Cooperatives in India

2022 DEC 15

Mains   > Social justice   >   Development Processes & Industry   >   Cooperatives

IN NEWS:

  • The Bill to amend the Multi-State Cooperative Societies (MSCS) Act, 2002, was introduced in the Lok Sabha. Opposition alleged that the Bill’s provisions encroached upon the rights of State governments, demanding that it be referred to a Standing Committee for scrutiny.

PROPOSED AMENDMENTS:

            The amendments have been introduced to plug the “loopholes” in the MSCS Act and to improve governance, reform the electoral process, strengthen monitoring mechanisms and enhance transparency and accountability.

  • The Bill seeks to improve the composition of the board and ensure financial discipline, besides enabling the raising of funds in MCSCs.
  • The Bill provides for the creation of a central Co-operative Election Authority to supervise the electoral functions of the MSCSs.
  • Another provision makes it possible to override the board of directors of the society and the appointment of an administrator, not necessarily a member of the collective.
  • The Bill seeks to allow the merger of any State cooperative society with an existing MSCS.
  • It envisages the creation of a Co-operative Rehabilitation, Reconstruction and Development Fund for the revival of sick MSCSs, financed by existing profitable MSCSs which will have to deposit either Rs. 1 crore or 1% of their net profit.
  • The Bill has provisions for appointing a Cooperative Information Officer and a Cooperative Ombudsman.
  • To promote equity and inclusiveness, provisions relating to the representation of women and Scheduled Caste/Scheduled Tribe members on MSCS boards have been included.
  • The Bill also increases the penalty amount for violation of the law to Rs. 1 lakh and potential imprisonment from six months to a year.

COOPERATIVES:

  • Cooperatives are people-centred enterprises jointly owned and democratically controlled by and for their members to realise their common economic, social and cultural needs and aspirations.
  • Its aim is to serve the interest of the members, usually from poorer sections of society, through the principle of self-help and mutual help.
  • In India, a cooperative society can be formed under provisions of the Co-operative Societies Act, 1912.

HISTORY OF COOPERATIVES IN INDIA:

Pre-Independence era:

  • British India enacted the Cooperative Credit Societies Act, 1904, which was later repealed by the 1912 Cooperative Societies Act.
  • National Cooperative Union of India (NCUI) was established in 1929 as All India Co-operative Institutes Association to promote and develop the co-operative movement in India.
  • In 1919, provinces were authorized to make their own cooperative laws under the Montague-Chelmsford Reforms.
  • Land Mortgage Cooperative Banks were established in 1938 to provide loans initially for debt relief and land improvement.
  • Co-operative societies were also championed by India’s first Prime Minister Jawaharlal Nehru.

Post-Independence era:

  • From 1948, Reserve Bank started refinancing State Cooperative Banks for meeting the credit needs of Cooperative Banks and through them the agricultural cooperative societies.
  • The National Cooperative Development Corporation (NCDC) was established in 1963 as a statutory Corporation under the Ministry of Agriculture & Farmers Welfare for promotion of cooperative movement in India.
  • In 1984, Parliament enacted the Multi-State Cooperative Societies Act to declutter different laws governing the same types of societies.
  • In 2002, the Atal Bihari Vajpayee Government announced a National Policy on Cooperatives to support the promotion and development of cooperatives.
  • The 97th Constitutional Amendment Act of 2011 gave a constitutional status and protection to co-operative societies.

97th Constitutional Amendment Act of 2011:

  1. It made the right to form co-operative societies a fundamental right (Article 19(1)).
  2. It included a new Directive Principle of State Policy on promotion of cooperative societies (Article 43-B).
  3. It added a new Part IX-B in the Constitution which is entitled “The Cooperative Societies” (Articles 243-ZH to 243-ZT).

