MSCB bubble was waiting to burst

The recent supersession of the board of directors of the apex Maharashtra State Cooperative Bank (MSCB) by the Reserve Bank of India (RBI) revives vivid memories of one particular visit in western Maharashtra about two decades ago. After the tour of a cooperative sugar factory, we journalists had gathered in the plush conference room of the board of directors. What stood out in the pleasantly air-conditioned room were the luxurious orange-and-chrome chairs which distinctly seemed imported.
 It was striking to think of imported chairs then in some corner of rural Maharashtra. The experience was symbolic of the money power associated with sugar cooperatives, known in Marathi as SSKs (sahakari sakhar karkhanas).

In the case of the best-run SSKs, entire village clusters and talukas have been transformed and farmers have become prosperous. The late Tatyasaheb Kore’s Warna sugar factory (Kolhapur) instantly comes to mind. Vikramsinh Ghate’s Shree Chhatrapati Shahu SSK in Kagal (Kolhapur) and Nagnath-anna Naikwadi’s Hutatma SSK (Sangli) fall in this category. Typically, such is the extraordinary liquidity with well-run sugar cooperatives that undertaking welfare activities and establishing full-fledged educational institutes becomes easy.

Unfortunately, this sector stands overshadowed by corruption, nepotism and mismanagement, which provoked the RBI action against the MSCB. The indictment of Nationalist Congress Party’s (NCP) Padamsinh Patil (Terna cooperative sugar factory, Osmanabad) by the PB Sawant Commission following allegations of corruption by Anna Hazare is a case in point.
Controlled by regional political satraps, there’s ample opportunity to manipulate the tendering process. Sugar cooperatives are excessively over-staffed by the politician’s trusted lieutenants. There’s no worry if a  factory goes sick, because the
Maharashtra government, controlled by the sugar barons, steps in with a rescue package “in the interest of  the farmers”.

Shrewd and intelligent, Sharad Pawar has always been aware of this grim reality. As president-for-life of the Vasantdada Sugar Institute in Manjri (Pune), Pawar had repeatedly cautioned sugar cooperative leaders to professionalise their operations in a market-driven economy or suffer the consequences. Therefore, the NCP’s indignation against the Congress over the RBI action is theatrical.

In fact, this action was long overdue, considering the bank’s accumulation of bad loans, negative net worth of Rs144 crore and numerous irregularities, including the sanctioning of loans to cooperatives which were deeply in the red. This was after the bank had invoked government guarantees of Rs1,892 crore as of 2010. One example is wannabe chief minister Patangrao Kadam’s Sonhira sugar cooperative in Sangli district (inaugurated by Sonia Gandhi), which has a debt of Rs114.72 crore.

In a recent analysis, Ajit Kanitkar, an expert on cooperatives, has pointed out that the Amul milk cooperative model became iconic for rural development across India because the primary, farmer-members were placed “at the centre and all the rest on the periphery”. What helped further was the business mindset of the Gujaratis “that places profit and pragmatism above everything else”.

This was unlike the sugar cooperatives in Maharashtra, which were used by the sugar barons as instruments “to further their political careers, at the cost of the health of the cooperative enterprise”.

Unlike the self-centred politicians of Maharashtra, Amul’s Tribhuvandas Patel was a visionary politician who inspired the fledgling cooperative dairy’s architect, Verghese Kurien. Both, one would think, did not purchase imported chairs for their cooperatives.