at cost, if it cannot procure the increased milk that results; it is not fair if a cooperative provides veterinary cover and the milk from the healthy animal is purchased by a milk contractor; it is not fair if the cooperative provides 70 per cent of its milk for sale as fluid milk in the cities and must compete with a firm that producers only higher priced, value-added products.

Rebuilding our cooperative management

While criticising the efforts of private corporations in undermining the cooperatives, I do not wish to ignore the weaknesses and shortcomings of our cooperative movement; neither do i wish to claim, even for a moment, that our cooperatives today are paragons of virtues. Our founding fathers had dreamt of an India convulsing with strong, democratic, independent and people-centred cooperatives. But these dreams often have been dashed on the shoals of politics, bureaucracy and disregard of the fundamental principles of cooperation.

What should have been a people’s movement has been officialised, bureaucratised and politicised. It is not necessarily wrong that a political person serves as a cooperative leader; it is wrong when political purposes are advanced at the expense of the principles and purposes of cooperation. It is not necessarily wrong when a government officer serves a cooperative; what is wrong is when there is no accountability to the members, or where the members’ desire for responsibility is blocked. Men become responsible when responsibility is given, not when it is withheld.

Cooperative law

It is by no means too late for us to begin rebuilding our cooperative movement. In doing this, the first and most important step, in my opinion, is to frame and enact new cooperative laws in the states and at the centre. Our cooperative act was legislated 85 years ago. Long ago, some kindly Englishmen wanted some money lent. So they formed credit cooperatives. But lest the “natives” eloped with the cooperatives’ money, the British rulers enacted a cooperative law that gave enormous powers to the Registrar of Cooperatives who had to be an Englishman since the Act specifies that he should be a member of the ICS.

Then came independence – and, along with it, the hope that the laws – and, the attitudes of the bureaucrats and politicians enforcing those laws – would change and become more people oriented. This hope has, however, been dashed against the reality of a burgeoning bureaucracy and a politics devoid of an ethical base. The “gora” sahib as the Registrar of Cooperatives is replaced by the “brown” sahib, who-enjoying the powers to even supersede elected boards of cooperatives – can, and often has, played God to them. For the unscrupulous politician, who controls the bureaucrat, the present cooperative law is a god-send: it enables him to play boss to the god – which is very pleasurable indeed!

Obviously, this has not helped the cause of a healthy cooperative movement. When all that a cooperative did was to lend a few hundred rupees, it probably did not matter much. But this is not the case today; the Gujarat Cooperative Milk Marketing Federation, of which I am the elected Chairman, does a business of Rs. 500 cores a year; and yet, the present law empowers a Deputy Registrar – who is often little more than a small official – to play havoc with such a business simply because it belongs to a cooperative. To take an analogy, imagine what would have happened to Mr. Tata if the Registrar of Companies had the same powers as the Registrar of Cooperatives. He would have superseded the TISCO Board long ago and his Assistant Registrar would have been made its managing director!

This has to stop. We must – in our new cooperative laws – redefine the responsibilities of the Registrar. Regulation, protection of the interests of the members, is the legitimate role of the Government; management of cooperatives is not. Cooperatives must be given the freedom to manage their own affairs, without the interference of government in every decision. We must seek, through legislation, to protect the cooperative from narrow political interests, thereby encouraging the broader national interest. We must, in our new laws, recognise the roles, responsibilities and accountability of the professional manager, for a cooperative that fails as an enterprise will fail as a vehicle of service to its members. Our new law must not just allow, but must require our cooperatives to freely elect their own leaders. A cooperative with an appointed chairman and board is no cooperative at all. What we should create is a model cooperative law that embodies each cooperative principle and which enables cooperatives to flourish; a cooperative law based not on alien values, but one that reflects our unique national genius.

Faith in the farmers

The next step is as difficult to realise as it is simple; we must place faith in our farmers. Most of us present here are, by and large, products of our educated elite. We have all the advantages of superior education and training. We hold positions of authority and responsibility. Let us rediscover the truth that the unlettered villager is often the wisest of teachers and that, without our guidance and direction, the villager survives and even thrives in conditions we could not face. Every day the farmer faces challenges and responsibilities far greater than ours. Why, then, should we not place our faith in him and let him be responsible for his own destiny? I have been an employee of farmers for forty years. I can assure you that faith in our farmers will not prove misplaced.

