Cooperatives in India

(GS PAPER-2)

A cooperative society is typically a voluntary group established by those who are less privileged or belong to disadvantaged sections. This type of society is a freely formed voluntary group that targets improving the circumstances of its members. It is created by individuals who share similar ideas and are motivated by shared objectives.

Characteristics of Co-operatives

• A cooperative society allows total freedom in terms of membership. Any individual, regardless of their caste or creed, can voluntarily join or leave the organization, provided they give prior notice about their decision.
• Moreover, membership in a cooperative society is open to all, regardless of social or religious background. The organization does not impose any restrictions based on these factors.
• To ensure smooth operation and alignment towards common objectives, the society elects a management body through a democratic voting process among its members. This demonstrates its democratic nature.
• Despite its autonomous operations, a cooperative society remains under the jurisdiction of the state government. As such, it is required to keep comprehensive records and is held accountable for its activities, particularly during audits.

Cooperatives have deep roots in India, playing a crucial role in the nation’s growth since achieving Independence. With more than a million cooperatives, including 105,000 financial cooperatives, the cooperative movement in India possesses tremendous capacity to stimulate economic development, bring informality into the formal sector, and mitigate disparities.

Nonetheless, the present structure, which involves dual control over cooperative banks, presents several challenges, including jurisdictional conflicts that obstruct their systematic development. Despite these complications, cooperatives continue to be a vital part of India’s economic framework and serve as a significant instrument for enhancing the living standards of the impoverished.

Challenges with the Financial Cooperatives in India

• The regulatory and oversight structure for financial cooperatives in India is fragmented, with various types of cooperatives falling under the jurisdiction of different authorities. This could result in regulatory and supervisory inconsistencies and gaps, potentially causing weaknesses in the financial system.
• With respect to cooperative banks, both urban and rural, dual control often results in jurisdictional conflicts.
• While the Registrar of Cooperatives oversees matters such as incorporation, management, audits, board supersession, and liquidation, the RBI manages banking licenses, prudential regulations, and capital adequacy.
• Many of India’s financial cooperatives suffer from weak governance and management, which can lead to mismanagement, fraudulent activities, and corruption. There have been cases where poor governance led to the collapse of cooperatives, resulting in depositors losing their funds.
• Inadequate corporate governance has been the primary factor behind the failure of numerous cooperative banks. Since the fiscal year 2004-05, there have been 145 mergers of non-scheduled Urban Cooperative Banks (UCBs), including nine in the fiscal year 2021-22.
• Financial cooperatives in India frequently face challenges in maintaining sufficient capital levels, which can impact their ability to absorb losses and sustain operations during financially stressful times.

Cooperative societies can be instrumental in promoting the comprehensive development of the nation. The key is to eliminate the obstacles within the cooperative structure.