Issue with Cooperatives in India – UPSC GS2

India enacted legislation for cooperatives in 1904. All India rural credit survey committee in 1954 pointed out that the cooperatives have failed in their objective.
Cooperative movement in India:
  • In India, it started in Madras presidency with the enactment of the Indian cooperatives act in 1904.
  • Registrar of cooperative societies (RCS) acts as nodal agencies for the cooperatives.
  • Pioneers like Dr. John Mathai, who graduated from the London School of economics, assisted in the initial phases.
Why did cooperatives fail in India?
  • In India, cooperatives were created by resolution of the government, unlike Europe, where they were created Bottom-up.
  • Co-operatives demanded a flexible model, but government grip increased over the years in the form of regulations.
  • Some cooperatives like Amul, IFFCO performed successfully.
Way Forward:
  • Power of RCS should be reduced. They should act as facilitators and not as instruments of inspection and domination.
  • Rural-urban dichotomy in regulations should be done away with. The regulation should be based on the size of the cooperative or the nature of the business of the cooperative.
  • Regulation and supervision mechanism needs to be streamlined. Currently, urban cooperatives are regulated by RBI and rural by NABARD. The regulatory mechanism should be combined and it should have its own regulator with norms created specifically for cooperatives.
  • Formal commercial banks – cooperative sector linkages, which can provide finances to cooperatives and make cooperatives viable in long term.