Posted on April 8th, 2021


Philip Gunawardene accomplished much in food and agriculture during his short stay of three years in the MEP government. These are described at length in other essays in this series. This essay looks at certain aspects of Philip’s vision.

Philip studied the rural sector carefully. Philip said that the   peasantry had many problems, poverty, indebtedness, need for credit, lack of scientific techniques of production, and marketing facilities. Two main obstacles to agricultural progress were the backwardness of the agricultural techniques used which result in poor yields and the fact that villagers were landless or had insufficient quantity of land.

There was also the need for cheap power, cheap transport, managerial knowledge and above all the lack of a home market for industry.  The home market in an agricultural country is the rural market. It is only a prosperous peasantry that can provide this home market for our industry, said Philip.

The way to break the cycle of village under development was to introduce new agents of change. Philip saw the cooperatives as the executor and initiator of change in the rural sector. He wanted the existing cooperative movement rejuvenated, and given a new approach, where the state intervened and supported it. Philip wanted to develop a state supported cooperative movement.

 There were successful coops in the island already. There was a successful cooperative hospital at Sandalankawa run by private individuals. There were a few well run producers and marketing coops that were supported by wealthy patrons.  In Chilaw the residents had formed three cooperatives, Paddy Pounders Society, Poultry Breeders Society and Rice Sellers society. The Rice Sellers was a great success, selling to Marketing Department as well. Vincent Subasinghe, who had run a successful cooperative project, was made Chairman of CWE. Philip found all this very encouraging.

The     villagers badly needed money. The main avenues for borrowing money in the rural sector are the private loan agencies, individual money lenders, landlords and merchants. Debts from these private sources amount to nearly 66%. Almost 50% of the debt accrues to ‘undesirable sources’, where rates of interests are usurious, affording no scope for economic development, said Philip. It was therefore extremely important to establish a   lending institution that catered to the rural sector.

Philip focused on the need for medium and long term credit for the rural population. The rural sector   lacked provision for medium and long term credit. There was no institution that was prepared to lend medium or long term to the rural sector.

Bank of Ceylon was not interested, it ignored the farmer and peasant and served only   the commercial community and the prosperous landed gentry.  The other two banks, Agriculture and Industrial Credit Corporation and the Cooperative Federal Bank were not interested either.

Philip wanted the co-op to be the channel through which credit would be provided for village economic activity.  ‘Philip thought up a Cooperative Development Bank that would lend money to the smaller cooperative banks, which in turn provided supervised credit to the villager. The Cooperative Development Bank, as planned by Philip, was to have branches in the principal towns and important rural centers.  He planned to open 100 branches in the first year. The bank would be cooperative bank as well as a development bank.

The Cooperative Development Bank as planned by Philip would have the power to grant loans co co-ops and individuals   for building and for financing small agricultural industries and business undertaking and for small loans. It would also have the power to carry on business as a normal commercial bank and the right to do business as a pawn broker.

The functions of a commercial bank were necessary because banks needed funds to cater to medium and long term loans.  It took time to recover the loans. The bank had to be liquid, it had to earn money. The commercial side would earn money and the risk of giving credit to the rural sector would be    undertaken by the development side.

The Central Bank was very encouraging. They were very keen that this Bank should be set up.   Arthur Ranasinha, Governor of the Central Bank, had written to Philip to say that he wished to see a Bank that would attract deposits of the rural population and also serve their credit needs.

Central Bank officials would help draw up the constitution for the new Bank. The new Bank should take over the provincial and district cooperative banks and   the Cooperative Federal Bank. The Central Bank had inspected the Cooperative Federal   Bank on many occasions and found it to be utterly inefficient.

But the Cooperative Bank Bill met with strong opposition. At every point we met opposition, from Finance Minister, Stanley de Zoysa and Minister of land and land development, CP de Silva, said Philip. CP de Silva wanted the Cooperative Federal Bank strengthened, by giving it Rs 10 million more. That should be sufficient said CP.

Minister of Finance had submitted a memorandum questioning Philip’s right to prepare a Bill of this nature. Banking came within his Ministry not Philip’s. This Bank was to be set up under its own Act of Parliament, not by registration under the Cooperative Ordinance like the other cooperative banks. Further, this Bank would have the powers of a normal commercial bank, he complained.

To soothe his MPs, Bandaranaike took over the Bill and said he would see it through Parliament but that did not happen  and the Bank did not become a reality. Instead the Bill became the precipitating factor in Philip’s departure from the MEP government. The Cooperative Bank Bill was the  trigger, said analysts.  

Philip’s Cooperative Development Bank was not a Communist ploy, observed Meegama. If successful it would have strengthened both the agricultural small holder and the rural industries. It would have helped the village cultivator, the craftsmen and fishermen. Philip’s Cooperative Development Bank predated the Grameen Bank set up with much acclaim in Bangladesh in 1970. The local cooperative banks were later absorbed into the Peoples Bank, but that Bank was a normal bank. It played no role in village development.

Philip was concerned about the health of the estates. Pile wanted to rehabilitate run down estates and for this purpose brought a Bill for  the creation of a Tea Subsidy Fund through a cess of 4 cents a pound on exports.  This was to be used for rehabilitating the estate and replanting tea.  He also introduced a Tea Replanting Subsidy Scheme where a generous subsidy would be paid for replacing old tea bushes with new clones.

Philip was concerned about fragmentation of estates.  There are Ceylonese who buy up highly developed plantations and pull down the factories, sell the scrap to Pettah, break up the land and sell to various speculators. Since 1945, 62 rubber estates and 20 tea estates have been fragmented. Also estates are acquired by government for village expansion. The Agricultural and Industrial Credit Corporation was giving credit for the purchase of estates which would then get fragmented  Workers were thrown out of these fragmented estates.

Philip had appointed a committee to inquire into the fragmentation of tea and rubber plantations. The Treasury, under Stanley de Zoysa refused to send a representative to the committee. In December 1957 he presented the Anti Fragmentation Bill to Parliament. Anti Fragmentation Bill was an act to protect plantations from getting broken into pieces. It also stopped factories being stripped for scrap. This will apply more to tea than rubber since rubber is to a great extent a small holders crop.

The Anti Fragmentation Bill was carried though despite opposition.  It was passed in 1957. It faced many obstacles, Philip charged that CP de Silva delayed presenting the Bill for months and Philip sent six letters about it.  But for me that legislation would never have been passed, Philip said later when he resigned.  I had to write more than one cabinet paper to get the consent of the cabinet. Even after everything was ready, CP de Silva sat on it for months.  

Philip had offered a painless nationalization scheme of tea plantations. He said that compensation if Land acquisition Act was followed would have been prohibitive.  Payment on quoted share price would be cheaper. The other way we would have to pay Rs 3000 or so per acre of tea. This way we can get away with Rs 80 million or so. Cabinet was divided and decided not to go ahead with this, though it was in the manifesto.   ( CONTINUED)

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