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[RSTV Archive] Cooperative Based Economic Development

A new Ministry of Cooperation has been created to strengthen cooperative movement. This separate administrative structure was proposed in Union Budget earlier this year. New ministry is expected to streamline processes for cooperatives and realise the vision of ‘ Sahkar se Samriddhi’.

In this article we will discuss and analyse all aspects of this issue.

What is a Cooperative?

  • A cooperative is “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned enterprise”.
  • Cooperatives are democratically owned by their members, with each member having one vote in electing the board of directors.

Cooperative Movement in India

The history of cooperatives in India goes back to more than a hundred years and they continue to stay relevant due to their grassroots reach and ability to bring economic growth to underserved sections.

  • The cooperative movement, which has its roots in the 19th century Europe, developed in pre-Independence India in response to agricultural distress and indebtedness.
  • Their growth was fostered, first by India’s erstwhile British rulers and, post-Independence, several steps have been taken to put assist in their growth and functioning.
  • The formal launch of the cooperative movement in India occurred with the introduction of the Cooperative Societies Act in 1904.
  • However, it notes that even before the passing of that law, “the practice of the concept of cooperation and cooperative activities were prevalent in several parts of India”.
  • In 1912, another Cooperative Societies Act was passed to rectify some of the drawbacks of the earlier law.
  • The next landmark change came in 1919 when cooperation was made a state subject. That allowed the various states to come up with their own legislation governing cooperatives.

Who can form a cooperative in India?

  • Cooperatives are geared towards benefiting the chunk of Indian people — about 65 per cent of the country’s population — who depend on agriculture and related activities.
  • According to the Co-operative Societies Act, 1912, at least 10 persons aged above 18 years with common economic objectives, like farming, weaving, consuming, etc, can form a cooperative society.

Which are the key sectors where cooperatives operate in India?

  1. Consumer Cooperative Society
  2. Producer Cooperative Society
  3. Co-operative Credit Societies
  4. Marketing Cooperative Society
  5. Housing Cooperative Society
  6. Co-operative Farming Societies
  • The various kinds of cooperatives in India include consumers’ cooperative societies, which seek to protect the interest of general consumers by making goods available at reasonable rates.
  • Then there are producers’ cooperative societies that protect the interest of small producers by enabling access to raw materials, tools and equipment, machinery, etc. are examples of producers’ co-operative societies.
  • Among the most famous cooperative brands in the country, Amul developed out of the Gujarat Co-operative Milk Marketing Federation, which is owned by 36 lakh milk producers in Gujarat.
  • It is an example of a cooperative marketing society, formed by small producers and manufacturers who find it difficult to sell their products individually.
  • Among other types of cooperatives are cooperative credit societies, which accept deposits from members and grant them loans at reasonable rates, and cooperative farming societies, which are formed by small farmers to work jointly and thereby enjoy the benefits of large-scale farming.

Why needs cooperatives?

It is easier to understand the need of the cooperatives by knowing its specific objectives. They can be summed as follows:      

  • Cooperatives are good, reliable opportunities for growth
  • They provide an opportunity for collective decision making.
  • They eliminate the unnecessary profits of middlemen in trade and commerce.
  • They aim to protect the rights of people both producers and consumers.
  • They promote mutual understanding and education among their members and people in general.
  • They bring together people at the grassroots and provide them collective bargaining power and benefits of economies of scale.
  • They provide an economic model with a higher level of entrepreneurial or social sustainability and often work as pressure groups to voice the views of their members in a larger market.
  • Being a part of a co-op improves your creditworthiness as a producer as well as a consumer.
  • They are easy to join, ensure equitable distribution of profits, prioritise welfare over individual profits, are stable in their functioning and output, and receive a substantial amount of government support.

Why need a separate ministry?

  • Over the years, the cooperative institutions have experienced drying out of funding.
  • While the capital came from the Centre, in the form of equity or working capital, only a few states like Maharashtra, Gujarat, Karnataka got to enjoy it, while other states could not receive much.
  • It had become important to restore the structure of these cooperatives.
  • Under the new Ministry, the cooperative movement would get the required financial and legal power needed to penetrate into other states also.

How do these cooperative structures influence politics?

  • The cooperative institutions ranging from the village-level primary agricultural credit societies (PACSs) or the urban housing societies have been the starting point of a lot of present leaders.
  • That’s because these cooperatives elect their own board of directors.
  • Many veteran politicians of the day have been in connection with the cooperative movement in the past.
  • They often tend to start their political career through cooperative elections.
  • Control of co-operatives allows politicians to influence decisions upstream (who gets a cabinet seat) as well as downstream and ancillary fields (where are the votes coming from).
  • They are a source of funding and patronage.
  • A canny politician can leverage his/her power at the cooperative level all the way to state and national prominence.

Challenges for cooperatives

  • Capital: As the income from agriculture in the rural sector has declined drastically there these banks need a new business model to function.
  • Regionality: Milk cooperatives are a huge source of income for the farmers but the growth of the dairy sector is dismal. The North and northeast do not contribute substantially to the dairy sector.  There is a need for policies for supporting ancillary services for the dairy sector.
  • State laws: State cooperative Laws are not in tune with the current socio-economic situation.

Opposition from the states

  • In Maharashtra and Gujarat, there are many big cooperative societies engaged in sugar and milk production, power looms, and running urban and rural non-agri credit societies.
  • In Mh alone there are around 21,000 primary agriculture credit societies and 31 district cooperative banks.
  • It is believed that around 150 MLAs in Maharashtra are connected to this sector.
  • The Left parties have also expressed concern over the move, stating that it seeks to undermine the federal structure of the country. 
  • Cooperative societies are a state subject in the Constitution’s 7th Schedule.

What will be the new cooperation ministry’s role?

  • Separate administration: With a focus to help deepen cooperatives as a true people-based movement, the ministry is mandated to “provide a separate administrative, legal and policy framework for strengthening the cooperative movement”.
  • Facilitation: The ministry will streamline processes for ease of doing business for cooperatives and enable the development of multi-state cooperatives.
  • Expansion: With the coming up of handicraft and weavers’ cooperatives and so on the farmers’ income can be doubled.
  • Economic boost: It will contribute towards economic growth and development. It will help in identifying other sectors where the cooperatives can come up which will be beneficial for the ones down the value chain.

What should be the key areas where the ministry should focus?

  • Rural sector: Double farmers’ income can be achieved by growth of the food processing industry. India can learn from the Netherlands in this aspect.
  • Housing for all: Mass housing through cooperative societies in urban areas as majority urban poor live in slums.
  • Consumer cooperatives in urban areas: There are none in the country with credible work. As these can act as a balancing sector.
  • Ease of doing business: EODB norms should be extended to all cooperatives so that they are able to function without obstructions.

Way forward

  • The new ministry should empower cooperatives to form their SPVs.
  • It should promote companies under the companies act which are formed by the cooperatives.
  • The cooperative should not be dependent only on govt or borrowing for capital.


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