A co-operative is an autonomous group of people who have come together voluntarily to achieve their common economic, social, and cultural needs and objectives through a democratically governed and collectively owned business. They are founded on the principles of self-reliance, accountability, democracy, equality, equity, and solidarity. Co-operative members believe in the ethical qualities of honesty, openness, social responsibility, and care for others, as their founders did. According to Gandhiji, cooperation was required for the formation of a socialist society and total decentralization of power. Co-operation, he believed, was one of the most crucial ways to empower people. The UPSC Indian Polity and Governance Syllabus include the Co-operative Societies which is described in this article.

History Co-Operative Movement in India: Pre Independence Era

The Indian Co-operative Movement arose from the despair and upheaval that characterized the last part of the nineteenth century. Village industries had a death blow as a result of the Industrial Revolution, and people were forced to turn to agriculture as their only source of income and employment. Agriculture had become unprofitable as a result of the subdividing and fragmentation of estates and there arose the need for Co-operative societies.

Initial Period (1904-1911)

• Non-institutional agencies in the form of money-lenders used to charge high-interest rates to vulnerable peasants in the past.
• Farmers were obliged to sell their things to settle their obligations because of the scenario. Farmers led an agitation against moneylenders in several regions of the country, particularly in Pune and Ahmednagar.
• Finally, the government recognized the farmers' predicament and passed three acts: the Deccan Agricultural Relief Act (1879), the Land Improvement Loan Act (1883), and the Agriculturists Loan Act (1884).
• The Famine Commission of 1901 strongly advocated that agriculturists be given loans to boost agriculture to prevent famine. The Co-operative Society Act was passed in 1904.

Expansion stage

• Co-operation became a provincial subject with the Montague-Chelmsford Act of 1919, which boosted the movement's momentum.
• Various states enacted their legislation to help the cooperative movement succeed.
• During this time, the co-operative societies' membership grew significantly. During the same time, the first co-operative land mortgage banks were established in Punjab, followed by land mortgage banks in Madras (1925) and Bomaby (1926). The year 1929 was marked by a global economic downturn.

Restructuring phase

• It began in 1930, when the Vijayaraghava Charya Committee in Madras, the Rehabilitation Enquiry Committees in Travancore and Mysore, the Kale Committee in Gwalior, the Mehta and Bhansali Committee in Bombay, and the Wace Committee in Punjab were appointed to look into the possibility of restructuring co-operative societies.
• The Indian Central Banking Enquiry Committee (1931) pointed out the obvious flaws, particularly about unnecessary delays and credit shortages. Meanwhile, the Madras Co-operative Societies Act of 1932 and the Madras Co-operative Land Mortgage Banks Act of 1934 went into effect,
• with the former promoting co-operative growth and the latter promoting long-term credit development. Later, during World War II, the movement was stymied.

Co-operative Movement in Post-Independence Era

• Part of a Mixed Economy: Following independence, the country followed a planned economic development strategy to create a mixed economy with three sectors: public, private, and cooperative. Cooperatives were envisioned as a balancing force between the public and private sectors.
• Cooperatives formed an important feature of Five-Year Plans after the country gained independence. Cooperatives, together with the Panchayat and schools, were considered one of the three foundations of democracy by Pandit Jawaharlal Nehru.
• National Policy of Cooperatives: In 1958, the National Development Council (NDC) suggested a national cooperative policy, as well as staff training and the formation of Cooperative Marketing Societies. In 2002, the Indian government announced a National Policy on Cooperatives.
• The National Cooperative Development Corporation (NCDC) was established in 1962 as a statutory corporation under the National Cooperative Development Corporation Act.
• Committees Set up for Cooperatives: In 1954, the Rural Credit Survey Committee suggested that all levels of government participate in cooperatives. The Government of India appointed the S.T. Raja Committee to recommend changes to the Cooperative Law. The committee drafted a Model Act that allows states to participate in the management of supported cooperative societies and designate government nominees.
• Co-operative societies now have constitutional status and protection thanks to the 97th Constitutional Amendment Act of 2011. In this context, it made the following three constitutional amendments:

1. It established the right to establish cooperative societies as a fundamental right (Article 19 ).
2. It featured a new Directive Principle on State Policy on the Promotion of Cooperative Societies (Article 43-B2 ).
3. It created a new Part IX-B to the Constitution called "Co-operative Societies" (Articles 243-ZH to 243-ZT).

Constitutional Provisions

The following provisions concerning cooperative societies are found in Part IX-B of the constitution:

• The state legislature may enact measures for the incorporation, regulation, and winding-up of co-operative organizations based on the principles of voluntary formation, democratic member control, member economic involvement, and independent operation.
• Members of the Board of Directors and their terms of office: The board will be made up of the number of directors determined by the state legislature. However, a co-operative society's maximum number of directors cannot exceed twenty-one.
  • Every co-operative society with members from such a category of persons shall have one seat reserved for the Scheduled Castes or Scheduled Tribes and two seats reserved for women on the board of directors, as determined by the state legislature.
  • The board's elected members and office bearers will serve for five years from the date of their election.

