What the cooperation ministry must do Editorial 20th Jul’21 Financial Express


  • Cooperatives are organizations formed at the grassroots level by people to harness the power of collective bargaining towards a common goal.
  • The main aim of Cooperative societies is to provide tangible benefit to all people who face similar problems.
  • Co-operatives are owned by members—producers or consumers—and have in many ways resulted in benefits to the stakeholders.
  • By some estimates, the cooperative sector serves 400 million people directly and indirectly in India. 


  • The word ‘co-operative’ mostly reminds people of the most popular and successful one – Amul.
    • Amul impacts the lives of millions of dairy farmers in Gujarat and is a favourite of consumers all over India.

  • Sugar co-operatives and housing cooperatives are also frequently in news, along with primary agriculture credit co-ops (PACS).
  •  On the other hand, large, efficient multi state co-ops like IFFCO or KRIBHCO are not often in news.

 An effort since 2003 was made to promote hybrid ‘Producer Companies’:

  • Since 2003, a concerted effort to promote another form of ‘co-operative’ organisation, namely, Producer Companies, has been made.
    • Producer Companies are a hybrid between a private limited company and a co-operative society.
    • The aim is to combine the goodness of a co-operative enterprise and the vibrancy and efficiency of a company—with a regulatory framework similar to that of a private limited company.

  • This movement has picked up momentum during the last decade.
  • Many farmers see producer companies as functional and better-governed institutions, free from interference by state governments.

97th constitutional amendment in 2011 to further enable and boost co-operatives:

  • The 97th constitutional amendment in 2011 made three important changes:
    • It introduced the right to form co-operatives as a fundamental right under Article 19.
    • It amended Article 43 by introducing Article 43B (DPSP) which enjoined upon the state to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperatives.
    • It introduced articles 243 ZH to ZT containing provisions with regard to the objectives above.

But the High Court judgement had slowed down the reforms:

  • The 97th amendment attempted to provide a similar ecosystem to that of ‘Producer Companies’ to the co-operatives.
  • Unfortunately, the Gujarat High Court struck down Part IX B containing Article 243ZH to 243 ZT in 2013.
  • The appeal by the Centre in the Supreme Court only came up for hearing in July, 2021.

Co-ops had some success but now limited to few states:

  • The cooperatives did succeed initially, but fell into disuse in many states.
  • Only a few states can now claim to have a significant co-operative base.
  • There was a time when primary agricultural credit societies (PACS) had the major share of agricultural lending.
  • Today, it is less than 10% (confined to a few states), with commercial banks cornering the major share.

Mis-management of Co-ops:

  • Most state co-operative institutions have become quasi-PSUs.
  • These need government approval for almost every single decision, be it price or personnel.
  • Governments have used their funds for their own needs resulting in loss of income to members.

In 2021, Co-op banks were brought under greater RBI regulation:

  • The Banking Regulation Amendment Act 2020 placed some regulation of co-operative banks under RBI.
    • Earlier exemptions enjoyed by the co-operative banks are no longer available to them.

  • These changes have more to do with security of depositors’ money and core-banking facilities.
  • RBI decides the conditions and qualifications for the chairman, and examines the quality of directors on the Board; it can also supersede the Board.

Creation of the Union Ministry of Cooperation:

  • In mid 2021, the Government of India created a new and separate Union Ministry of Cooperation i.e. for a Ministry for the Cooperative sector in India.
  • The government said that it would like to give wings to the co-operative movement by ensuring it has an ‘administrative, legal and policy framework’ of its own.
  • Those in favour of the new ministry has hailed it as a step towards “sahakarita se samriddhi” (cooperation to prosperity).
  • On the other hand, those opposing it have called it an encroachment on the powers of the states, specifically, entry 32 in the State List.


  • The new ministry has, inter alia, the following objectives:
    • General policy in the field of co-operation and co-ordination of co-operation activities in all sectors
    • Realisation of sahakarita se samriddhi

  • It will also deal with the NCDC and multi-state cooperatives (IFFCO, KRIBHCO, etc)
  • As of now, it seems that the new ministry will have an expanded development function and not a regulatory role.

How the ministry can help:

  • The new ministry can help by:
    • Enabling members of co-operatives to become effective owners
    • Ensuring members’ financial interests are not taken away without their consent
    • Giving freedom to co-operatives to take all commercial and personnel decisions
    • Encouraging formation of co-operatives in many areas of economic activity (workers, artisans, farmers, employees, etc)
    • Promoting women’s co-operatives
    • Making co-operatives truly autonomous and member managed, and
    • Creating a co-operative of co-operatives.

Way ahead:

  • For co-operatives to become vibrant business organisations, they need to be decontrolled and de-bureaucratised.
  • The new focus on the cooperative sector makes it the right time to go back to the basics and create many cooperatives like Amuls that deliver prosperity to a large number of stakeholders.


GS Paper III: Economy