Cooperative Movement in India

• 26 Jul 2021

Cooperatives in India

• Definition:
  
  • The International Cooperative Alliance (ICA) defines a Cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”
• Constitutional Provisions:
  
  • The Constitution (97^th Amendment) Act, 2011 added a new Part IXB right after Part IXA (Municipals) regarding the cooperatives working in India.
    
    • The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.
      
      • This enables all the citizens to form cooperatives by giving it the status of fundamental right of citizens.
    • A new Article 43B was added in the Directive Principles of State Policy (Part IV) regarding the “promotion of cooperative societies”.
  • SC Ruling:
    • In July, 2021, the Supreme Court struck down certain provisions of the 97th Amendment Act, 2011.
      • It gave a major boost for federalism as the amendment shrank the exclusive authority of States over its co-operative societies.
    • Part IX B dictates the terms for running co-operative societies.
      • As per the SC, Part IX B (Articles 243ZH to 243ZT) has “significantly and substantially impacted” State legislatures’ “exclusive legislative power” over its co-operative sector.
      • Also, the provisions in the 97th Amendment were passed by Parliament without getting them ratified by State legislatures as required by the Constitution.
      • The SC held that states have exclusive power to legislate on topics reserved exclusively to them (cooperatives are a part of State list).
        • The 97th Constitutional Amendment required ratification by at least one-half of the state legislatures as per Article 368(2).
        • Since the ratification was not done in the case of the 97th amendment, it was liable to strike it down.
        • It upheld the validity of the provisions of Part IX B which are related to Multi State Cooperative Societies (MSCS).
        • It said that in case of MSCS with objects not confined to one state, the legislative power would be that of the Union of India.

Genesis of Cooperative Movement in India

• Causes of the Movement: The Cooperative Movement in India was born out of the distress and turmoil that prevailed in the last quarter of the 19^th century.
  
  • The Industrial Revolution had given a death blow to village industries and driven people to agriculture, the only avenue of employment and livelihood.
  • The consequent sub-division and fragmentation of holdings had made agriculture an uneconomic proposition.
  • Other factors such as the rigidity of land revenue collection, uncertainty of rainfall and consequently lesser crop production compelled the farmers to approach the money-lenders.
    
    • The money lenders advanced money either by purchasing the crop at a throwaway price or by charging very high rates of interest.
  • All these factors emphasised the need for the provision of cheap credit through an alternative agency.
• Informal Cooperatives in India: Even before formal cooperative structures came into being through the passing of a law, the practice of the concept of cooperation and cooperative activities were prevalent in several parts of India.
  
  • Some of them were named as Devarai or Vanarai, Chit Funds, Kuries, Bhishies, Phads.
    
    • In the Madras Presidency were organised ‘Nidhis’ or Mutual-Loan Associations.
    • In the Punjab, a society on cooperative lines was started in 1891 for controlling the common land of the village for the benefit of the co-sharers.
  • All these efforts were purely voluntary and strictly non-official.
  • The first official step was taken when Sir William Wedderburn made, after the Deccan riots, the proposal for the establishment of agricultural banks as a remedy against rural indebtedness.

Cooperative Movement in Pre-Independence Era

Initial Stage of Cooperative Movement (1904-11)

• First Cooperative Act in India:
  
  • The Indian Famine Commission (1901) induced the government to set up a committee under the presidency of Sir Edward Law to report on the introduction of cooperative societies in India.
  • The Committee reported favorably in 1903 and the first Cooperative Credit Societies Act was passed in 1904.
  • Salient Features of the Act:
    
    • Any ten persons living in the same village or town or belonging to the same class or tribe could form a cooperative credit society.
    • Societies were classified as Rural and Urban depending if the majority of the total membership (80%) was agricultural or non-agricultural.
    • Rural society was not permitted to distribute profits, but in the case of urban societies, profits could be distributed after carrying 25% of the net profits to the Reserve Fund.
  • Drawbacks of the Act:
    
    • The act provided no legal protection to non-credit societies.
    • It also made no provision for mobilising urban savings for financing agricultural operations.
    • The classification of societies into urban and rural was found to be arbitrary, unscientific, and highly inconvenient.
    • Many provisions of the Act of 1904 became a hindrance to the further spread of the movement.

Modification Stage of Cooperative Movement (1912-1918)

• The Cooperative Societies Act of 1912:
  
  • The defects of the 1904 Act were remedied when the Cooperative Societies Act, 1912 was enacted.
  • Salient Features:
    
    • Any society, credit or otherwise, could be registered which had as its objective, the promotion of the economic interest of its members.
    • A federal society like the Central Bank or union could be registered.
    • No member could have more than 1/5 of the total share capital or hold share exceeding Rs. 1,000 in such a society.
    • The societies were granted exemption from compulsory registration and from the payment of income tax and stamp duties.
• Maclagan Committee:
  
  • In 1915, a committee headed by Sir Edward Maclagan, was appointed to study and report whether the cooperative movement was proceeding on economically and financially sound lines.
    
    • The committee observed that illiteracy and ignorance of the masses, misappropriation of funds, rampant nepotism, inordinate delay in granting loans and viewing the cooperative movement as a Government movement were some of the glaring defects of the cooperative movement.
  • The committee made the following suggestions:
    
    • All members should be made aware of the cooperative principles.
    • Honesty should be the main criterion for taking a loan.
    • Dealings should be strictly confined to the members only.
    • Applications should be carefully scrutinized before advancing loans and there should be careful follow up for effective utilization of loans.
    • One member-one vote should be strictly followed
  • These recommendations could not be put into practice because of the First World War.

