Expanding Co-operatives: A Vision for India’s Second Five-Year Plan

When India stepped into the Second Five Year Plan (1956-1961), it carried with it both the momentum of early post-independence nation-building and the weight of unresolved rural distress. While the plan is widely remembered for its emphasis on heavy industrialisation and the Mahalanobis model of economic growth, there was a quieter but equally significant agenda running alongside it – the expansion and deepening of India’s co-operative sector. This plan represented a deliberate attempt by the State to use co-operatives as instruments of social and economic transformation, reaching from the village credit society right up to urban housing boards. Understanding what the plan envisioned for co-operatives helps us appreciate how the movement grew from a set of scattered credit societies into a structured, state-backed ecosystem for rural and urban development.

The context: Why co-operatives mattered in 1956 🔗

By the time the Second Plan was launched, the First Five Year Plan had already established that co-operatives were not merely financial tools – they were political and developmental instruments. The First Plan had specifically stated that its success would be judged, among other things, by the extent to which it was implemented through co-operative organisations. Panchayats and co-operatives were treated as the twin pillars of grassroots development. But the First Plan also revealed deep structural weaknesses: most co-operative societies were too small, lacked trained staff, had poor financial bases, and were largely confined to credit functions. The rural poor still depended heavily on moneylenders for agricultural finance.

The All India Rural Credit Survey Committee (1951), popularly called the Gorwala Committee, had already flagged that India’s co-operative credit system was “weak in resources, limited in reach, and poor in management.” This diagnosis set the agenda for co-operative reforms in the Second Plan. The approach was clear: the State could not remain a passive enabler – it had to become an active partner in building and sustaining co-operative institutions.

Key objectives of the Second Plan for co-operatives 🔗

The Second Plan worked on multiple fronts simultaneously – reorganising rural credit, strengthening co-operative marketing, promoting producer co-operatives, and extending the co-operative model into urban areas. Each of these had specific policy interventions designed to address the shortcomings identified from the previous plan period.

Reorganisation of rural credit societies 🔗

One of the central concerns of the Second Plan was the fragmented and financially fragile nature of rural credit societies. Thousands of tiny primary credit societies existed across Indian villages, but most were too small to generate adequate reserves, extend adequate loans, or sustain professional management. The plan pushed for the consolidation of these scattered units into larger and more viable credit societies – what was envisioned as a shift from “many small weak societies” to “fewer but financially stronger ones.”

The idea was that a larger society covering multiple villages could pool deposits more effectively, maintain proper accounts, attract qualified staff, and extend adequate credit to farmers without depending entirely on government loans. This approach of forming bigger credit societies was directly tied to the broader goal of reducing rural indebtedness and weakening the grip of moneylenders, who continued to exploit farmers through usurious interest rates long after independence. The three-tier structure of rural credit – Primary Agricultural Credit Societies (PACS) at the village level, District Central Co-operative Banks at the district level, and State Co-operative Banks at the apex – was to be strengthened and made functional at every tier.

Strengthening co-operative marketing 🔗

Access to institutional credit alone could not solve the rural farmer’s problem if the produce was still being sold at exploitative prices through private middlemen. The Second Plan, therefore, gave considerable emphasis to building co-operative marketing societies alongside credit societies. The logic was straightforward: a farmer who borrowed from a co-operative to cultivate his crop should also be able to sell through a co-operative that could aggregate produce, store it, and negotiate better prices.

The National Development Council (NDC) in 1958 recommended a national policy on co-operatives, emphasising the creation of co-operative marketing societies and the training of personnel – a recommendation that directly reflected the implementation challenges the Second Plan was already grappling with. The idea was to create a continuum where credit and marketing operated through the same co-operative network, reducing a farmer’s dependence on the open market and private traders. This model would later find its most celebrated expression in dairy co-operatives like Amul, though the Second Plan’s contribution lay in establishing the organisational groundwork that such sector-specific co-operatives could build on.

Producer co-operatives: beyond credit and marketing 🔗

The Second Plan’s vision of co-operatives was not limited to credit and marketing alone. It also stressed the development of producer co-operatives – organisations where artisans, weavers, small manufacturers, and farm labourers could pool their production resources and collectively manage their output. This was especially significant in the context of the plan’s larger emphasis on small and cottage industries, which were expected to absorb surplus rural labour and complement the growth of heavy industries under the public sector.

Producer co-operatives were envisioned as a way to give small producers the economies of scale they could not achieve individually. A handloom weaver working alone was vulnerable to raw material price fluctuations and middlemen; a weaver co-operative could procure yarn collectively, share looms, and market finished cloth with greater bargaining power. Co-operative societies in India cover diverse sectors – consumer, producer, credit, and marketing – and were seen after independence as tools for decentralising economic power and enabling people’s participation in development.

The Second Plan also recommended that government departments actively support the formation and operations of producer co-operatives, particularly in sectors like handloom weaving, handicrafts, and agro-processing. This represented a meaningful shift in the State’s role – from merely regulating co-operatives through the Registrar of Co-operative Societies to actively partnering with them financially and administratively.

The State as active partner: financial and institutional support 🔗

Perhaps the most important conceptual shift in the Second Plan’s approach to co-operatives was the explicit recognition that co-operatives in a developing economy cannot be left entirely to the principle of self-reliance. The plan acknowledged that nascent co-operative institutions needed State support – in terms of share capital contribution, subsidised loans, training, and administrative assistance – if they were to survive and grow.

