Cooperative Sector – Benefits & Challenges – Explained Pointwise

Established in 2021, the Ministry of Cooperation completes five years in 2026, strengthening India’s cooperative movement through reforms, digitisation, and inclusivity.
The cooperative sector in India is very prominent, comprising over 8.44 lakh cooperative societies with a membership exceeding 32 crore people. This positions India as home to about 25% of all cooperatives globally, demonstrating its role as a cornerstone of the country’s economy and social fabric. Governed by policies like the National Cooperation Policy 2025 and the Ministry of Cooperation, the sector generates 13% of direct employment and drives rural financial inclusion. 

What are Cooperatives?

• Cooperatives are 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.
• Cooperatives are guided by seven core principles:
  1. Voluntary and Open Membership: Anyone who can use their services and is willing to accept the responsibilities of membership can join, free from discrimination.
  2. Democratic Member Control: Members have equal voting rights and actively participate in setting policies and making decisions.
  3. Member Economic Participation: Members contribute equitably to the capital of their cooperative and democratically control that capital.
  4. Autonomy and Independence: Cooperatives are self-help organizations controlled by their members.
  5. Education, Training, and Information: They provide education and training to their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperative.
  6. Cooperation among Cooperatives: By working together through local, national, regional, and international structures, cooperatives better serve their members and strengthen the cooperative movement.
  7. Concern for Community: Cooperatives work for the sustainable development of their communities through policies approved by their members. 
• Cooperation is a State subject (Entry 32, State List), thus, States have their own Cooperative Societies Acts.
• The 97th Constitutional Amendment (2011) inserted Article 43B (a Directive Principle promoting cooperatives) and Part IX-B, laying down provisions for the composition, term of office, and conduct of elections in cooperative societies to improve governance, autonomy, and accountability.
• There are 2 types of co-operative structures in the country i.e. State Cooperative Societies and Multi-State Cooperative Societies (MSCS). The Multi-State Cooperative Societies come under the Union Government and the State Cooperative Societies are under the State Governments.

What is the significance of the cooperative sector?

What are the major challenges faced by the cooperative societies in India?

1. Excessive Political Interference & Bureaucracy: Since cooperatives control massive vote banks and handle large amounts of rural capital, they are frequently hijacked by local politicians. Politicians use co-ops to distribute favors, contracts, and jobs to their supporters.
2. Bureaucratic overreach: Instead of functioning as independent businesses, co-ops frequently have to wade through layers of red tape for routine approvals. State Registrars of Cooperative Societies often exercise excessive control over internal affairs, eroding the functional autonomy.
3. Top-Down Formation and Weak Ownership: Many cooperatives were created to meet targets, leading to weak grassroots ownership and a lack of genuine community engagement. When farmers primarily join to access government subsidies, their interest fades once the incentives end.
4. Insufficient Capital: Many cooperatives struggle with insufficient equity and working capital, which limits their ability to invest in markets, technology, and necessary infrastructure. 
5. Weak elections and accountability: Despite the 97th Amendment’s Part IX-B provisions mandating timely elections, many states delay cooperative elections or manipulate the process.
6. Elite Capture and Exclusion: Wealthier and more powerful members often dominate board and leadership positions. They can use the cooperative to secure subsidies, credit, and inputs for themselves, while marginal and landless farmers face exclusion or exploitation.
7. Lack of Professional Management: Cooperative leadership is often elected rather than appointed on merit, leading to a shortage of technical and managerial expertise. Management roles are often filled based on nepotism or seniority rather than professional expertise in business administration, supply chains, or finance.
8. Regional Imbalances: The success of the cooperative movement in India is highly skewed geographically, leaving vast parts of the country underserved. The movement is highly successful in western and southern states like Maharashtra, Gujarat, Karnataka, and Tamil Nadu (especially in dairy, sugar, and banking). However, it remains weak, poorly managed, or practically non-existent across much of northern and eastern India, including states like Bihar, Jharkhand, and Uttar Pradesh.

What are the various initiatives introduced by the government to promote the cooperative sector in India?

