Multi-State Cooperative Societies (MSCS) Act

Context:

Recently, The Bill to amend the Multi-State Cooperative Societies (MSCS) Act, 2002, was introduced in the Lok Sabha.

Relevance:

GS II: Government Policies and Interventions

Dimensions of the Article:

1. What are multi-State cooperatives?
2. Importance of Cooperative Banks
3. What are the issues with the cooperative sector?
4. What does the Bill seek to change?

What are multi-State cooperatives?

• According to the International Cooperative Alliance (ICA), cooperatives are people-centred enterprises jointly owned and democratically controlled by and for their members to realise common economic, social and cultural needs and aspirations.
• Multi-State cooperatives are societies that have operations in more than one State — for instance, a farmer-producers organisation which procures grains from farmers from multiple States.
• The board of directors are from all the States these collectives operate in and control all the finances and administration.
• There are close to 1,500 MSCSs registered in India with the highest number being in Maharashtra.

Importance of Cooperative Banks

The cooperative banking system has to play a critical role in promoting rural finance and is especially suited to Indian conditions.

Various advantages of cooperative credit institutions are given below:

1. Alternative Credit Source:  The main objective of the cooperative credit movement is to provide an effective alternative to the traditional defective credit system of the village moneylender.
2. Cheap Rural Credit: Cooperative credit system has cheapened the rural credit by charging comparatively low-interest rates, and has broken the money lender’s monopoly.
3. Productive Borrowing:  The cultivators used to borrow for consumption and other unproductive purposes. But, now, they mostly borrow for productive purposes.
4. Encouragement to Saving and Investment: Instead of hoarding money the rural people tend to deposit their savings in cooperative or other banking institutions.
5. Improvement in Farming Methods: Cooperative credit is available for purchasing improved seeds, chemical fertilizers, modern implements, etc.
6. Financial Inclusion: They have played a significant role in the financial inclusion of unbanked rural masses. They provide cheap credit to the masses in rural areas

What are the issues with the cooperative sector?

• The independent and autonomous character of cooperative societies was to be crucial in their functioning.
• The inclusion of cooperatives in the planning process as development instruments made the sector an avenue for dispensing patronage to the supporters of ruling political parties.
• Moreover, the policy of State governments to contribute to the share capital of the cooperatives enabled governments, “in the name of public interest” to directly intervene in the working of cooperatives which are legally autonomous.
• Besides, MSCSs were formed to ease the operation of collectives throughout the country. MSCSs are facing issues regarding trust, which is the very basis of cooperation. This has brought MSCSs under multiple controls from the Centre.
• Monitoring is one of the important institutional functions in a collective organisation but if monitored from much above, it takes a top-down approach as opposed to a grassroots one.

What does the Bill seek to change?

To improve governance:

• To plug the “loopholes” in the MSCS Act, the Centre introduced a Bill seeking to amend the 2002 law for more “transparency” and “ease of doing business”.
• The amendments have been introduced to improve governance, reform the electoral process, strengthen monitoring mechanisms and enhance transparency and accountability.
• The Bill also seeks to improve the composition of the board and ensure financial discipline, besides enabling the raising of funds in multi-State cooperative societies.

Central Co-operative Election Authority:

• The Bill provides for the creation of a central Co-operative Election Authority to supervise the electoral functions of the MSCSs.
• The Authority will have a chairperson, vice-chairperson, and up to three members appointed by the Centre.

Co-operative Rehabilitation, Reconstruction and Development Fund:

• It also envisages the creation of a Co-operative Rehabilitation, Reconstruction and Development Fund for the revival of sick multi-State co-operatives societies.
• This fund shall be financed by existing profitable multi-State co-operative societies which will have to deposit either ₹1 crore or 1% of the net profit into the Fund.

Cooperative Information Officer and a Cooperative Ombudsman:

• In order to make the governance of multi-State cooperative societies more democratic, the Bill has provisions for appointing a Cooperative Information Officer and a Cooperative Ombudsman.
• To promote equity and facilitate inclusiveness, provisions relating to the representation of women and Scheduled Caste/Tribe members on the boards of multi-State cooperative societies have also been included.

-Source: The Hindu