Context

• Co-operative banks are financial entities established on a co-operative basis and belonging to their members. This means that the customers of a co-operative bank are also its owners. 
• The International Labour Organization defines cooperative 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 movement in India

• Cooperatives are organisations formed at the grassroots level by people to harness the power of collective bargaining towards a common goal. 
• The aim of the co-operative movement in India was to help farmers overcome the burden of debt and help them sell their products easily to get maximum profit. 
• Globally, there are more than 30 lakh cooperatives that engage more than 12 percent of the world’s population. India has 8.55 lakh Cooperatives and about 13 crore people are directly associated with them.  
• Some of the largest cooperatives in India are — Gujarat Cooperative Milk Marketing Federation popularly referred as Amul, Indian Farmers Fertiliser Cooperative (IFFCO) and Krishak Bharati Cooperative Limited (KRIBHCO).

Structure of co-operative banks in India

• Broadly, co-operative banks in India are divided into two categories – urban and rural.
• The rural co-operative credit system in India is primarily mandated to ensure flow of credit to the agriculture sector. It comprises short-term and long-term co-operative credit structures. 
  • The short-term co-operative credit structure operates with a three-tier system – Primary Agricultural Credit Societies (PACS) at the village level, Central Cooperative Banks (CCBs) at the district level and State Cooperative Banks (StCBs) at the State level. 
  • Meanwhile, the long-term institutions are either State Cooperative Agriculture and Rural Development Banks (SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).
• Primary Cooperative Banks (PCBs), also referred to as Urban Cooperative Banks (UCBs), cater to the financial needs of customers in urban and semi-urban areas. UCBs are of two kinds- multi-state and those operating in a single state.

What laws govern cooperative societies?

• The functioning of Cooperative Banks is guided by the Cooperative Societies Act of the respective states. 
• While the administrative control of the cooperatives are with the states, its banking functions are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949.
• In 2002, the Centre passed a MultiState Cooperative Societies Act that allowed for registration of societies with operations in more than one state.
• The Banking Regulation (Amendment) Act, 2020 was passed to bring all urban cooperative banks and multi-state cooperative banks under the direct supervision of the RBI, following public scandals in certain banks and claims of mismanagement.

Role of Co-operatives in Rural Areas

• Co-operative sector plays a vital role in the process of socio-economic development of a country like India where more than two third of the population and 72.4 percent of the workforce reside in rural areas. 
• The cooperatives play a major self-help role in rural areas, particularly where private entrepreneurs hesitate to make investments and public authorities are not able to provide the required services due to paucity of funds. 
• The cooperative societies engaged in the rural sector provide adequate, affordable and timely credit for the production, processing, storage and marketing of agricultural crops and other allied products. 
• They not only inculcate the habit of saving but also enable the communities to pool together their resources to solve their common socio-economic problems. 
• They are instrumental in providing opportunities for productive employment, income generation as well as offering health care, education, improved sanitation, roads and market access.  
• They encourage ‘Production by Masses’ instead of mass production, which is essential for inclusive and sustainable growth of the economy. 
• The contribution of cooperatives in the country’s economy is immense. The cooperative sector provides 20 percent of the total agricultural credit in the country. It contributes 10 percent of milk production, 21 percent of fish production, 25 percent of fertiliser production and 31 percent of total sugar production. Apart from this, nearly 13 percent procurement of wheat, 20 percent of paddy and 35 percent distribution of fertiliser is carried out by the cooperative sector.

Challenges  

• It has been witnessed that in many cases the members of cooperative societies are not actively involved in their functioning as they are not well informed about the rules and regulations of the society and objectives of the cooperative movement. 
• A large number of cooperative societies are not economically viable, hence have become defunct. 
• The participation of scheduled-castes, scheduled tribes, women and other vulnerable sections of the society is low. 
• It has also witnessed that the top posts of chairman and vice-chairman of the society are usually occupied by the richer farmers who manipulate the organisation for their own benefit at the cost of the poor. 
• Moreover, the co-operative movement has been suffering from inadequacy of trained, skilled and experienced personnel.  

Government Initiatives  

• Recognising the significance of the co-operative sector, the National Cooperative Development Corporation (NCDC) was established by an Act of Parliament in 1963, to speed up cooperative movement in the country. 
• Assistance is provided under ‘Central Sector Integrated Scheme on Agricultural Cooperation’ (CSISAC) through NCDC. Under the scheme, a subsidy varying from 15 percent to 25 percent is provided to the cooperatives depending on the category of state of their operation. 
• To encourage youth towards cooperatives, ‘Yuva Sahakar Cooperative Enterprise Support and Innovation Scheme’ was launched in 2018. The scheme aims at providing mentorship and financial assistance to the enterprising youth to establish start-ups in different types of business activities under the cooperative sector.  
• In order to give renewed impetus to the cooperative movement in the country, the Union Government has created the Ministry of Cooperation in 2021, for realizing the vision of ‘Sahkar se Samriddhi’ (Prosperity through Cooperation). 
• It aims at providing a separate administrative, legal and policy framework for strengthening the cooperative movement in the country. 

Way Forward  

Finance:

• Cooperatives can come up with innovative business ideas to set up new business entities and to expand existing units. The foremost challenge before them is to avail timely, adequate and affordable finance, along with services to effectively use such resources. 
• Collateral free loans ensuring timely availability, accessibility and affordability are  important. An exclusive fund for cooperatives to achieve this can be considered.

Procurement and Marketing:  

• Marketing of products and services have remained a challenge for the cooperatives. Recently, cooperatives have been allowed to register on the Government e-Marketplace (GeM) as ‘buyers’. 
• The objective of this initiative is to enable cooperatives to procure goods and services from 40 lakh vendors on the GeM portal, thereby improving transparency in the procurement system and helping cooperatives to make some savings. 
• A preference policy for cooperatives as ‘sellers’ may ensure the much needed boost to them. 

Mentoring:  

• Effective cooperation and coordination amongst cooperatives would mutually benefit their business initiatives and maximise community development through adequate expansion of member-driven cooperative activities. 
• Bigger cooperatives can mentor the weaker and smaller ones and ensure that these units retain their competitiveness in the market.  

Other Focus Areas:

• It is urgent to infuse efficiency, accountability, transparency in the entire system and adopt modern technology and professionalism. 
• Nearly two third of total cooperative societies are located only in seven states viz. Maharashtra, Gujarat, Andhra Pradesh, Telangana, Uttar Pradesh, Madhya Pradesh and Karnataka.
• In order to ensure their growth in an egalitarian manner, it is necessary to promote the cooperatives in the lagging states particularly the Union Territories and North-East States of the country.  
• Diversification of their activities by including some new sectors such as, real estate, power, healthcare, insurance, communication, tourism and other services is needed for their revitalisation. 
• There is also a need to promote the brand of cooperatives through upgradation and value addition in the products and services delivered by them. 
• The Government needs to evaluate the training needs of cooperatives, along with designing and imparting training programmes to ensure that they come at par with the current business environment.