Wednesday, December 26, 2012

Cooperative Governance

Cooperative Governance
The Constitution 97th Amendment Act 2012, one of the very progressive legislations of the UPA Government aims to correct misgovernance of cooperative societies in the country among other important provisions at a time when speaking of good governance is akin to smelling  jasmine in fish and fowl market. The Act itself specified that the States shall amend their respective cooperative Acts before February 14, 2013, one year from the date of notification of the Act in line with the provisions of this Act. If the States do not amend their Acts as above, the 97th Amendment Act shall govern the State Cooperatives.
Article 19(4) defined Cooperative Society as one that is promoted, managed and controlled by members. This would mean that the control of the Cooperative Societies to whatever extent it rested with the Registrar of the Cooperative Societies shall be unconstitutional. All such provisions in the existing Acts shall be removed from the modified Acts.
 It also specified in section 243ZO that such member to participate in elections should be actively availing the services of the Society and should be attending its meetings with certain regularity. This called for defining the Active Member in the new Act of the States.
This Act under article 243ZK also specified that the States shall also set up a State Election Authority to conduct elections to the Cooperative Societies in the State and these should be conducted once in every five years. If the State Government so chooses, it can entrust the responsibility to the State Election Commission, but with specific mention in the newly amended Cooperative Act. It has also mentioned that such elections should be conducted in a manner that the new Board should assume charge immediately after the first Board concludes its term. There are around six lakh cooperatives in the country with estimated 23million members. It has become a habit with the States conducting such elections irrespective of party in power to go in for enrollment of members just before elections as anybody paying a small share capital of ten rupees can become a member. To prevent such malpractice the Act in section, 243ZO specifies the eligibility of members who can participate in voting.
The Act clearly defines Board as the ‘Board of Directors or the Governing Body of the Society, or whatever name called, to which the direction and control of the management of the affairs of a society is entrusted to.’ There is brazen violation of the Constitution by even the UPA ruled State like Andhra Pradesh. The 97th Constitution Amendment Act 2012 dealing with Cooperative legal reforms and governance statutorily seeks a State Election Authority to conduct elections to cooperatives and the States are to carry out all the amendments required before February 14, 2013. The State that has been postponing elections to cooperatives for the last two years announced them hurriedly to have the last laugh on their subversive methods of winning the elections. The New Act would not allow non-active members to cast their vote. The ruling party is afraid of losing hold on the cooperative societies that hitherto formed the bedrock of State politics. States like Tamil Nadu and Karnataka issued ordinances repeating the Central Act that were returned promptly.
The Board shall have maximum 21 members and provided for reservation of SC/ST and women not exceeding three provided the Society base itself does not have such constituency. General Body has been given supreme authority thus conferring autonomy in the Society. The rights of members have also been defined along with the information the society should provide to the members and the regulator. The Board shall have three independent professional directors but would not have voting rights. These directors should submit to the General Body their statement of assets and liabilities and shall not be defaulters to the society in terms of their obligations.
No Board can be superseded by the Government for more than six months with the exception of cooperative banks where the supersession can be for one year under the direction of the RBI.
Governance of cooperatives through this Act provides for better participation in its management and control and has prospect of superior governance over the existing Companies, where the shareholders of the Company have to understand the company only from their half-yearly and annual reports. Cooperatives as body corporate managed and controlled by members could compete on their own terms effectively with other forms of business organizations.
Edited form appeared in

Monday, December 17, 2012

Warna Cooperative Stores that Indian Walmart should learn from

Cooperatives originally set up on the basis of people’s needs should have retained their character as people’s organization. But in course of time, governments of the developing economies started encouraging them with legal and financial supports. Such support eventually left the feeling that they are government organizations. In fact, they are forms of private sector organizations that are member-driven, member-centric economic enterprises. The sad part is that these cooperative organizations over the years acquired social and political dimensions detrimental to the interests of members. They are today seen in every sector of the economy: from seed to food, milk to silk, production and consumption to distribution, labour to services, thrift and savings to credit. Thanks to great cooperators like Vaikunt Mehta, Kurien, LC Jain and the like, a few in the dairy, fertilizer sectors have built brand images on par with the high-end corporate sector. Although Janata Super Bazars vanished because of government intervention, there are several consumer stores like the Triplicate Urban Cooperative Stores, several employee consumer stores, TTD cooperative consumer stores etc. still functioning but their reach has been constricted because self-centered and rent-seeking managements and governance. In these days of FDI in retail and multi-brand, revisit to some of the successful retail stores in cooperative sector, should open the eyes of both Government and the large number of FDI articulators.
Warna Bazar in Warnanagar is one consumer stores that should be visited. Well, here is the story of the stores I visited a few years back. A recent presentation at the International Conference (Nov2012) on Cooperatives held by the Reserve Bank at the College of Agricultural Banking astounded me as much as it would for anybody who would listen to it.
Warna Bazar is like a Walmart stores in cooperative sector. Warana Bazar was initially started in the year 1979 with a motto of supplying quality goods at reasonable prices to the consumers at large. It is the first consumer co-op. store in rural India. During a period of last 33 years the stores has proved to be a successful model for consumers’ co-op. movement in the country as well as Women Empowerment. It encouraged women in the households of the Warna Sugar Factory command area to produce condiments and consumables according to certain standards in which these women have been trained. They have been trained in packing and labeling. Consumer loyalty has been built over the years with the members’ active part in running the stores. Most of the employees are children of the members of the stores. This stores was the first stores that started with the motto of self-help. This self-help effort made the stores sell the goods at a price that the consumers find attractive.
There were no CCT cameras in the stores. The members keep the vigil when required. They introduced computer billing a decade ago.
               No. of Women share holders – 7909
               No. of Women associated share holders – 11333
               No. of Women in the Board – 11
               Chairperson – Mrs. Shobhatai V. Kore (M. A.)
               Out of 610 staff, Women staff is 190
                            (60 women are from economically weaker sections)
               Dependant women % on Warana Bazar is 35% .

Chart one indicates that their sales grew from Rs.2omn in 1979 to Rs.1320mn in 2011-12 with a net income of Rs.90mn after distributing dividend to its members. The secret of loyalty is the loyalty bonus of 28% they distribute annually to the members and associate members every year. They give value for the buy to every consumer. The story of Warna Bazar tells everyone that success of cooperatives hold a great future for India if the cooperatives embrace member-participation, member-governance, members sharing the gains of their hardship and above all transparency, accountability and good leadership.
This has been published in the digital magazine: Business Advisor Vol 3 (3) 2012 Editor: D.Murali