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Cooperation awaits its ‘finding Raiffeisen’ moment


‘Cooperation has failed, but cooperation must succeed,’ wrote the All India Rural Credit Survey Committee in 1954. These were the words of Venkatappiah, first Executive Director of Reserve Bank of India and member of the Committee.


GS-II: Polity and Constitution (Constitutional Provisions, Cooperatives Movement in India)

Dimensions of the Article:

  1. Co-operative Movement in India
  2. Recent SC Judgement
  3. Challenges to Cooperatives in India
  4. Pioneers of Cooperatives in India
  5. Who was ‘Raiffeisen’?
  6. Recommendations to strengthen Cooperatives

Co-operative Movement in India

Co-operative Movement in Pre-Independence Era:

  • The Cooperatives were first started in Europe and the British Government replicated it in India to mitigate the miseries of the poor farmers, particularly harassment by moneylenders.
  • The term Cooperative Societies came into existence when the farmers of Pune and Ahmednagar (Maharashtra) spearheaded an agitation against the money lenders who were charging exorbitant rates of interest.
  • British government came forward and passed three acts- the Deccan Agricultural Relief Act (1879), the Land Improvement Loan Act (1883) and the Agriculturists Loan Act (1884).
  • The first credit cooperative society was formed in Banking in 1903 with the support of the Government of Bengal. It was registered under the Friendly Societies Act of the British Government.
    • But the enactment of the Cooperative Credit Societies Act, 1904 gave Cooperative a definite structure and shape.
  • In 1919, cooperation became a provincial subject and the provinces were authorised to make their own cooperative laws under the Montague-Chelmsford Reforms.
    • The categorization carried on to the Government of India Act, 1935.
  • In 1942, the Government of British India enacted the Multi-Unit Cooperative Societies Act to cover Cooperative Societies with membership from more than one province.

Co-operative Movement in Post-Independence Era:

  • After independence, cooperatives became an integral part of Five-Year Plans.
  • In 1958, the National Development Council (NDC) had recommended a national policy on cooperatives and also for training of personnel and setting up of Co-operative Marketing Societies.
  • National Cooperative Development Corporation (NCDC), a statutory corporation, was set up under National Cooperative Development Corporation Act, 1962.
  • In 1984, Parliament of India enacted the Multi-State Cooperative Societies Act to remove the plethora of different laws governing the same types of societies.
  • The Government of India announced a National Policy on Co-operatives in 2002.

Importance of Cooperatives:

  • It provides agricultural credits and funds where state and private sectors have not been able to do very much.
  • It provides strategic inputs for the agricultural-sector; consumer societies meet their consumption requirements at concessional rates.
  • It is an organization for the poor who wish to solve their problems collectively.
  • It softens the class conflicts and reduces the social cleavages.
  • It reduces the bureaucratic evils and follies of political factions;
  • It overcomes the constraints of agricultural development;
  • It creates a conducive environment for small and cottage industries.

About 97th Constitutional Amendment Act

The 97th Constitution Amendment Act, 2011 provided for amendment of following things:

  • It amended Article 19(I) c by inserting, after the words ‘or unions’ the words ‘or Co-operative Societies’.
  • It also inserted Article 43B in Part IV of the Constitution as “The State Shall endeavor to promote Voluntary formation, autonomous functioning, democratic Control and professional management of the Co-operative societies” and
  • After Part IX-A of the Constitution, Part IX-B was inserted. Part IX-B extended from Article 243ZH to Article 243ZT.

The Major features of the Act are as follows:

  • Incorporation, regulation and winding up of cooperative Societies based on the principles of Voluntary formation, democratic member Control, member economic participation and autonomous functioning;
  • Maximum number of directors of a Co-operatives Society to be not exceeding twenty-one members;
  • A fixed term of five years from the date of election in respect of the elected members of the board and its office bearers; and an authority or body for the Conduct of elections to a Cooperative Society;
  • A maximum time limit of Six months during which board of directors of a Co-operative Society Could be kept under Supersession or suspension;
  • Independent professional audit;
  • Right of information to the members of the Co-operative Societies;
  • Empowering the State Governments to obtain periodic reports of activities and accounts of Co-operatives Societies;
  • Reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two Seats for women on the board of every Cooperative Society, which have individuals as members from Such Categories; and
  • Penalties in respect of offences relating to Co-Operatives Societies.