FEATURES OF COOPERATIVES:

  • Open membership:
    • The membership of a co-operative society is open to all those who have a common interest. A minimum of ten members are required to form a cooperative society.
  • Voluntary association:
    • Members join the co-operative society voluntarily, that is, by choice. A member can join the society as and when he likes, continue for as long as he likes, and leave the society at will.
  • State control:
    • The “co-operative societies” is a subject enumerated in Entry 32 of the state list of the Seventh Schedule. State legislatures have accordingly enacted legislations on co-operative societies.
    • To protect the interest of members, co-operative societies are placed under state control through registration. While getting registered, a society has to submit details about the members and the business it is to undertake. It has to maintain books of accounts, which are to be audited by government auditors.
  • Sources of Finance:
    • In a co-operative society, capital is contributed by all the members. However, it can raise loans and secure grants from governments after its registration.
    • Both Central and State governments provide help to the societies, usually in the form of capital contribution, loans at low rates of interest, exemption in tax, subsidies in repayment of loans, etc.
  • Democratic Management:
    • Co-operative societies are managed by a ‘Board of Directors’, who are elected by the members. Each member has a single vote, irrespective of the number of shares held.
  • Service motive:
    • Co-operatives are not formed to maximise profit, but to provide service to its members. For example, in a Consumer Cooperative Store, goods are sold to its members at a reasonable price by retaining a small margin of profit.
  • Separate Legal Entity:
    • A Co-operative Society is registered under the Co-operative Societies Act and thus becomes a separate legal entity. It can enter into agreements with others and can purchase or sell properties in its own name.
  • Distribution of Surplus:
    • Profit generated is distributed to its members not on the basis of the shares held by the members, but on the basis of members’ participation in the business of the society.
  • Self-help through mutual cooperation:
    • A co-operative society is a special type of business organisation, where people come forward as a group, pool their resources, utilise them in the best possible manner, and derive some common benefit out of it.

Multi-State cooperatives:

  • Multi-State cooperatives are societies that have operations in more than one state. For instance, a farmer-producers organisation which procures grains from farmers from multiple States.
  • Such MSCSs are registered under the Multi-State Co-operative Societies Act 2002, and their regulation lies with the Central Registrar.
  • The board of directors are from all the States these collectives operate in and controls all finances and administration function.
  • There are close to 1,500 MSCSs registered in India, the highest number being in Maharashtra.

TYPES OF CO-OPERATIVE SOCIETIES:

  • Consumers’ Co-operative Society:
    • These societies are formed to protect the interest of general consumers by making consumer goods available at a reasonable price. They buy goods directly from the producers or manufacturers and thereby eliminate the middlemen in the process of distribution.
    • Eg: Kendriya Bhandar, a welfare society for central government employees.
  • Producers’ Co-operative Society:
    • These societies are formed to protect the interest of small producers by making available items of their need for production like raw materials, tools and equipments, machinery, etc.
    • Eg: Handloom societies like Haryana Handloom and Kerala State Handloom Weavers Co-op Society Limited.
  • Co-operative Marketing Society:
    • These societies are formed by small producers and manufacturers who find it difficult to sell their products individually. The society collects the products from the individual members and takes the responsibility of selling those products in the market.
    • Eg: Gujarat Co-operative Milk Marketing Federation, which sells AMUL (Anand Milk Union Limited) milk products.
  • Co-operative Credit Society:
    • These societies are formed to provide financial support to the members. The society accepts deposits from members and grants them loans at reasonable rates of interest in times of need.
    • Eg: Village Service Co-operative Society and Urban Cooperative Banks.
  • Co-operative Farming Society:
    • These societies are formed by small farmers to work jointly and thereby enjoy the benefits of large-scale farming.
    • Eg: Lift-irrigation cooperative societies
  • Housing Co-operative Society:
    • These societies are formed to provide residential houses to members. They purchase land, construct houses/flats and allot the same to members. Some societies also provide loans at low rate of interest to members to construct their own houses.
    • Eg: Central Government Employees Housing Society

ADVANTAGES OF COOPERATIVES:

  • Inclusiveness:
    • Co-operatives are voluntary organisations, open to all irrespective of their gender, social, racial, political or religious preferences. This aligns well with India’s diverse society, promotes inclusive development and strengthens social capital.
  • Promotes participatory governance:
    • Cooperatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. This participation promotes people’s interest in the overall governance system of the country.
  • Poverty eradication:
    • Co-ops offers basic amenities, infrastructure and collective bargaining power among the poorest people in the community. This encourages upward mobility and improvement of living standards in the community.
    • Also, unlike large industries, profits and benefits accrued by the cooperatives circulate within the same community.
  • Employment generation:
    • Through its activities, cooperatives generate employment opportunities for the unskilled and the skilled.  
    • According to the Ministry of Cooperation, there are around 8.5 lakh cooperatives in India, with about 1.3 crore people directly attached to them.
  • Industrial growth:
    • Many cooperatives have emerged into major market players. Eg: Indian Farmers Fertilisers Cooperative (IFFCO) has around a third of the market share in fertilizers.
  • Eliminates Middlemen:
    • Through co-operatives, the members or consumers control their own supplies and thus, middlemen’s profit is eliminated.
    • Eg: Amul eliminated middle men and purchased milk directly from dairy farmers. Hence, Amul was able to ensure that farmers get better market access and fair price for their produce.
  • Capacity building:
    • Co-operatives provide education and skill training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives.
    • Eg: To extend banking services to its member milk producers, diary giant Amul recently launched micro-ATM services from Anandpar village in Rajkot.

