Cooperative Societies: Benefits and Challenges – Explained, pointwise

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The Government has introduced the Bill to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 in the Lok Sabha during the ongoing Winter Session of the Parliament. The Amendments have been introduced to improve governance, reform the electoral process, strengthen monitoring mechanisms, and enhance transparency and accountability. The Bill also intends to ensure financial discipline and enable the raising of funds by Multi-State Cooperative Societies. Opposition Parties have contended that the Bill encroaches on the rights of the States and have asked for referral of the Bill to a Standing Committee. The Bill, if passed, can improve the working of cooperative societies in India, which continue to face several challenges in their functioning.

What are Cooperative Societies (Cooperatives)?

According to the International Cooperative Alliance (ICA), 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.

India’s cooperative movement was inspired by the German model of Agricultural Credit Banks and was formalised at the end of the 19th century. In 1904, the British Government enacted the Cooperative Credit Societies Act. The Act dealt solely with the extension of credit. The sector was opened up to other activities in 1912. Administrative reforms in 1919 transferred cooperatives to Provincial control.

After Independence, Cooperatives were placed in the State List. Cooperative Societies were considered to be instruments of socio-economic development and were an essential focus of the initial Five-Year Plans. States had enacted their own laws to regulate cooperatives within their jurisdiction. In 1984, the Multi-State Co-operative Societies Act was enacted by the Parliament to consolidate different laws at the Central level. The Act was amended in 2002.

Read More: Multistate Cooperatives: Govt plans to amend the Law – Explained, pointwise

There are two types of co-operative structures in the country i.e. State Cooperative Societies and Multi-State Cooperative Societies (MSCS). 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. The board of directors are from all the States these collectives operate in and control all the finances and administration. The Multi-State Cooperative Societies come under the Union Government and the State Cooperative Societies are under the State Governments.

What are the provisions related to regulation of Cooperative Socieites?
Constitutional Provisions

The 97th Constitutional Amendment Act, 2011 added Part IXB to the Constitution. Part IXB deals with various provisions related to Cooperative Societies like their incorporation, elections, audits, and general operations.

The Act also added Article 43B to the Constitution. Article 43B states that the State shall endeavour to promote voluntary formation, autonomous functionality, and professional management of Cooperative Societies.

The Act amended Article 19(1)(c) to include freedom to form cooperative societies.

SC Ruling

In July 2021, the Supreme Court struck down certain provisions of the 97th Amendment Act, 2011, because (a) Part IX B (Articles 243ZH to 243ZT) has “significantly and considerably impacted” the “exclusive legislative power” of State Legislatures over the cooperative sector. The Court noted that Cooperative Societies is a matter entirely in the domain of State Legislatures (Entry 32 List 2 of Seventh Schedule). For Multi-State Cooperative Societies, the power is with the Union of India through Entry 44 of List 1; (b) The Parliament had passed the 97th Amendment without having it ratified by State Legislatures, as required by the Constitution.

Further, the SC upheld the constitutionality of the provisions of Part IX B relating to Multi-State Cooperative Societies (MSCS).

Other Provisions

In 1958, the National Development Council (NDC) advocated a National Policy on Cooperatives. The National Policy on Cooperatives was formulated in 2002.

The National Cooperative Development Corporation (NCDC) was established by law in 2002 saw India’s National Cooperative Policy.

The Ministry of Cooperation was established in July 2021 to boost the Cooperative sector and realize the vision From Cooperation to Prosperity.

Read More: Ministry of Cooperation – Explained, pointwise
What are the benefits of Cooperative Societies?

Easy setup, less legal implications: Any ten members who have acquired the majority can form a cooperative society with few legal formalities.

Promote equality and transparency: A cooperative society is based on the principle of ‘one man, one vote‘. All members have equal rights in handling the internal affairs. The surplus generated by these societies is dispensed equally among the members.

Limited Liability: The member’s liability in a cooperative society is confined to the extent of their capital contribution.

Eliminate Middlemen: Consumer cooperative societies are set up to attain a seamless supply of essential commodities. These societies purchase commodities directly from the producers & wholesalers and sell them to the end-users at affordable prices. Thus they eliminate middlemen and make supply chains more efficient. Similarly, Farm Producer Ogranizations (FPOs) deal directly with the buyers and help the farmers get better profits.

Read More: Farmers Producer Organizations (FPOs) in India- Explained, pointwise

Access to Credit: Cooperative societies have helped in reducing the influencing of private money lenders in rural areas. Cooperatives facilitate credit at the nominal interest rate.

Support Agriculture: Cooperative societies have supported the government’s effort to improve agricultural production. They act as a bridge between the government and farmers e.g., the government disburses High-Yielding Variety (HYV) seeds and fertilizers via Cooperatives.

Reserve Funds: Cooperative societies are under the legal obligation to transfer their 25% of profit to the general reserve. Thus, it reduces the need for external funding.

Fosters Habit of Saving: Cooperative societies cultivate the habit of saving among their members. They render credit facilities generally for productive purposes only.

Social Benefits: Cooperative societies have played a significant role in modulating social customs and controlling irrelevant expenses. The profits reaped by the cooperatives can be used for facilitating fundamental amenities of the society.

What are the issues in the working of Cooperative Societies?

Disputes and Conflicts: Occasionally, Cooperative Societies suffer from internal conflicts due to presence of members with diverse backgrounds. Some members seek personal gain ignoring the spirit of service.

Lack of Expertise: Many Cooperative Societies have failed to be profitable. The society’s earnings are insufficient to hire skilled and experienced members for proper management.

Government Control: Big Cooperative Societies have to face interference by Governments. Experts contend that certain provisions/rules are too restrictive and Cooperatives lack expertise and manpower to comply with these regulations. This hampers their growth and expansion. Moreover, Cooperatives also become contesting field of political parties for electoral benefits, which impacts their functioning.

Limited Resources: Most members can contribute limited capital. Cooperatives struggle with shortage of funds, especially at the initial stages. Moreover, the societies are formed for the welfare of the society and the profit motive is ignored to some extent.

Other Problems: Cooperatives also suffer from issues like misappropriation of funds by members, pursuing narrow interests, political interference etc. leading to inefficient functioning.

What should be done to address the issues?

Financial Support: (a) Long-term, interest-free loans should be made available to address the fund crunch; (b) Credit should be provided not only for small farmers, tenants and share croppers but also for landless workers and artisans; (c) Security requirements for provision of credit should be eased. The volume of loanable funds should be enlarged through rediscounting facility.

Technical Guidance: A package of inputs and services including marketing services and technical guidance can prove to be vital in sustaining Cooperative Societies. Eventually, they can be become self-sufficient by developing in-house expertise with time.

Use of Local Gesources: Local conditions must be taken into account when establishing cooperative groups. Farming and marketing societies must maximise the utilisation of local resources.

Reduce External Interference: Red tape, political meddling, administrative bottlenecks etc. must be eliminated. Cooperative societies should not be impeded by influential village lobbying groups.

Awareness Generation: (a) Women should be told about programmes, especially those that help with child care, nutrition during pregnancy, balanced diet etc.; (b) Adult education and literacy programmes should be implemented on a wide basis in rural areas; (c) People need to be made aware about the utility of Cooperatives through social media, TV, newspapers etc.


Cooperatives can play a vital role in the rural transformation. Provision of adequate financial and technical assistance can enable them to address rural challenges and contribute to India’s growth story. Government should take all possible steps to facilitate growth ecosystem for the Cooperatives.

Source: The Hindu, Business Standard, IJIP, PIB

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