October 7, 2022

Lukmaan IAS

A Blog for IAS Examination

Why does India need a Ministry of Cooperation?

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THE CONTEXT: In July 2021, Government of India announced creation of a new ministry, the Ministry of Cooperation, which is headed by the Union Home Minister. The aim of the Ministry is to implement the vision of ‘Sahkar se Samriddhi’ or prosperity through cooperation to give a new push to the cooperative movement in India. This article analyses about the topic comprehensively as follows.

WHAT WILL BE THE NEW MINISTRY’S OBJECTIVES?

  • The Ministry will provide a separate administrative legal and policy framework for strengthening the cooperative movement in the country.
  • It will help deepen co-operatives as a true people-based movement reaching upto the grassroots.
  • In our country, a co-operative based economic development model is very relevant where each member works with a spirit of responsibility.
  • The Ministry will work to streamline processes for ‘Ease of doing businesses for co-operatives and enable development of Multi-State Co-operatives (MSCS).

WHAT IS A COOPERATIVE SOCIETY?

  • According to the Cooperative Societies Act, 1912, at least 10 adult members are needed to form a Cooperative Society solely based on mutual aid and self-help principles. The members should work for a common benefit with a motive to help each other.
  • Cooperatives are enterprises which are owned, controlled and run by its members to realize their common economic, social, and cultural needs and aspirations.
  • Cooperative societies function for a common benefit with a motive to help its members.
  • These societies in have played a significant role in strengthening the rural economy.
  • Cooperative societies in India expanded from agricultural market to the credit sector, and later to large scale sectors, housing, fisheries, banking, etc. This led to the formation of different types of cooperative societies in India.

WHAT IS THE HISTORY OF THE COOPERATIVE MOVEMENT IN INDIA?

PRE-INDEPENDENCE ERA

  • In response to the agrarian distress and overall indebtedness, the first cooperative society legislation came into existence with the Cooperative Credit Societies Act, 1904. The next landmark Act came in 1919 under the Montague-Chelmsford Reforms, under which cooperation was made a provincial subject. It allowed the provinces to come up with their own legislation for governing cooperatives.
  • Later, in 1942, the British government announced the Multi-Unit Cooperative Societies Act to cover cooperative societies whose membership extended beyond one province.

POST-INDEPENDENCE ERA

  • In 1958, the National Development Council (NDC) had recommended a national policy on cooperatives and for training personnel and setting up cooperative marketing societies.
  • In 1984, Parliament enacted the multi-state cooperative societies Act to remove the plethora of laws governing the same types of societies.
  • In 2002, the then NDA government, under the leadership of Atal Bihari Vajpayee, announced a National Policy on Cooperatives to support the promotion and development of cooperatives. It is also aimed at reducing regional imbalances and strengthening cooperative education, training and human resource development.

WHAT ARE THE LAWS GOVERNING THE SOCIETIES AND WHICH GOVERNMENT BODIES OVERSEE THE SECTOR?

  1. Cooperation comes under the state list of the under the schedule seven of Indian Constitution; which mean states can make rules to govern them.
  2. The 97th Constitutional Amendment, which was passed in 2011, categorically dealt with issues related to the effective management of co-operative societies. It added a new provision in the Constitution under Article 19(1)(c) to provide protection to cooperatives.
  3. Article 43B of Part IV states that it is the duty of the State to promote self-reliance, democratic management, voluntary training and professional management of cooperatives in order to improve the economic activity of India.
  4. In 2002, the Centre passed a Multi-State Cooperative Societies Act that allowed for registration of societies with operations in more than one state. These are mostly banks, dairies and sugar mills. The Central Registrar of Societies is their controlling authority, but on the ground the State Registrar takes actions on his behalf.
  5. The National Cooperative Development Corporation (NCDC) works for the promotion of the cooperative movement in India. It is tasked with planning, promoting, coordinating and financing cooperative development programs at the national level. Also, it provides financial, insurance and technical support to cooperative institutions of farmers and other weaker sections.
  6. Most cooperative societies are governed by the laws in the respective states, with a Registrar of Societies and a Cooperation Commissioner as their governing office.

TYPES OF COOPERATIVE SOCIETIES IN INDIA

Based on the members and the kind of business, Cooperative societies in India are classified mainly as 6 types.

