Online Quiz Test

India’s cooperative

GS 2 Government policies and interventions GS 3 Indian economy and related issues

why in discussion

  • The central government recently introduced a bill to amend the 2002 Multi-State Cooperative Societies Act.


About Cooperative Societies:

About this

  • A co-operative society is a voluntary association of persons with common needs who combine forces to achieve a common economic interest.
  • It aims to serve the interests of the poorer sections of the society through self-help and mutual aid. The cooperative movement predates the independence of India.

97th Constitutional Amendment Act 2011

  • It established the freedom to form co-operative societies as a fundamental right (Article 19).
  • Article 43-B introduced a new Directive Principle of State Policy on promotion of cooperatives.
  • It added a new Part IX-B to the Constitution titled “Co-operative Societies” (Articles 243-ZH to 243-ZT).
  • It empowers Parliament to make relevant laws for Multi-State Cooperative Societies (MSCS) and state legislatures for other cooperative societies.


  • Cooperatives have the potential to revive growth, formalize the economy, reduce inequality and raise the standard of living of the poor.

ministry of cooperation

  • The Union Ministry of Cooperatives was set up in 2021; Its responsibilities were earlier handled by the Ministry of Agriculture.


Financial Co-operation:

Status of Financial Cooperative Societies in India

  • Today there are about 10 million co-operative societies, of which 1.05 million are financial co-operatives.
  • The rural cooperatives have a three-tier structure with about 1.02 million Primary Agricultural Cooperative Societies (PACS)
  • 616 Rural Cooperative Societies apart from 351 District Central Cooperative Banks (DCCBs) and 34 State Cooperative Banks (SCBs) for providing long term loans.
  • There are 1,514 primary urban co-operative banks (UCBs) in India, of which 52 are scheduled and the rest are unscheduled; Some are multi-state UCBs.


Issues and Challenges:

dispute over jurisdiction

  • The founding fathers of the Indian Constitution placed ‘Cooperative’ in the State List and ‘Banking’ in the Union List. It is an important responsibility of the State Governments to promote non-financial cooperatives without any judicial disputes.
  • Dual control exists for both urban and rural co-operative banks, resulting in jurisdictional disputes.
  • While the incorporation, management, audit, board replacement, and liquidation are administered by the Registrar of Cooperatives,
  • Banking license, prudential regulation, capital adequacy, etc. are governed by the Reserve Bank of India.
  • Several committees of experts have concluded that dual control over co-operative banks has hindered their orderly development.

poor corporate governance

  • Inadequate corporate governance has been the primary reason for the failure of many co-operative banks.
  • Since 2004-05, 145 non-scheduled UCBs have been merged, including nine in 2021-22.
  • RBI has canceled licenses of 54 UCBs since 2015-16, including ten in 2021-22.
  • The number of UCBs to decrease from 1,926 in March 2004 to 1,514 in March 2022, a reduction of 36%.
  • About one-third of newly licensed UCBs have bad balance sheets.
  • In the last five years, Urban Cooperative Banks have reported more than one thousand cases of frauds.
  • The failure of the Punjab and Maharashtra Co-operative (PMC) Bank in 2019 was mainly attributed to financial irregularities, breakdown in internal controls and under-reporting of risks.

official business

  • In December 2022, the central government introduced a bill to amend the Multi-State Cooperative Societies Act 2002.

The salient features of this bill are

  • provision for amalgamation of the UCB with other multi-state UCBs, as decided by the general meeting, with two-thirds of its members present and voting;
  • The central government will frame a scheme for the rehabilitation of sick multi-state urban co-operative banks and set up a fund to which profitable multi-state urban co-operative banks will contribute.

There are restrictions on the redemption of government shares;

  • The Central Government shall appoint one or more Co-operative Ombudsman with territorial jurisdiction for redressal of complaints.
Non-financial co-operative societies

• The Central Government has come up with complex schemes to ensure orderly growth of non-financial businesses.

• It has set up a separate ministry for cooperation;

• It provides financial incentives to Farmer-Producer Organizations (FPOs).

• For handicrafts and handlooms, several programs are available.

• The Government Electronic Marketplace (GeM), second only to the electronic National Agriculture Market (eNAM), is a successful, state-of-the-art online platform for various goods and services provided by MSMEs and non-financial cooperatives. dedicated to the promotion.

• Currently, the marketplace has over 62,000 government customers, 4.9 million sellers, 10,000 products and 290 services registered.

• One district, one product policy provides opportunities for brand development and exports.

• There are additional welfare programs for fisheries and dairy development. In India, milk cooperatives have been a great success.

• Cooperatives as a business model can be used in a variety of industries, including packaging, storage, and post-harvest processing.

• The government has the foresight to implement several programs that use technology to promote rural development.

• Startup opportunities are expanding in rural areas and can be taken forward through non-financial partnerships.


Suggestions and Conclusion

  • UCBs are used by over 8.6 lakh depositors representing over Rs 5 lakh crore in deposits. more than Rs. Rural cooperative banks have deposits of Rs 6 lakh crore.
  • Since the primary goal of banking regulations is to protect the interests of the depositors, co-operative banks and commercial banks cannot operate under different guiding principles.
  • With the prior approval of RBI, co-operative banks can raise capital through private placement of equity or preference shares as well as through public offers of stock.
  • If cooperative banks want to expand in a competitive environment, they should improve their governance; The amendments do not apply to financing of PACS or cooperatives for long-term needs of agriculture. Instead of wasting time and energy on disputes over financial cooperatives, state governments should focus on non-financial cooperatives.

Source: BL