• Election of Board Members: A board election must be held before the expiration of the board's term to ensure that the newly elected members take office immediately after the term of the outgoing board members has expired.
• The production of electoral rolls and the conduct of elections to a co-operative society shall be under the supervision, guidance, and control of such a body as the state legislature may provide.

• Accounts of Co-operative Societies: The state legislature may make provisions for co-operative societies to keep accounts and have them audited at least once a year and every co-operative society must have its finances audited (within six months of the financial year's end) by an auditor or auditing firm appointed by the co-operative society's general body.

• Returns: Every co-operative society must file returns to the body designated by the State Government within six months after the end of each financial year.
• Offences and Penalties: The state legislature has the authority to enact laws for co-operative society offenses and penalties for the acts such as willfully submitting a false return or providing false information.
• Application to Multi-state Co-operative Societies: The provisions of the chapter shall apply to multi-state co-operative societies with the modification that any reference to the "State Legislature," "State Act," or "State Government" shall be understood as a reference to "Parliament," "Central Act," or "Central Government," respectively.
• Union Territory: The rules of this section apply to Union territories. However, the President may indicate in the notification that the provisions of this paragraph do not apply to any Union territory or part thereof.

Issues Faced by the Cooperative Sector

Government Interference

• The administration has taken a patronizing stance toward the cooperative movement from the start. Co-operative institutions were handled as if they were an integral component of the government's administrative structure.
• As a result, government intervention became an important part of how these organizations functioned and thus, the movement’s independence and self-reliance existed only on paper and files. It was not given the proper importance that it deserves in any plan and has not become a full-fledged people movement.

Mismanagement and Manipulation

• The co-operative movement's central idea is that it elevates farmers to the level of shareholders and provides them with agricultural, educational, and medical services. Farmers, sometimes, find it difficult to manage the institutions with large shareholder strength.

Lack of Awareness

• People are unaware of the movement's goals, the contributions it can make to society's reconstruction, and the norms and regulations that govern co-operative institutions. Regrettably, no concerted attempts have been undertaken in this direction. People regard these institutions as a means of gaining government benefits and concessions.

Restricted Coverage

The co-operative movement has also been hampered by two major operational constraints.

• One is that these cultures have been quite modest in size.
• The other is that the majority of these societies have only a few members and operate in only one or two locations.
• As a result, their resources are limited, making it difficult for them to develop their capabilities and broaden the scope of their operations.

Functional Weakness

• Since its start, the co-operative movement has struggled with a lack of skilled workers. Two key issues have contributed to the shortage of trained employees.
• First and foremost, there had been a dearth of institutions dedicated to training workers.
• Second, due to the inadequate performance of cooperative institutions, efficient individuals were not drawn to or driven by them

Flaws in operation

• Co-operative societies, too, have several flaws in their operation. They have been unable to progress along healthy lines due to this deficiency. As a result, there are several pitfalls.
• The limiting issues include poor infrastructure, poor administration, overdependence on government, dormant membership, non-conduct of elections, a lack of solid human resources, policy, and a lack of professionalism, among others.
• Co-operatives in India are also unable to develop effective communication and public relations strategies that promote the concept of collaboration among the general population.

Co-operative Societies - Recent Developments

• Recently, the Supreme Court upheld a 2013 judgment (Union Of India Vs Rajendra Shah) of the Gujarat High Court (HC) which struck down certain provisions of the Constitution (97th Amendment) Act 2011 to the extent it introduced Part IX B in the Constitution to deal with co-operative societies.
• In 2013, the Gujarat High Court ruled that the amendment was likely to be struck down since it was passed without the assent of one-half of the state legislatures, as required under Article 368(2) of the Constitution.
• According to Article 368(2), ratification of one-half of state legislatures is required for an amendment that makes changes to an entry in the state list.
• The Supreme Court supported the Gujarat High Court's decision, stating that the change dealt with an issue that was solely a State subject, namely cooperative cooperatives. By using the law of severability, the court maintained the sections of Part IX B that deal with multi-state cooperative societies.
• The exclusive legislative power granted to states in issues covered by the Second List of the Seventh Schedule is a key constitutional concept enshrined in the Constitution's basic framework.

Ministry of Cooperation

• The Central Government recently established a distinct ‘Ministry of Co-operation' to realize the aim of ‘Sahakar se Samriddhi' (Prosperity via Cooperation) and to revitalize the cooperative movement.
• The new ministry's goal is to establish a legal, administrative, and regulatory framework that will make it easier for cooperatives to do business and aid the formation of "multi-state cooperative societies."
• The focus is on transitioning cooperatives from small to large businesses, which is aided and sustained by allowing businesses to overcome entry and growth constraints.

