Why in news?
Maharashtra ordinance letting State nominate directors to large cooperatives, including Gokul Dairy, sparked protests. The Bombay High Court did not stay the ordinance. It allowed the chairperson election, but directed that votes of the four nominated directors be kept and counted separately.
The State says the ordinance is about better oversight of big cooperatives. Opposition parties and farmer groups call it interference in an elected body.
UPSC Relevance
Prelims: 97th Constitutional Amendment, Part IXB, Article 43B, Multi-State Cooperative Societies Act, National Cooperative Policy 2025.
Mains GS2: Federalism and Centre-State relations; statutory and regulatory bodies; role of cooperatives and SHGs in development.
What is a Cooperative?
- Meaning: An autonomous association of persons who come together voluntarily to meet common economic, social and cultural needs through a jointly owned and democratically controlled enterprise (International Cooperative Alliance).
- Principles: Voluntary and open membership, democratic member control (one member, one vote), member economic participation, autonomy and independence, education and training, cooperation among cooperatives, and concern for community.
- Scale in India: About 8.3 lakh cooperative societies with around 30 crore members, spread across credit, dairy, sugar, fertiliser, housing, fisheries and marketing.
- Success stories: Amul (Anand pattern, Operation Flood), IFFCO and KRIBHCO (fertilisers), Maharashtra’s sugar cooperatives, Kerala’s credit societies.
Constitutional Provisions
Legislative competence
- State List, Entry 32: Incorporation, regulation and winding up of cooperative societies. Each State has its own Cooperative Societies Act.
- Union List, Entry 44: Covers corporations with objects not confined to one State. Multi-State Cooperative Societies are governed by the MSCS Act, 2002.
- Banking: Banking is in the Union List (Entry 45), so cooperative banks are also regulated by the RBI under the Banking Regulation Act.
97th Constitutional Amendment Act, 2011
| Provision | What it says |
|---|---|
| Article 19(1)(c) | Right to form associations, unions “or co-operative societies” – made a Fundamental Right |
| Article 43B (DPSP) | State shall promote voluntary formation, autonomous functioning, democratic control and professional management of cooperatives |
| Part IXB (Articles 243ZH to 243ZT) | Framework for governance of cooperative societies |
Key features of Part IXB
- Board size: Maximum 21 directors.
- Reservation: One seat for SC/ST and two seats for women on boards of societies having such members.
- Term: Five years for elected members; elections must be held before the term ends, conducted by a body set up by the State law.
- Co-opted members: The board can co-opt two experts in banking, management or finance, but they cannot vote in elections of office bearers.
- Supersession: A board cannot be superseded or kept under suspension for more than six months (one year for cooperative banks).
- Audit and accountability: Accounts to be audited within six months of the financial year; annual general body meeting; members’ right to information.
Union of India v. Rajendra N. Shah (2021)
- The Supreme Court (2:1) struck down the parts of Part IXB that dealt with State cooperative societies.
- Reason: Cooperatives are a State subject, so the amendment needed ratification by half the State legislatures under Article 368(2). This was not done.
- Result: Part IXB now applies only to Multi-State Cooperative Societies and to cooperatives in Union Territories. The rights under Articles 19(1)(c) and 43B remain intact.
- State laws, not Part IXB, now decide matters like nominated directors in State cooperatives. This has widened the scope for State control.
Legal and Institutional Framework
- Multi-State Cooperative Societies (Amendment) Act, 2023: Cooperative Election Authority for free elections, Cooperative Ombudsman for member complaints, Cooperative Rehabilitation, Reconstruction and Development Fund for sick societies, reservation for women and SC/ST on boards, and stricter audit.
- Banking Regulation (Amendment) Act, 2020: Brought urban and multi-state cooperative banks under closer RBI supervision after the PMC Bank crisis (2019).
- Ministry of Cooperation (2021): Separate Union ministry to give policy focus under the slogan ‘Sahkar se Samriddhi’.
- Key initiatives: Steps taken since 2021 include:
- Model bye-laws for PACS (2023) to make them multipurpose, covering dairy, fisheries, storage, LPG and Jan Aushadhi outlets.
- Computerisation of PACS and a National Cooperative Database.
- World’s largest grain storage plan in the cooperative sector.
- Three new national multi-state cooperatives for exports (NCEL), organic products (NCOL) and seeds (BBSSL).
- Tribhuvan Sahkari University at Anand for cooperative education and training.
- 2025 was observed as the UN International Year of Cooperatives.
National Cooperative Policy, 2025
- Background: Launched in July 2025, it replaces the National Policy on Cooperatives, 2002. Drafted by a 48-member committee headed by former Union Minister Suresh Prabhu. It covers the period 2025 to 2045.
- Six pillars: Strengthening foundations, promoting vibrancy, future-readiness, enhancing inclusivity and reach, entering new and emerging sectors, and engaging the young generation.
