Introduction

The National Cooperative Policy, 2025 has triggered a sharp Centre–State tussle, with Kerala at the forefront of resistance. Beyond a policy dispute, it reflects deeper tensions around cooperative federalism, involving constitutional authority, political stakes, and nearly ₹3 lakh crore in deposits, making the issue both high-stakes and nationally significant.

The Current Tussle between Centre and Kerala

Policy provokes backlash: Kerala describes the National Cooperative Policy as “unconstitutional”, asserting that it violates the State’s exclusive authority over cooperatives.
Political dimension: The Left Democratic Front (LDF) government accuses the BJP of attempting to capture Kerala’s cooperative network for political consolidation.
Financial stakes: Kerala’s cooperatives manage deposits worth ₹2.94 lakh crore, making them critical financial entities in the State’s economy.

The Contentious Nature of the National Cooperative Policy

Federalism at stake: Cooperative societies are a State List subject, yet the Centre is asserting influence, reviving concerns first raised during the Multi-State Cooperative Societies (Amendment) Act, 2023.
Kerala’s historical legacy: Cooperative institutions date back to early 20th century Travancore, Cochin, and Malabar, and evolved through the Kerala Cooperative Societies Act, 1969, making them central to socio-economic life.
Grassroots importance: Primary Agricultural Cooperative Societies (PACS) serve as the credit backbone of Kerala’s rural economy.

Kerala’s Political and Institutional Response

Political opposition: State Cooperation Minister V.N. Vasavan termed the policy “harmful to cooperatives.”
Organised resistance: The Kerala Primary Agricultural Cooperative Society association passed a resolution against the policy.
Workers’ unions’ concerns: The Kerala Cooperative Employees Union (KCEU) alleged that the Centre seeks to hand over the cooperative sector to corporates.

Existing Challenges in the Cooperative Sector

Credibility crisis: Several cooperative banks face embezzlement scandals and non-refund of depositors’ money.
Case in point: The Karuvannur Service Cooperative Bank scam in Thrissur dented public confidence and put the State government on the defensive.
State reforms: In 2023, Kerala amended its Cooperative Societies Act to plug loopholes and strengthen safeguards.

Structural Reforms in Kerala’s Cooperative System

Bank consolidation: Merging of district cooperative banks into the Kerala State Cooperative Bank (Kerala Bank) reduced the traditional three-tier credit structure into a two-tier system.
Policy rationale: Streamlining was aimed at improving efficiency and financial stability in the sector.

Future Trajectory of Kerala’s Cooperatives

New crossroads: Accelerated urbanisation, youth aspirations, and sectoral shifts in energy, shipping, technology, and health present opportunities for cooperative diversification.
Future trajectory: The ability of cooperatives to adapt and modernise will shape Kerala’s economic resilience in the coming decades.

Conclusion

Kerala’s cooperative movement, historically a pillar of rural credit and grassroots empowerment, stands at a critical juncture. The National Cooperative Policy, 2025, while framed in the language of reform, has exposed fault lines in India’s federal structure and deepened Centre–State tensions. For Kerala, the challenge lies in balancing its rich cooperative legacy with the demands of modernisation and transparency. For the Union, respecting constitutional boundaries while ensuring financial discipline will be key to sustaining trust in the cooperative model.

Value Addition

Overview of the National Cooperative Policy 2025

The National Cooperative Policy, 2025—officially unveiled on July 24, 2025 —replaces the 2002 framework with a visionary 20-year roadmap (2025–2045) centered on “Sahkar se

Policy Goals:

Tripling cooperative sector’s GDP contribution by 2034 through expanded outreach and growth-boosting measures
Establish one cooperative unit in every village, and set up 5 model cooperative villages per tehsil, with active creation of 2 lakh new multipurpose PACS by 2026
Bring 50 crore more people into the fold, increasing cooperative membership and societal participation

Core Pillars of the Policy: Outlined across six strategic pillars designed to transform cooperatives:

Strengthening Foundations
Promoting Vibrancy
Preparing Cooperatives for the Future (e.g., digitalisation)
Enhancing Inclusivity & Reach
Expanding into Emerging Sectors
Engaging the Younger Generation

Institutional and Structural Measures:

Legal & governance revamp: Updated model bye‐laws, regular review mechanisms (every 10 years), and cluster-based monitoring systems for accountability and responsiveness
Tribhuvan Cooperative University: A first-of-its-kind cooperative education hub aimed at professionalising the sector and reducing nepotism
National Cooperative Exports Limited (NCEL): To enhance global market integration for cooperatives, especially in staples like wheat and rice
Leveraging existing schemes: Integration with programs like DIDF, PMMSY, NPDD to establish infrastructure and functional PACS

Sectoral Diversification & Modernisation:

New sectors for cooperatives: Including green energy, insurance, tourism, taxi services (“Sahkar Taxi”), Jan Aushadhi Kendras, LPG outlets, CSCs, and more
Model Cooperative Villages: Combining dairy, fisheries, floriculture, agri-services, and focused inclusion of women and tribal groups as excellence center

Why It Matters:

Policy Revitalisation: First major overhaul in 23 years, indicating the renewed importance given to cooperatives by the government
Aligning with National Vision: Anchored in the larger goal of Viksit Bharat 2047, positioning cooperatives as engines of inclusive, rural-led development
Digital and Professional Transformation: Emphasises tech adoption, capacity building, and modern governance—crucial in restoring public trust and efficiency
Inclusivity at Core: Explicit focus on increasing participation of women, Dalits, Adivasis, and youth—building on the ethos of cooperative empowerment
Decentralized Growth Strategy: Village and tehsil-level expansion ensures economic decentralisation and rural integration—a critical tool for grassroots development

PYQ Relevance

[UPSC 2014] “In the villages itself no form of credit organisation will be suitable except the cooperative society.” – All India Rural Credit Survey. Discuss this statement in the background of agricultural finance in India. What constraints and challenges do financial institutions supplying agricultural finance face? How can technology be used to better reach and serve rural clients?”

Linkage: The 2014 question emphasised cooperatives as the most suitable form of rural credit, highlighting their role in agricultural finance. The Kerala–Centre tussle over the 2025 policy shows how this very grassroots credit system, with PACS and cooperative banks at its core, remains vital yet contested. Thus, the article provides a contemporary case study of both the potential and challenges of cooperatives in India’s agricultural and financial landscape.

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