The government committed to contributing share capital to co-operative institutions, particularly at the primary and district levels where financial weakness was most acute. State governments were expected to back the co-operative credit structure by providing guarantees and refinancing support through State Co-operative Banks. This partnership model recognised a practical reality: members of rural co-operatives were often poor farmers with limited savings, incapable of building up the capital base needed for sustainable lending operations without external support.

This philosophy of state partnership was consistent with the broader developmental model of the time, which saw a strong public sector role in driving economic development. But in the case of co-operatives, state support was not meant to replace member ownership – it was designed to supplement it until the institutions became self-sustaining. The distinction mattered: co-operatives receiving state support were still meant to function democratically, governed by their members rather than government nominees.

Comprehensive training programmes for co-operative personnel 🔗

A co-operative may have sound financial support and formal legal recognition, but without trained personnel, it cannot function effectively. This was a lesson that the First Plan period had driven home painfully. Poorly maintained accounts, mismanagement of funds, lack of understanding of co-operative principles among members and staff – these were common complaints about co-operative societies across India in the early 1950s.

The Second Plan placed deliberate emphasis on co-operative education and training as a pillar of institutional development. Training programmes were to be launched for co-operative employees, managers, and elected representatives. The goal was not just technical training in accounting or credit appraisal, but also grounding in co-operative values, governance, and member rights. The co-operative movement had long suffered from a shortage of trained personnel, and without correcting this, even well-funded societies would struggle to deliver results.

In the years following the Second Plan, this emphasis on training found institutional expression in the form of state-level co-operative training institutes and, eventually, the establishment of the Vaikunth Mehta National Institute of Co-operative Management (VAMNICOM) – a national-level institution for co-operative education. The foundation for these structures was laid during the Second Plan’s push for systematic, widespread training.

Expansion into urban co-operatives 🔗

Co-operatives in India had historically been associated with rural areas and agriculture. The Second Plan broke new ground by explicitly expanding the co-operative agenda into urban India. Urban co-operative banks, industrial co-operatives of workers, consumer co-operatives, and housing co-operatives were all identified as areas where the co-operative model had to be extended.

Urban co-operative banks were particularly important for providing credit to small traders, artisans, and wage earners in cities and towns who had little access to commercial bank finance. Housing co-operatives addressed the acute shortage of affordable urban housing by enabling members to pool resources for construction and purchase. Consumer co-operatives in urban areas aimed to provide daily necessities at reasonable prices, eliminating the markup of retailers. Co-operatives became an integral part of the Five Year Plans, emerging as a distinct segment in the Indian economy after independence, and the Second Plan’s extension into urban co-operatives was a key step in making this integration comprehensive.

This urban expansion was also consistent with the plan’s overall concern about inequality. As industrialisation drew more people into cities, co-operatives provided a democratic, member-owned alternative to exploitative landlords, moneylenders, and unregulated markets in the urban context.

Challenges in implementation 🔗

Despite the ambitions of the Second Plan, the co-operative sector continued to face significant hurdles during this period. Consolidation of small credit societies into larger viable units proved slower than expected – vested interests at the village level often resisted the merger of local societies. The trained manpower needed to run expanded co-operatives was simply not available in sufficient numbers. And in many states, political interference in co-operative elections and management began to surface, gradually blurring the line between democratic member governance and government control.

The Community Development Programme, which was meant to work in tandem with co-operative organisations, also struggled to generate the self-sustaining cooperative effort among rural communities that planners had hoped for. Physical development programmes like construction and irrigation saw better outcomes, but building social organisation through co-operatives required more time, trust, and sustained effort than a five-year plan cycle could fully deliver.

Nevertheless, the groundwork laid by the Second Plan was far from wasted. The emphasis on larger credit societies, co-operative marketing, producer co-operatives, and urban expansion created the institutional vocabulary and administrative infrastructure that subsequent plans built upon. The National Co-operative Development Corporation (NCDC), established in 1963, directly reflected the unfinished agenda of the Second Plan – a statutory body created to carry forward the financing and development of co-operatives across sectors.

Legacy of the Second Plan’s co-operative agenda 🔗

The Second Five Year Plan’s approach to co-operatives was built on a recognition that India’s development could not happen through industrialisation alone. Rural credit, agricultural marketing, producer organisation, and urban housing were all areas where the market had failed the poor, and where co-operative institutions offered a democratic, member-owned alternative. The plan’s insistence on State partnership – not State control – was a nuanced position that tried to balance the need for financial support with the preservation of co-operative autonomy.

The co-operative movement in India today – with its coverage across more than 97% of Indian villages, its massive dairy, sugar, and credit sectors, and its renewed momentum under initiatives like the 97th Constitutional Amendment (2011) and the National Cooperation Policy 2025 – carries within it the institutional DNA shaped during these formative plan periods. The Second Plan did not create a perfect co-operative sector, but it established the principle that co-operatives were not peripheral to development – they were central to it.

What do you think? The Second Plan envisioned the State as a financial and institutional partner for co-operatives rather than a controlling authority – do you think this balance was actually maintained in practice, or did state involvement end up weakening co-operative autonomy over time? And given that small, financially weak societies were a key problem in the 1950s, do the challenges of small and fragmented co-operatives in India today suggest that the consolidation agenda from the Second Plan still remains unfinished?

References

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