Key targets
| Target | Details |
|---|---|
| GDP contribution | Triple the cooperative sector’s share in GDP by 2034 |
| Number of cooperatives | Increase by 30%, from about 8.3 lakh to over 10.7 lakh |
| Membership | Bring 50 crore citizens into active participation in cooperatives |
| Universal reach | At least one cooperative (PACS, dairy, fishery or multipurpose) in every village/panchayat |
| New sectors | Tourism, taxi services, insurance, green energy and other emerging areas |
| Inclusion | Greater participation of women, SCs, STs and youth; cooperatives as a career option |
Challenges Faced by Cooperatives
- Politicisation: Large cooperatives, especially in sugar and dairy, often become political power centres. Control of boards is fought along party lines, as seen in the Gokul Dairy case.
- Excessive State interference: Nomination of directors, supersession of boards, and control by Registrars weaken autonomy promised under Article 43B.
- Elite capture: Rich and influential members dominate boards, while small farmers and producers have little say.
- Weak governance and corruption: Irregular elections, poor audits, frauds and nepotism, as seen in several cooperative bank failures.
- Financial weakness: Many PACS have low capital, high overdues and depend on refinance; a large number are dormant or loss-making.
- Lack of professional management: Shortage of trained managers, technology and marketing skills.
- Dual control of cooperative banks: Both the RBI and State Registrars regulate them, causing gaps in oversight.
- Regional imbalance: The movement is strong in Maharashtra, Gujarat, Kerala and Karnataka, but weak in the North-East and eastern States.
- Low member participation: Members are often passive; women and marginalised groups are under-represented.
- Federal tension: A Union ministry for a State subject and Central schemes for PACS have raised concerns about centralisation, while States themselves are increasing control through laws and ordinances.
Committee Recommendations
| Committee | Year | Key recommendations |
|---|---|---|
| All India Rural Credit Survey Committee (A.D. Gorwala) | 1954 | Famous line: “Co-operation has failed, but co-operation must succeed”; State partnership in cooperative credit |
| Choudhary Brahm Prakash Committee | 1991 | Model Cooperatives Act to reduce government control and ensure autonomy and democratic functioning |
| R. Gandhi Committee (RBI) | 2015 | Allow large urban cooperative banks to convert into Small Finance Banks; professional boards |
| N.S. Vishwanathan Committee (RBI) | 2021 | Four-tier regulatory structure for urban cooperative banks; umbrella organisation for UCBs |
Way Forward
- Respect autonomy: Limit State nominations to cases where the State has real financial stake, and keep nominees without voting rights in elections, in the spirit of Part IXB.
- Model law for States: States may voluntarily adopt the core principles of Part IXB (fixed term, timely elections, limits on supersession) in their own Acts.
- Independent election bodies: State Cooperative Election Authorities on the lines of the 2023 MSCS amendment.
- Professionalise management: Trained CEOs, expert directors, digital accounts and regular audits.
- Financial strength: Implement Vaidyanathan-type recapitalisation, revive dormant PACS and diversify their business.
- Clear regulation of cooperative banks: Reduce dual control; RBI for banking functions, Registrars for administrative matters.
- Inclusion: Reach uncovered villages, especially in eastern and north-eastern States; more women and youth on boards.
- Cooperative federalism: Centre and States should work through consultation, since cooperatives are a State subject.
- Member education: Awareness and training so that members actively take part and hold boards accountable.
Cooperatives work best when they are run by members, not by governments or political parties. Strong State support with minimum control is the balance India needs to achieve ‘Sahkar se Samriddhi’.
Practice MCQ
Q1. With reference to the 97th Constitutional Amendment Act, 2011, consider the following statements:
1. It made the right to form cooperative societies a part of Article 19(1)(c).
2. It inserted Article 43B in the Directive Principles of State Policy.
3. The Supreme Court in Union of India v. Rajendra N. Shah (2021) struck down Part IXB in its entirety.
How many of the above statements are correct?
(a) Only one (b) Only two (c) All three (d) None
Answer: (b)
Explanation: Statement 3 is incorrect. The majority struck down only the provisions relating to State cooperative societies. Part IXB still applies to Multi-State Cooperative Societies.
Q2. Consider the following statements:
Statement-I: Part IXB of the Constitution continues to apply to Multi-State Cooperative Societies.
Statement-II: Parliament has the power to make laws on corporations whose objects are not confined to one State, so ratification by States was not needed for this part.
Which one of the following is correct in respect of the above statements?
(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
(b) Both Statement-I and Statement-II are correct but Statement-II does not explain Statement-I
(c) Statement-I is correct but Statement-II is incorrect
(d) Statement-I is incorrect but Statement-II is correct
Answer: (a)
Explanation: Multi-State cooperatives fall under Entry 44 of the Union List. Since Parliament is competent here, the Court saved Part IXB for them even though State ratification under Article 368(2) was not obtained.
Mains Practice Question
“Cooperatives in India suffer less from lack of State support than from excess of State control.” Examine this statement in the light of constitutional provisions on cooperatives and suggest measures to make them autonomous and democratic. (15 Marks, 250 words)
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