The story so far: The Bill to amend the Multi-State Cooperative Societies (MSCS) Act, 2002, was introduced in the Lok Sabha on the first day of the Winter Session on December 7. Opposition parliamentarians alleged that the Bill’s provisions encroached upon the rights of State governments, demanding that it be referred to a Standing Committee for scrutiny.
What is the history of India’s cooperative movement?
India’s cooperative movement originated in the agriculture and related sectors as a means for farmers to pool their resources to prevent exploitation by money lenders. According to the International Cooperative Alliance (ICA), cooperatives are people-centred enterprises jointly owned and democratically controlled by and for their members to realise their common economic, social and cultural needs and aspirations. Article 43B of the Constitution inserted by the 97th Amendment says that “states shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies”.
Cooperatives in India range from those providing credit to those producing, procuring, or marketing products like fertilisers, milk, sugar, and fish. Indian Farmers Fertilisers Cooperative (IFFCO) has around a third of the market share in fertilizers, while Gujarat’s Amul is a highly profitable dairy cooperative. According to the Ministry of Cooperation, there are around 8.5 lakh cooperatives in India, with about 1.3 crore people directly attached to them. As per NCUI data from 2018, the percentage of cooperative members in proportion to the total population increased from 3.8% in 1950-51 to 22.2% in 2016-17.
India’s cooperative movement was formalised at the end of the 19th century, inspired by the German model of agricultural credit banks. In 1904, the British government in India enacted the Cooperative Credit Societies Act. While this Act dealt solely with the extension of credit, the sector was opened up to other activities in 1912. Administrative reforms in 1919 transferred cooperatives to provincial control.
After Independence, the framers of the Constitution placed cooperatives in the State list. They came to be considered instruments of socio-economic development and became an essential focus of the initial Five-Year Plans. States made their own laws to regulate cooperatives within their jurisdiction, but in 1984, the Multi-State Co-operative Societies Act (amended in 2002) was enacted by Parliament to consolidate different laws at the central level.
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. Such MSCSs are registered under the Multi-State Co-operative Societies Act 2002, and their regulation lies with the Central Registrar. The board of directors are from all the States these collectives operate in and controls all finances and administration function. There are close to 1,500 MSCSs registered in India, the highest number being in Maharashtra. A large number of MSCSs are credit societies, while agro-based societies, dairies and banks are also sizeable in number
What are the issues with the cooperative sector?
As envisioned by the European Cooperative movement and the Indian constitution, the independent and autonomous character of cooperative societies was crucial to their functioning.
Studies point out that as government and legislative control of cooperatives increased over the years, there were increasing reports of mismanagement and corruption. H.S. Shylendra, professor at the Institute of Rural Management, Anand (IRMA) pointed out in a 2021 paper that their inclusion in the planning process as development instruments made the sector an avenue for dispensing patronage to the supporters of ruling political parties, either by way of nomination to governing boards or sanctioning schemes specific to the cooperatives.
Moreover,contributing to the share capital of cooperatives and providing various forms of financial assistance enabled State governments, “in the name of public interest,” to directly intervene in the working of cooperatives which are legally autonomous. The potency of cooperatives as an apparatus of political control can be seen in Maharashtra, Kerala, Gujarat, parts of Karnataka, Tamil Nadu, Madhya Pradesh and West Bengal.
MSCSs were formed to ease the operation of collectives throughout the country. But IRMA researcher Indranil De points out that MSCSs are facing issues regarding trust, which is the very basis of cooperation. MSCSs were, therefore, brought under the Prevention of Money Laundering Act, 2002 in 2018, and all urban and MSCS banks were brought under the radar of the Reserve Bank of India in 2020. These developments have brought MSCSs under multiple controls from the Centre, giving rise to fears that monitoring would take a top-down approach as opposed to a grassroots one.
In 1991, the Choudhary Brahm Perkash Committee of the planning commission made far-reaching recommendations to reorganise MSCSs, but the Act has not been modified as per the report. Andhra Pradesh was the first to apply the recommendations and form a new model of cooperative societies. The Andhra government‘s Mutually-Aided Co-operative Societies Act, 1995, aimed to restore autonomy to co-operatives wherever they are not dependent on the government for equity. Other states soon enacted new laws. However, despite this, cooperative societies have struggled to be successful and financially viableand the cooperative movement remains unevenly spread in the country.
What does the Multi-State Cooperative Societies (Amendment) Bill, 2022 seek to change?
To plug the “loopholes” in the MSCS Act, the Centre introduced a Bill seeking to amend the 2002 law for more “transparency” and increase the “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 MCSCs.
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. Another provision makes it possible to override the board of directors of the society and the appointment of an administrator, not necessarily a member of the collective. Objecting to the amendments, Congress MP Adhir Ranjan Chowdhury said in Parliament that the Bill may lead to “the concentration of power of the Centre”, which could impact the “autonomy” of MSCSs and create potential for “misuse”.
Notably, the constitutional domain of States in regulating cooperative societies was upheld by the Supreme Court last year when it struck down a part of the 97th Constitution Amendment. The court held that the Centre required the ratification of the Amendment by 50% of the state legislatures as it sought to give a framework forState legislation on cooperative societies. The top court upheld only the part of the amendment that related to MSCSs, for which Parliament was competent to enact laws.
The Bill seeks to amend Section 17 of the principal act to allow the merger of any State cooperative society with an existing MSCS. Opposition members argued that this was beyond the Centre’s legislative competency as State cooperatives are not its domain.
It envisages the creation of a Co-operative Rehabilitation, Reconstruction and Development Fund for the revival of sick MSCSs , financed by existing profitable MSCSs which will have to deposit either Rs. 1 crore or 1% of their net profit. Congress MP Manish Tewari pointed out that this put an additional burden on MSCSs and affected their autonomy.
In order to make the governance of these societies more democratic, transparent and accountable, the Bill has provisions for appointing a Cooperative Information Officer and a Cooperative Ombudsman. To promote equity and inclusiveness, provisions relating to the representation of women and Scheduled Caste/Scheduled Tribe members on MSCS boards have been included. The Bill makes only members eligible to be elected to the board or as office bearers of the cooperative society. Active members have been defined as those who are availing a minimum level of services from the society or have attended at least three consecutive general meetings. The Bill also increases the penalty amount for violation of the law to Rs. 1 lakh and potential imprisonment from six months to a year.
- The Bill to amend the Multi-State Cooperative Societies (MSCS) Act, 2002, was introduced in the Lok Sabha on the first day of the Winter Session on December 7.
- Multi-State cooperatives are societies that have operations in more than one state. Such MSCSs are registered under the Multi-State Co-operative Societies Act 2002, and their regulation lies with the Central Registrar.
- To plug the “loopholes” in the MSCS Act, the Centre introduced a Bill seeking to amend the 2002 law for more “transparency” and increase the “ease of doing business”.