CASE STUDY 1: AMUL

  • Amul is an Indian dairy cooperative society headquartered at Anand, Gujarat. It is the world’s ninth largest dairy company.
  • Amul was formed as a part of a cooperative movement against exploitation of dairy farmers by private players.
  • The farmers, on the advice of Sardar Patel, formed the Kaira District Co-operative Milk Producers’ Union Limited. Dr Verghese Kurien was Amul’s true architect.
  • In its basic form, the Anand Pattern consists of a three-tier organisational structure  that comprised village co-operative societies, district level dairy unions and state-level federations.

                                              

 

CASE STUDY 2: ULCCS, Kerala

  • Uralungal Labour Contract Cooperative Society (ULCCS) Ltd, was formed in 1925 in Uralungal hamlet in northern Kerala’s Malabar region. ULCCS was formed as part of a social movement to fight against social injustice, marginalization and other social anarchies prevalent during the pre-independent era.
  • ULCCS provided employment to over 13,000 labourers directly and indirectly in the last financial year. It executes projects of NHAI, Public Works Department (Kerala), Ministry of Panchayati Raj and local administration.
  • Today, ULCCS has diversified its activities into IT services, through UL technology solutions (ULTS) and UL CyberPark. It has become the first primary co-operative to be recognised as a permanent member of International Co-operative Alliance (ICA).

ISSUES SURROUNDING COOPERATIVES:

  • Absence of spontaneity:
    • Cooperative movement in India lacks spontaneity, as it rarely emanates from the people themselves. In many cases, cooperative societies are imposed upon the people by the government.
  • Over reliance on government support:
    • Co-operatives in India have failed to be a self-sustaining. They continue to rely on government patronage, which makes them susceptible to political interference.
    • Eg: Contributing to the share capital of cooperatives and providing various forms of financial assistance enabled State governments to intervene in the working of cooperatives which are legally autonomous.
  • Functional weakness:
    • The cooperative movement has suffered from inadequacy of trained personnel. This arose due to lack of institutions for training personnel and its failure to attract the skilled youth.
  • Restricted Coverage:
    • The size of societies has been very small. Most of them are confined to a few members and their operations extended to only one or two villages. Also, most of the societies have been single purpose societies.
    • Cooperatives in Eastern and Northeast states are not as well developed as the ones in Maharashtra and Gujarat.
  • Political Interference:
    • The co-operative societies have become the hot bed of politics in rural India. The selection of beneficiaries is mostly done on political considerations.
    • Eg: The sugar cooperatives of Maharashtra command a strong role in the state’s politics, which has made them highly sought after by political parties.
  • Influence of money & caste:
    •  The essence of the cooperative movement is that it gives all shareholders equal treatment. However, over the years, this democratic idea got corrupted and members from well-off classes grew more powerful. Hence, the top posts of societies are monopolized by the rich/upper classes.

SIGNIFICANCE OF NEW MINISTRY:

‘Ministry of Co-operation’ was created by the Government for realizing the vision of ‘Sahkar se Samriddhi’ (Prosperity through cooperatives). Its significance include:

  • Customized policies: The ministry will provide a separate administrative, legal and policy framework for strengthening the cooperative movement in the country.
  • Promote ease of doing business: The Ministry will work to streamline processes for ‘Ease of doing business’ for co-operatives.
  • Expansion of cooperatives: The ministry will enable development of Multi-State Co-operatives (MSCS) and revive cooperatives as a true people-based movement reaching up to the grassroots.
  • Support for farmers: Through the ministry, the government seeks to create a successful agriculture and livestock cooperative movement in the country. The cooperatives, along with the new farm laws can not only increase the income of farmers and productivity of land but also stop the exploitation of agriculturists by middlemen in India’ rural areas.

PRACTICE QUESTION:

Q. Critically examine the role of community driven enterprises and co-operatives in rural development of the country?