  1. Farming Cooperative Society: The agriculture sector in India is the largest sector, the country’s farmers need to gain profit for their produce. Unfortunately, this sector is economically weaker because of many causes, some of them being indebtedness of farmers, expensive equipment, agents or middlemen, etc.
    The farmers put in the capital for consolidating farming equipment, seeds, fertilizers, etc.They earn more via cooperative farming as compared to individual farming as the profit is divided according to their land shares.
  2. Credit Cooperative Society: The cooperatives which provide financial services to its members like deposits, short term loans, etc. All those who deposit in these societies are their members. These societies raise finance with deposits from its members and provide them with short term loans on a low rate of interest.
  3. Producer Cooperative Society: These societies play an essential role in the development of medium and small enterprises in India. These cooperatives are for producers like owners of fisheries, farmers, handicraft and local artisans, and many more such businesses. The best example is one of the largest cooperative in India, AMUL dairy.
  4. Consumer Cooperative Society: These cooperatives are formed by consumers. For obtaining household goods at an affordable price, the consumers for such cooperatives buy the goods in bulk to reduce the cost and sell them to its members (and non-members also) at lower prices. For example, Apna bazaar is a consumer cooperative in India.
  5. Marketing Cooperative Society: Just like farming cooperatives support farmers for pre-farming requirements, marketing cooperatives support them for marketing or selling their produce. These cooperatives help farmers to sell their produce profitably. Fruits, vegetables, cotton, and sugarcane cooperatives are the largest and most demanded marketing cooperatives.
  6. Housing Cooperative Society: Housing is a big issue for the common man in cities and towns with skyrocketing prices of land. In such a situation, people form cooperatives to buy the land, construct houses, and sell them to the members. To become a part of the cooperative, a member either has to buy a house or buy shares in the cooperative.

Characteristics of Cooperative Societies:
1. Voluntary Formation and Participation
2. One vote per member
3. Independent body
4. Mutual benefit
5. No financial risks

Objective: The principal aim of cooperative societies is to help people tide through financial situations and gather support and assistance from nearby communities. This strengthens community relationships.
Distribution of Profits: The surplus produce or profits generated in the cooperative sector is distributed amongst its members rightfully according to their shares.
Professional Management: All cooperatives are supposed to be managed awfully and professionally. Audits must be performed periodically. The regulation is under a central Registrar.

EXAMPLES OF COOPERATIVE SOCIETIES AND HOW THEY FUNCTION

AMUL

  • Amul is a leading example of an Indian dairy cooperative society. It is managed by the Gujarat Co-operative Milk Marketing Federation Ltd and is jointly owned by around 36 million milk producers.
  • The produce is pooled and distributed by the cooperative itself, thereby, eliminating the need for a middle-man.

Jal Shakti Mission

  • While the Jal Shakti Mission may not necessarily fall under the co-operative society definition, however, the mission does follow similar principles.
  • Under Jal Shakti Abhiyan, the government is training the community as well as working with them together towards water conservation in water-stressed areas. Men and women of the community are being trained to maintain the systems.

Others

  • Some other prominent examples of cooperative societies are Kendriya Bhandar and Sahkari Bhandar, which buy goods directly from producers/ manufacturers, thus removing middlemen and delivering the produce at lower costs to the end-consumers, thereby protecting the interests of both the producers and the customers.
  • Cooperative societies are not restricted to agriculture alone. In banking and finance, cooperative institutions are spread across rural and urban areas as credit societies.
  • As per NABARD’s 2019-20 report, there are 95,238 primary agricultural credit societies (PACSs), 363 district central cooperative banks (DCCBs) and 33 state cooperative banks in India.
  • Apart from credit societies, there are also cooperative housing societies in urban areas and cooperative marketing societies in rural areas.
  • Now the union government is trying to replicate the Amul model in other sectors of the economy, especially in the agriculture and livestock sector. Dairy farmers in the country have already benefitted hugely by the cooperative movement, and if the same can be replicated in the other areas, it will help in increasing the income of the farmers.

HURDLES FACED BY CO-OPERATIVE SOCIETIES

  1. Non-accountability:  The government gave too many benefits to cooperatives like reservation of items extra benefits like finance facilities so also it was also provided with other support this was a good thing to do, but then there was no further accountability which led to these cooperatives becoming more and more lethargic.
  2. Vested interest of some people: A lot of times people who are in position in control of cooperatives are actually people who have joined cooperatives for personal gains.
  3. Lack of coordination: Generally, what happens in cooperatives is that different cooperatives at different level don’t coordinate this makes the work of cooperatives difficult.
  4. The Internal Free Rider Problem: This problem arises when:
    a) New members who provide very little capital enjoy the same benefits as long-standing or founding members.
    b) When the patronage of new members does not make the cooperative much more efficient or competitive by producing significant economies of scale.
  5. Quality more than Quantity:  This is another major problem faced by different cooperatives who go in for quantity this causes a major problem because they think it’s a quick way to earn money so this basically affects the productivity.
  6. No Balanced Growth: The cooperatives in northeast areas and in areas like West Bengal, Bihar, Orissa are not as well developed as the ones in Maharashtra and the ones in Gujarat.
  7. Political Interference: This is the biggest problem of cooperatives as politicians use them to increase their vote bank. They also get their own favorites on the boards of such boards so they are on control these cooperatives.