1. National Cooperation Policy 2025 (NCP 2025): This is the central, long-term policy framework for the sector. It provides a roadmap for strengthening cooperatives as dynamic economic entities, promoting technology adoption, and expanding into new sectors like organic farming and renewable energy to realize the vision of ‘Sahkar-se-Samriddhi’ (Prosperity through Cooperation).
2. Ministry of Cooperation: Established in 2021, this dedicated ministry signals the government’s strong commitment to fostering a cooperative-centric economic model and driving these reforms. The ministry provides a separate administrative, legal and policy framework for strengthening the cooperative movement in the country. 
3. Multi-State Co-operative Societies Act, 2002: The Multi-State Co-operative Societies (MSCS) Act, 2002 allows cooperatives whose operations span more than one Indian state to register as a single entity. It provides benefits like limited liability and functional autonomy without restricting business across state borders.
4. National Cooperative Database (NCD): This comprehensive database was launched to enable data-driven decision-making and policy formulation. It offers a single point of access for data on over 8,00,000 cooperative societies and their 290 million members, ensuring greater transparency and effective collaboration within the sector.
5. Computerisation of PACS: A Centrally Sponsored Scheme to digitally enable PACS by March 31, 2027. This will bring them onto a common, ERP-based software platform, linking them with NABARD and other financial institutions to improve transparency, reduce transaction costs, and enhance coordination.
6. New National-Level Apex Multi-State Societies: To boost trade and quality control, the government established three new mega-cooperatives under the Multi-State Cooperative Societies Act:
   1. National Cooperative Organics Limited: To aggregate, brand, and market chemical-free organic produce under a trustworthy banner.
   2. National Cooperative Export Limited: To act as an umbrella clearinghouse that helps local farmers export their products directly to international markets.
   3. Bharatiya Beej Sahkari Samiti Limited: A dedicated seed cooperative focusing on the research, enhancement, and distribution of high-yield certified seeds. 
7. International Year of Cooperatives (IYC) 2025: India played a central role in the UN’s International Year of Cooperatives, officially launched at the International Cooperative Alliance Global Cooperative Conference in New Delhi, drawing delegates from over 100 countries.
8. Bharat Taxi (Sahakar Taxi Cooperative): India’s first cooperative-based mobility platform, with 6.37 lakh registered drivers and 35.77 lakh registered customers, offering a driver-owned alternative to conventional ride-hailing apps.
9. “Tribhuvan” Sahkari University: India’s first cooperative university (previously known as the Institute of Rural Management Anand (IRMA)), located in Anand, Gujarat. Its mandate is to support the professional management of rural organizations.

What should be the way forward?

1. Depoliticization: Ensure genuine implementation of Part IX-B provisions (97th Amendment) for timely, fair elections and fixed tenures of boards to reduce political capture.
2. Professional management: Introduce qualified CEOs/managers for cooperative banks and large PACS, separating day-to-day management from elected boards (similar to corporate governance models).
3. Limiting bureaucratic control: Reduce excessive discretionary powers of Registrars of Cooperative Societies, and move toward a more autonomous, self-regulatory model as envisioned under the Model Cooperative Societies Act.
4. Value addition and agro-processing: Encourage cooperatives to move up the value chain (processing, branding, packaging) rather than remaining limited to primary produce aggregation, following models like AMUL.
5. Focusing on Underserved Zones: Targeted government setup and investment are crucial to build functional milk and agricultural unions in states like Bihar, Jharkhand, and Uttar Pradesh.
6. Centre-State cooperation: Since cooperation is a State subject, the Ministry of Cooperation should function as a facilitator rather than a controller, respecting federal principles while enabling convergence of central schemes (PM-KISAN, PMMSY, PM-MKSSY) with cooperative delivery mechanisms. Also, encourage states to adopt a model law that balances autonomy with accountability, reducing legal fragmentation across states.
7. New National Cooperative Policy: Update the 2002 policy to reflect contemporary challenges, focusing on ease of doing business for cooperatives, taxation parity, and integration with the formal economy.

Conclusion: Cooperatives can play a vital role in the rural transformation. Provision of adequate financial and technical assistance can enable them to address rural challenges and contribute to India’s growth story. Government should take all possible steps to facilitate growth ecosystem for the Cooperatives.