Expansion Stage of the Cooperative Movement (1919-29)

• Montague-Chelmsford Reforms:
  
  • Through the Montague- Chelmsford Reforms of 1919, co-operation became a provincial subject which gave further impetus to the movement.
  • Various states passed their own Acts to make the Cooperative Movement a successful one.
  • The membership of the Cooperative societies increased considerably during this period.
• Economic Depression: The year 1929 witnessed the Great Economic Depression.
  
  • The prices of the agricultural commodities fell down to a remarkable extent.
  • Unemployment along with other economic crises grew.
  • The agriculturists could not pay back the loans of the societies.
  • Over dues increased unexpectedly and cooperative societies were ruined.

Restructuring Stage of Cooperative Societies (1930-1946)

• Appointment of Committees:
  
  • Various committees were appointed in Madras, Bombay, Travancore, Mysore, Gwalior and Punjab for examining the possibilities of restructuring the Cooperative societies.
  • In 1937 the Congress Ministry came to power in many states and revived interest in organising the cooperative movement.
• Role of World War II:
  
  • The abnormal conditions created by the Second World War led to far-reaching developments in the Cooperative Movement.
  • Prices of agricultural commodities began to rise, rural farmers got extra economic gains and non- credit societies like marketing, production and consumer societies increased rapidly.
  • The All India Cooperative Planning Committee in 1945 also gave a fillip to the growth of the Cooperative Movement.

Gandhian Socialist Philosophy regarding Cooperatives

• Cooperation for Socialist Society: Cooperation according to Gandhiji was necessary for creation of a socialistic society and complete decentralization of power.
  
  • He was of the opinion that cooperation was one of the important means to empower people.
• Phoenix Settlement: In South Africa, Mahatma Gandhi instituted the 'Phoenix Settlement' as a cooperative in a socialistic pattern.
  
  • Its objective was to cultivate the three acres of land given to each member and to stop the emergence of a new class of absentee landowners.
• Tolstoy Farm: He established the Tolstoy Farm as a rehabilitation cooperative settlement for the families affected by the South African freedom struggle during the period.
  
  • He fully believed in Tolstoy's socialistic philosophy.
• Cooperatives for Peasantry: On return from South Africa, Gandhiji visited the countryside of India and realized the bankruptcy and distress of Indian peasantry oppressed by excess taxation, rack renting, illegal exaction etc.
  
  • He observed that the closest cooperation amongst the peasants is an absolute necessity.
  • Any industry based on agricultural produce such as cotton, sugar, oil seed, wheat etc. should be on a cooperative basis so that the producers could secure the best value for their output.

Cooperative Movement After Independence

• Part of Mixed Economy:
  
  • After independence, the nation adopted the approach of planned economic development for establishment of a mixed economy consisting of three sectors namely Public, Private and Cooperative Sectors.
  • Cooperatives were visualized to play the role of a balancing factor between public and private sectors.
• Part of FYPs:
  
  • After independence, cooperatives became an integral part of Five-Year Plans (FYPs).
  • Pandit Jawaharlal Nehru considered cooperatives as one of the three pillars of Democracy, the other two being the Panchayat and the Schools.
• National Policy of Cooperatives:
  
  • In 1958, the National Development Council (NDC) had recommended a national policy on cooperatives and also for training of personnel and setting up of Cooperative Marketing Societies.
  • The Government of India announced a National Policy on Cooperatives in 2002.
• Establishment of NCDC:
  
  • National Cooperative Development Corporation (NCDC), a statutory corporation, was set up under National Cooperative Development Corporation Act, 1962.
• Committees Set up for Cooperatives:
  
  • The Rural Credit Survey Committee in 1954 recommended state participation in cooperatives at all levels.
  • The S.T. Raja Committee was appointed by the Government of India to suggest amendments to the Cooperative Law.
    
    • The committee prepared a Model Act enabling state participation and appointment of Government nominees on the management of assisted Cooperative Societies.
• Successful Cooperatives in India:
  
  • Agriculture and Allied Sectors: National Cooperative Development Corporation (NCDC), National Agricultural Cooperative Marketing Federation of India (NAFED), Indian Farmers Fertilisers Cooperative Limited (IFFCO), AMUL and Co-operative Rural Development Trust (CORDET).
  • Banking Sector: Punjab and Maharashtra Cooperative (PMC) Bank, Bharat Cooperative Bank and Saraswat Cooperative Bank.

Issues Faced by the Cooperative Sector

• Excessive Cooperative Legislations: Cooperatives in India function in different sectors. Cooperatives is a State subject under the Constitution of India and State cooperative laws and their implementation vastly differ.
• Irresponsibility and Unaccountability: Serious inadequacies in governance including that related to Boards’ roles and responsibilities.
  
  • The people on the board are not held accountable for many inconveniences.
• Lack of Recognition: A general lack of recognition of cooperatives as economic institutions both amongst the policy makers and public at large.
  
  • Inability to attract and retain competent professionals.
• Lack of Capital Formation: Lack of efforts for capital formation particularly that concern enhancing member equity and member stake.
• Lack of Awareness: People are not well informed about the objectives of the Movement, rules and regulations of co-operative institutions.

Conclusion

• Cooperatives have a futuristic role of fostering collectivism and preserving the social capital base of the country.
  
  • Cooperatives are the best channels to keep the spirit of collectivism and democracy afloat.
• The presence of a large network of social organizations, like cooperatives, would aid in the generation and utilization of social capital and ‘greater the social capital, greater would be the possibility of development’.