NEED FOR THE NEW MINISTRY

  • Till now, the cooperative structure has managed to flourish and leave its mark only in few states like Maharashtra, Gujarat, Karnataka etc. Under the new Ministry, the cooperative movement would get the required financial and legal power needed to penetrate into other states.
  • Cooperative institutions get capital from the Centre, either as equity or as working capital, for which the state governments stand guarantee. This formula had seen most of the funds coming to a few states such as Maharashtra, Gujarat, Karnataka while other states failed to keep up.
  • The cooperative sector has witnessed drying out of funding. Under the new Ministry, the cooperative structure would be able to get a new lease of life.
Vaidyanathan Committee submitted its report in 2005 regarding financial hurdles to the societies. The committees made following observations:
  • There is need to have a broad roadmap for revival of the short-term cooperative credit structure
  • Equal importance be assigned to all the components as an inter-related and integrated package to ensure synergetic impact in improving the health and viability of the short-term cooperative credit structure, through the following revival package:
  1. Special financial assistance to bring the short-term cooperative credit structure to an acceptable level of health;
  2. Introduce legal and institutional reforms necessary for their democratic, self-reliant and efficient functioning;
  3. Qualitative improvement in personnel in all tires through capacity building.
  • The committee proposed a unified national model to incorporate the old state laws into a new law. The key reforms proposed by the CAS include: a bank can grant full voting rights to all users; reducing the State government’s participation in cooperative actions to 25 per cent; and restricting the power of States to replace the board of directors.
  • In her Budget speech, Finance Minister Nirmala Sitharaman had mentioned the need to strengthen cooperatives.

AN ANALYSIS OF THE MOVE

Is the creation an assault on federalism?

  • PROS: After the formation of the Cooperation Ministry, many contended that the move would countermand cooperative societies, which form a part of the State List under Entry 32 of Schedule 7 of the Constitution, and will go against the basic contours of cooperative federalism.
  • CONS: But it is not an assault. As many societies are beyond one state so there is need for the center intervention for effective working, regulations and management of them.
  • The Centre also cited the objective as streamlining the whole process and easing the doing of business.

Is it politically motivated move?

  • PROS: It is being said that most of the cooperatives (especially in Maharashtra) are under the control of the opposition parties and ruling party just want to control them. It is also being said that Cooperative sector is related to the economy. How the home minister can be the head of the Ministry?
  • CONS: But the truth is that the control over the sector and its close link with power has led to lot of malpractices and corruption.
  • There have been a number of episodes of corruption and mismanagement in running cooperative banks and sugar factories. The mismanagement and irregularities in the Maharashtra State Cooperative Bank – the state’s apex cooperative bank – compelled to dissolve the board of directors of the banks and appoint an administrator.
  • The directors of the bank were mostly local politicians.

Is it really helpful for the cooperative societies?

  • PROS: The government created a separate ministry for cooperatives when a department of cooperation already existed.
  • There are many possible reasons for this. The first is the sheer size of the cooperative sector measured in monetary terms.
  • According to NABARD’s Annual Report of 2019-20, state cooperative banks have deposits worth Rs 1,35,392 crore and district central cooperative banks have disbursed loans to the tune of Rs 3,00,034 crore.
  • There are, thus, considerable financial resources to be controlled.
  • There is the opportunity for the Union government to tap these resources to offer lucrative schemes to placate the agitating farmers in northern India, including those in western Uttar Pradesh.
  • CONS: In any case, the ministry of cooperation is likely to engender greater control and not autonomy of over cooperatives.

CONCLUSION: The real effects of the Cooperation Ministry can be construed more clearly if one takes into account recent occurrences such as the farmers’ protests. In order to remove the deadlock and ensure a more comprehensive approach, the government will ensure that the farming and livestock cooperative movements in other parts of the country following the new agricultural law are successful, increasing thereby farmers’ incomes and land productivity.

Questions to Ponder

  1. How far do you agree that the creation of Ministry of Cooperation is an assault on federal structure of India? Justify your view.
  2. What are the challenges faced by co-operative societies in India? How the new Ministry of Cooperation will help these societies to overcome such challenges?
  3. Can we consider the establishment of the ministry of cooperation as a watershed development for rural economy in India? Justify your view.
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