Conclusion

Cooperatives play a vital role in encouraging collectivism and sustaining the country's social capital basis. Cooperatives are the most effective means of preserving the spirit of collectivism and democracy.

The establishment of a vast network of social groups, such as cooperatives, would aid in the formation and use of social capital, and ‘the higher the social capital, the greater the possibilities of development.

FAQs

Question: What are co-operative societies?

Question: What is the primary objective of a co-operative society?

Question: How are co-operative societies governed in India?

Question: What are the key principles of co-operative societies?

Question: Can co-operative societies earn a profit?

MCQs

1. The primary objective of a co-operative society is to:

A) Maximize individual profits

B) Promote collective economic interests and welfare of its members

C) Function as a government department

D) Create competitive markets

2. Which of the following laws governs co-operative societies in India?

A) Indian Companies Act, 2013

B) Co-operative Societies Act, 1912

C) Indian Trusts Act, 1882

D) Societies Registration Act, 1860

3. Co-operative societies operate based on the principle of:

A) Hierarchical control

B) Voluntary membership and democratic control

C) Centralized decision-making

D) Profit maximization at any cost

4. Who oversees the functioning of co-operative societies at the state level?

A) President of India

B) Ministry of Finance

C) Registrar of Co-operative Societies

D) Reserve Bank of India

5. What happens to the surplus earned by a co-operative society?

A) Distributed among government officials

B) Donated to non-members only

C) Distributed among members or reinvested

D) Sent to central government reserves

GS Mains Questions and Model Answers

Q1: Explain the significance of co-operative societies in promoting economic and social welfare in India.

Answer: Co-operative societies play a significant role in promoting economic and social welfare in India by pooling the resources of members for collective benefit. They operate on principles of mutual help, democratic control, and equitable distribution of surplus. Co-operatives serve various sectors, including agriculture, banking, housing, and consumer goods, reducing dependence on intermediaries, lowering costs, and improving access to essential services. By empowering members through collective ownership, co-operatives contribute to rural development, poverty alleviation, and socio-economic equity, fostering a spirit of cooperation and community development.

Q2: Discuss the challenges faced by co-operative societies in India and suggest measures to overcome them.

Answer: Co-operative societies in India face several challenges, including lack of professional management, political interference, inadequate financial resources, and limited market access. Corruption, inefficient governance, and internal disputes can hinder their functioning. To overcome these challenges, measures such as professional training for management, strengthening regulatory oversight, promoting transparency, and fostering collaboration among co-operatives can be implemented. Technology adoption, financial literacy programs, and partnerships with private and government entities can further enhance their competitiveness and sustainability, ensuring better outcomes for their members.

Q3: Analyze the role of co-operative societies in the agricultural sector of India.

Answer: Co-operative societies play a crucial role in the agricultural sector by providing farmers with access to credit, inputs such as seeds and fertilizers, and fair market prices for their produce. They eliminate middlemen, thereby reducing exploitation and increasing farmers' incomes. Co-operatives also facilitate knowledge sharing, access to modern farming techniques, and support in marketing produce through collective bargaining. By empowering small and marginal farmers, co-operatives contribute to rural development and food security. However, enhancing their capacity, transparency, and operational efficiency is necessary to fully harness their potential in transforming the agricultural landscape.

Previous Year Questions on  Cooperative Societies

1. UPSC CSE 2020

Question: Evaluate the impact of co-operative societies on rural development in India.

Answer: Co-operative societies have had a profound impact on rural development in India by fostering collective economic activities and empowering rural communities. They provide essential services such as credit, inputs, marketing support, and education, improving rural livelihoods. By promoting self-reliance and equitable benefit-sharing, co-operatives reduce poverty, enhance agricultural productivity, and create employment opportunities. Challenges such as political interference, inadequate resources, and poor governance must be addressed to fully realize their potential. Strengthening co-operatives through capacity building, transparency, and technology integration is key to sustainable rural development.

2. UPSC CSE 2019

Question: Discuss the advantages and limitations of the co-operative model in the Indian economy.

Answer: The co-operative model offers several advantages, including collective ownership, democratic decision-making, and equitable distribution of benefits among members. It plays a crucial role in promoting financial inclusion, rural development, and social welfare. Co-operatives reduce dependence on intermediaries, enabling better prices for goods and services. However, limitations such as lack of professional management, political interference, and limited financial resources can hinder their effectiveness. To strengthen the co-operative model, enhancing transparency, professionalizing management, and fostering collaboration with private and government sectors are necessary steps. This will ensure co-operatives contribute effectively to the Indian economy.