Cooperative Sector: Opportunity and Challenges

Why in News?
  • The Government of India recently created a separate Ministry of Cooperation in order to realize the vision of 'Sahkar se Samriddhi'. 
What are cooperatives?
  • Cooperatives are voluntary enterprises owned, controlled, and democratically run by their members to meet their shared economic, social, and cultural needs and aspirations.
  • They act as a means to pool the resources of the members to achieve their desired objectives.
  • Welfare of the members is the central pillar of any cooperative. Gujarat Cooperative Milk Marketing Federation that owns the Amul brand is a classic case study.
  • Producer, consumer, housing and credit are the different types of cooperatives functional in India.
  • Ease of formation, open membership, democratic management, limited liability, economical operation etc. are some of the advantages of cooperatives.
Constitutional Provisions:
  • Cooperatives are part of the State List and accordingly all states have their own laws to regulate them.
  • But multi-State Cooperatives are regulated by the Centre under the Multi-State Cooperatives Act.
Cooperative movement in India:
  • Sir Edward Law Committee - To study the introduction of cooperatives in India. The Committee submitted its report in 1903 and the Cooperative Credit Societies Act in 1904 was passed. Another act was passed in 1912.
  • Montague-Chelmsford Reforms 1919: Co-operation made a provincial subject which helped in spreading the movement across the country.
  • Multi Unit Cooperative Societies Act 1942: To govern cooperatives with presence in multiple provinces.
  • National Policy 1958: The National Development Council came out with the National Policy on Cooperatives in 1958.
  • Multi-State Cooperative Societies Act, 1984 - IT was passed to regulate multi-state cooperatives and do away with a multitude of laws that governed them.
  • National Policy on Cooperatives, 2002 - It was announced with the aim to spread the cooperative movement in India, reduce regional imbalances, develop human resource etc.
  • Multi State Cooperative Act 2002 - It gave more freedom of operation to cooperatives and reduced government nomination over it.
  • 97th Constitutional Amendment Act -
    • A new Part IXB about cooperatives was added by the Constitution (97th Amendment) Act, 2011.
    • In Article 19(1)(c), under Part III of the Constitution, the word cooperative was added after unions and associations.
    • The citizens can form cooperatives under this law as it gives them the status of fundamental rights.
    • In Part IV (Directive Principles of State Policy), a new article 43B was added regarding "promotion of cooperative societies".
    • (Recently SC has given an important judgment on this amendment. It shall be covered separately in next lecture.)
Advantages of Cooperatives in India
  • Enhances social capital: By pooling in resources, the poor are able to enhance their social capital by effective mobilization of resources.
  • Stronger bargaining power: By pooling in their resources different stakeholders such as farmers, weavers, workers etc could enhance their bargaining power.
  • Wider interest of the community: It helps to keep the broader interest of the community at center instead of just earning profits.
  • Agriculture constraints: It helps to overcome agriculture related constraints such as land, irrigation, mechanization etc. more effectively.
  • Increasing Agro-Processing: It can help in increasing food processing industries, farmers can double their income. It will help transform farmers to 'agripreneurs'.
Challenges faced by cooperative sector:
  • Lack of Capital Formation: Insufficient focus on capital formation has affected the viability.
  • Lack of awareness: Lack of awareness about the goals, the rules, and the regulations of cooperative institutions.
  • Human Resource: Lack of sufficient number of trained staff members.
  • Outdated Laws: In today's socioeconomic climate, state cooperative laws are out of date. It is necessary to upgrade/rewrite certain parts of them.
  • Politicization of cooperatives: Often politicians have used cooperatives to further their political objectives at the cost of the welfare of the community.
  • Government interference: Often government interference is found to be a structural bottleneck that prevents development of cooperatives.
  • Irresponsibility and Unaccountability: Governance inadequacies, including concerns about the Board's role and responsibilities have led to lack of accountability.
  • Dual regulation and Stressed assets: Several cooperative banks have seen unmanageable levels of stressed assets in recent years. Dual regulatory structure - State government and RBI - is often considered as a causative factor for it.
  • Inactive members: A majority of the members of the cooperatives do not play an active role in the running of the cooperative.
  • Inability to compete with private players: Due to all these problems before the cooperatives they find it difficult to compete with the private sector leading to losses.
  • Rationale for a new ministry and its criticism: Given the importance of cooperatives, the new ministry has been instituted to bring about reforms in this sector. But the step is being criticized for potential violation of constitution and likelihood of using it for political ends.

Cooperative model creates and utilizes social capital, and as social capital expands, development becomes easier.


Posted by Jawwad Kazi on 7th Jul 2021