Reforms In Cooperative Societies

According to the International Labour Organisation, Cooperative is defined 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."

Cooperative societies are not restricted to agriculture alone. In banking and finance, cooperative institutions are spread across rural and urban areas as credit societies.

Reforms in Cooperative Societies

Several reforms have been undertaken in cooperative sector like-

A. Creation of a new Ministry of Co-operation

B. Amendment tothe Multi-State Cooperative Societies (MSCS) Act, 2002

C. Cooperative Banks have been brought under RBI Purview

A. New Ministry of Co-operation

On 6^th July, 2021, the Union Government created a new Ministry of Co-operation with an aim to realise the vision of ‘Sahkar se Samriddhi’ (through cooperation to prosperity) and strengthen the cooperative movement in the country.

Need for Separate Co-operation Ministry

• Loosing Significance: The significance of the rural cooperative has been shrinking over the years. The last attempt to provide some fillip was 15 years ago when the Union government appointed and accepted the Vaidyanathan Committee findings and recommendations.
• Less Focus: While cooperatives are a state subject, the Union government also keeps an eye on the sector – India’s agriculture ministry has a division to oversee cooperatives. Focusing on agriculture, however, the ministry has been poorly responsive to the needs of cooperatives.
• Benefits to Few States: The co-operative structure has managed to flourish only in a handful of states like Maharashtra, Gujarat, Karnataka, etc.
• Dearth of Fund: Over the years, the cooperative sector has witnessed drying out of funding. Cooperative institutions get capital from the Centre, either as equity or as working capital, for which the state governments stand guarantee. This formula had seen most of the funds coming to a few states such as Maharashtra, Gujarat, Karnataka while other states failed to keep up.
• Mismanagement: Despite regulatory oversight by the RBI and States, there is considerable autonomy for the sector which is often misused. Consequently, the cooperatives sector has become an instrument of patronage and pilferage.

Impact

• Strengthen Cooperative Movement: It will provide a separate administrative, legal and policy framework for strengthening the cooperative movement in the country.
• Ease of Doing Business: It will work for improving ‘ease of doing business’ for cooperatives by streamlining processes to enable the development of Multi-State Cooperative Societies (MSCS).
• People-based Movement: It will help to deepen cooperatives as a true people-based movement reaching upto the grassroots.
• Improving Unity: With a diverse country, India can benefit from co-operative based economic development, in which ‘each member works with a spirit of responsibility.’ The ministry is likely to promote community-based development across the country.

Criticism

• Cooperatives are a state subject as per Schedule 7(Entry 32) of the Constitution. So far, cooperatives have been under the regulatory control of the Registrar of Cooperatives of different states. According to the States, creation of a new Cooperation ministry is an infringement upon the federal rights of the state governments.

B. Proposal to Amend Multi-State Cooperative Societies Act 200

The Centre decided to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 to plug the loopholes in the Act.

Expected Amendments

• There may be increase their manpower, first in Delhi and then in the states, to ensure better governance of the societies.
• Technology will be used to bring in transparency.
• It has been suggested that administrative control of such societies should be vested in the state commissioners.

About Multi State Cooperative Societies Act (MSCS) 2002

• The MSCS Act of 2002, along with MSCS Rules 2002, governs the compliance requirement of the Multi State Cooperative Society (MSCS).
• It was enacted to consolidate and amend the laws related to cooperative societies.
• It substituted the Multi State Cooperative Societies Act of 1984.
• The Act ensures voluntary formation and proper operation of the Multi State Cooperative Societies that are member-driven institutions, and they are based on self-help and mutual aid.

Issues with MSCS Act

• Unregulated Power to Central Registrar: The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of these societies. The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
• Absence of Checks and Balances: While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multistate societies. Instead, the board of directors has control of all finances and administration.
• Lack of Government Control: There is an apparent lack of day-to-day government control on such societies. Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
• Infrastructure Issue: The on-ground infrastructure for central registrar is another major concern. There are no officers or offices at state level, with most work being carried out either online or through correspondence.
• Ponzi Schemes: There have been instances across the country when credit societies have launched ponzi schemes taking advantage of these loopholes.

C. Cooperative Banks to Come Under RBI Purview

On 5th February, 2020, the Union Cabinet approved amendments to the Banking Regulation Act, which will empower the RBI to have regulatory oversight over cooperative banks. The government has taken this move in the wake of the Punjab and Maharashtra Co-operative (PMC) Bank crisis.

• Cooperative banks are currently under the dual control of the Registrar of Cooperative Societies and RBI. While the role of registrar of cooperative societies includes incorporation, registration, management, audit, supersession of board and liquidation, RBI is responsible for regulatory functions such maintaining cash reserve and capital adequacy, among others.
• The amendments will apply to all urban co-operative banks and multi-state cooperative banks.
• The move will ensure greater accountability and transparency in the functioning of cooperative banks and will give financial stability to the concerned sector across the country.

Key Proposals

• RBI will enforce banking regulation guidelines in cooperative banks, while administrative issues will still be guided by Registrar of Cooperatives.
• Cooperative banks will need to take RBI approval for the appointment of CEO and do audits as per RBI guidelines.
• The RBI will also have the right to supersede the management of a cooperative bank in case of governance failure.

Significance of Co-operatives

Cooperative societies in India have played a significant role in strengthening the rural economy.

• Cooperatives have made significant contributions in poverty alleviation, food security, management of natural resources and the environment, sustainable human development and combating social exclusion
• Cooperatives are viewed as important tools for improving the living and working conditions of both women and men.
• Cooperatives are specifically seen as significant tools for the creation of decent jobs and for the mobilization of resources for income generation.
• Cooperatives buy goods directly from producers/ manufacturers, thus removing middlemen and delivering the produce at lower costs to the end-consumers, thereby protecting the interests of both the producers and the customers.
• With regard to economic and social development, cooperatives promote the “fullest participation of all people” and facilitate a more equitable distribution of the benefits of globalization.

Challenges

• Inadequate Funds: Cooperatives usually have a limited working capital that is insufficient to perform any course of action.
• Limitation of Credit Services: The credit services of co-operative society are limited to agricultural operations.
• Political Intrusion: The politicians misuse co-operatives for their advantage and to inflate their vote bank, which affects the productivity of co-operatives.
• Functioning Irregularities: While the administrative control of the cooperatives are with the states, its banking functions are regulated by Reserve Bank of India under the Banking Regulation Act, 1949 (as applicable to Cooperatives). This dual control has led to a lot of irregularities in the functioning of the cooperative banks.
• Mixed Intentions: It happens in several instances that some members of co-operative society join the association for personal gains.

Possibilities and Prospects

Establish an institutional framework for the registration of co-operatives in s rapid, simple, affordable and efficient manner.

• Focus on increasing women’s participation in the co-operative movement at all levels, particularly at management and leadership levels.
• Governments should introduce support measures for the activities of co-operatives that meet specific social and public policy outcomes, such as employment promotion or the development of activities benefiting disadvantaged groups or regions.