It is a reflection of our lack of faith in our farmer’s ability to manage their own affairs that the bureaucracy has so deeply penetrated and controlled people’s organisations. In my opinion, to continue to justify and perpetuate the hegemony of an insensitive hureaucracy by arguing that people cannot organise and manage their own affairs and that they will not employ professionals to do so is not only naive but reflects self-serving hypocrisy of the worst kind. The best way to ensure that the government plays a facilitative role in a healthy cooperative movement is by asking the bureaucracy to stand aside and by encouraging people to come forward and take charge of their own destinies, allowing them to make mistakes and to offer support and guidance only when needed.


The third step we should take is to restore the purity and integrity of our cooperative movement. The cooperative can be a powerful force for constructive change in our villages, but only if its leaders behave with decency, honesty and integrity. As Mahatma Gandhi once wrote, “the cooperative movement will be a blessing to India only to the extent that it is a moral movement.” We must relentlessly and courageously expose those who seek to exploit the movement for personal gain.

Naturally, the most crucial element in fostering a strong cooperative movement thus is strong, honest and committed leadership. Regrettably, the only system through which people’s leadership could so far emerge in our country has been the parliamentary and the political systems. But this clearly is a very unsatisfactory situation since only those in search of power and money – and not those pursuing lofty ideals and noble causes – get attracted to this route. Money and power attract the worst leadership; whereas it is the nobility of causes and the spirit of service that bring out the best.

Cooperatives and our democracy

In my opinion, a far better route for good leadership to emerge – not only for the cooperatives but also for our polity – would be to encourage a plurality of people’s institutions to undertake procurement, processing and marketing of rural produce, and rural development in general. In a significant way, this is already beginning to happen in some parts of India. There can be one such cooperative structure for each important economic activity, each with its own democratically elected management and vertically integrated into a structure which can use professional managers and modern technology – the two foci of modernisation and economic growth. Such plurality of institutional structures will reduce the risk of those seeking power and wealth taking charge of public institutions and provide the honest and competent some chances to prove themselves. For the people searching for committed and high quality leadership material too it will be a great help – since it will spread the risk of failure over multiple institutional structures.

It is my contention that, in our collective efforts toward economic development, cooperatives are as good an organisational form as any other. However, in comparing cooperatives with other forms of social and economic organisation including capitalism, the real benefit that tilts the scale in favour of the cooperatives is their wider social significance in underpinning our democracy in Delhi and our State capitals by democratic institutions right down to the village level. As an Indian, this is a benefit I would not trade for anything.

Purposeful co-existence

However, India is a vast nation; and the problems of India’s development are as complex as they are diverse. No single theory or ideology can fit all our problems. Therefore, even though we have committed ourselves to different social philosophies, we must learn to work together towards our common goal.

At the dawn of our independence, when the organised labour movement started in our country, many short sighted capitalists had tried hard to crush it. However, they failed. Today, labour unions have come to stay. Not only that, they have also helped to establish some balance between returns to labour and to capital, and to achieve a better income distribution.

Just as unorganised labour is exploited by capital at the early stages of capitalism, so also have our rural people been exploited by the urban elite. You will agree with me that our industry has so far thrived at the expense of agriculture; and our cities have progressed at the cost of our villages. And, I might say, organised labour and capital have walked away with the cream while our farmers have got increasingly a smaller share of India’s progress. This imbalance has to be corrected. The only way of stopping this unequal exchange is by organising peasants, since only organised peasantry can provide effective counterveiling power to match the power of the organised labour. Only then, can we restore the balance between peasants and workers, between labour and capital.

Today in the case of milk for example the private sector is continuing to support and encourage milk merchants, as they depend on them to procure milk because they consider it too tedious and expensive to create an infrastructure to go directly to the producers.

Once it is recognized that cooperatives are in fact private enterprises and are here to stay that they will become a significant sector, it would be prudent for larger business houses concerned with agro businesses, in their long term interest, not to participate in erecting structures that are exploitative of small farmers and oppose the formation of cooperatives. It is only then that the cooperative and capitalist structures can co-exist to mutual benefit. It is with this hope I have ventured to speak to you.

Thank you.