Recent SC Judgement

  • The 97th Constitution Amendment, which came into effect in 2012, was a major step towards infusing autonomy, democratic functioning and professional management.
  • The recent Supreme Court verdict holding the amendment unconstitutional to the extent it applied to cooperative societies under the control of the States is a reminder that even well-intentioned efforts towards reforms cannot be at the cost of the quasi-federal principles underlying the Constitution.
  • The amendment added Part IXB to the Constitution, concerning cooperative societies. Part IXB delineated the contours of what State legislation on cooperative societies ought to contain, including provisions on the maximum number of directors in each society, reservation for seats for SCs, or STs, and women, besides the duration of the terms of elected members, among others.
  • The question before the Court was whether the 97th Amendment impacted the legislative domain of the State Legislatures and, therefore, required ratification by half the legislatures, in addition to the required two-thirds majority in Parliament.
  • The Gujarat High Court had found the amendment invalid for want of such ratification.
  • The Supreme Court, by a 2:1 majority, upheld the judgment holding the amendment invalid, but only in relation to cooperatives under the States. The elaborate amendment would hold good for multi-State cooperative societies, on which Parliament was competent to enact laws.
  • A key principle from the judgment is that the ratification requirement will apply if there is any attempt to fetter the State legislatures in any way while enacting a law in their own domain, even if there is no attempt to alter the distribution of legislative powers between the Union and States.
  • Thus, in the absence of ratification by the States, the amendment that sought to prescribe the outlines of State laws on a State subject did not pass constitutional muster.

Challenges to Cooperatives in India

  • Maintaining a cooperative bank’s cooperativeness as it grows is a difficulty. Cooperatives have also become a means of avoiding lending and anti-money laundering requirements through regulatory arbitrage.
  • Government control has only grown, infringing on a fundamental cooperation concept of political neutrality. This demonstrates the political class’s collective failure.
  • The top-down quality was a problem for the committees that looked at cooperative banking.
  • In the lack of restraints, recent proposals such as an umbrella organisation for urban cooperatives and a new Ministry of Cooperation at the Centre threaten to expand this approach.

Pioneers of Cooperatives in India

  • John Matthai is the first Indian to graduate from the London School of Economics with a PhD in economics. He was an expert in cooperation. Later, he was appointed India’s Finance Minister.
  • The Cooperative Societies Bill, introduced by Sir Denzil Ibbetson in 1903, aimed to establish “small and simple credit societies for small and simple individuals with simple requirements and wanting modest funds only.”
  • Cooperative institutions, such as the Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF)/Amul, became a tool for planning and governmental action after independence. Verghese Kurien became a Raiffeisen at AMUL.
  • In 1954, the All India Rural Credit Survey Committee said, “Cooperation has failed, but cooperation must succeed.”


Who was ‘Raiffeisen’?

  • Friedrich Raiffeisen, who pioneered cooperatives in Europe, was the subject of reference made by Nicholson.
  • Raiffeisen founded cooperatives on principles of self-help, self-governance, and self-responsibility.
  • These principles, known as Raiffeisenbanks, were renowned for their dependability and tenacity in the face of financial crises.
  • The ‘future of rural credit resides with individuals who are of the people, live among the people, and yet are above the people by their knowledge, foresight, and activity,’ said Nicholson.

Recommendations to strengthen Cooperatives

  1. First, the Registrar of Cooperative Societies (RCS) should have less authority. The RCS has evolved into a tool of surveillance and dominance. Some states even allow for the takeover of cooperative boards on an all-or-nothing basis.
  2. Second, the rural-urban divide in cooperative regulatory treatment is false and outmoded. It maintains age-old divisions depending on the nature of business and the number of the population.
  3. Third, the Reserve Bank of India (RBI) for urban banks and the National Bank for Agriculture and Rural Development (NABARD) for rural banks should hand over regulation and supervision of cooperative banks to a new entity. It would ensure a new look at the regulation of these institutions, which are not subject to severe laws.
  4. Fourth, there are lessons to be learned from the Netherlands, where cooperative banks have thrived thanks to a fragmented market. At many levels, commercial bank-cooperative sector links might generate improved synergy.

-Source: The Hindu

December 2023