Introduction to Indian co-operative sector

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Indian co-operative sector names like Amul and Lijjat Papad have been with us for years. They have become an inseparable part of our lives, so much so, that it is difficult to imagine life without them. Both these names and many others like them symbolize successful cooperative business models that changed the face of villages where they originated. Cooperatives have been instrumental in the development of rural India. They are an important part of India’s socioeconomic development.


Who introduced the concept of co-operatives in India and when?


The idea of cooperatives came to India from the west. It originated in the middle of the last century and was introduced in India by the British in 1904, under the Indian Cooperative Societies Act. Initially co-operatives were introduced to establish a beneficial credit system for farmers in rural areas. Farmers were going through hardships of famine and were unable to clear debt. With the cooperative system, they were no longer forced to take money from local money lenders at unrealistic interest rates. Cooperatives worked in favour of farmers and as a result, the Act was amended in 1912 to implement its benefits in other sectors like sales, marketing, production and housing. The amended law provided federations for primary societies and audits and supervision for overall development of the movement. In 1919, the reigns of cooperative societies were handed over to individual provinces.


Cooperative Movement not only improved the state of farmers, but also brought socioeconomic change to the villages. As a result, the development of cooperative societies was given utmost importance when Reserved Bank of India (RBI) was formed in 1935. Since then, Cooperatives have played an important role in country’s socioeconomic growth, especially in rural India.


Growth of Co-operative Societies:


Cooperative societies were governed by state governments and worked as per individual state laws. To bring Cooperative societies of multiple provinces together, the Multi-Unit Cooperative Societies Act was enacted in 1942. Cooperative societies became a significant part of economic growth and poverty removal after the country’s independence, as an integral part of five year plans. Since its inception, this sector has seen tremendous growth in different areas. The number of co-operative societies had increased from 1.81 lakhs in 1950-51 to 4.53 lakhs in 1996-97. The total contribution of cooperative societies had also increased from 1.55 crore to 20.45 crore in the same period. In the past few decades Co-operative societies have become functional in the areas of credit, marketing, production, processing, housing, dairying and textiles. Though in some of these areas, like dairying, handlooms, housing and sugar, the sector has seen tremendous growth, but in many others it has performed poorly.


Reasons that kept certain Cooperatives from success:


The failure of certain areas of Cooperative societies can be attributed to the dormancy of memberships, unprofessional management, bureaucratic control, excessive political interference and control on the management. These are a few things which need to be addressed to ensure a smooth and successful functioning of cooperative societies.  It can / may also be aided by friendly government policies.


The success of any development effort in the agricultural sector can be ensured by connecting it with the efforts put in by the cooperative sector. Growth of cooperative sector has many advantages as it involves every section of the society in its development.

Time to time, even people like Vinoba Bhave connected with the cooperative sector of Indian economy, giving it a spiritual connect. The success of the cooperative sector lies in its inbuilt democratic system. With time, many financial institutions, even in the cooperative sector, are run completely on a commercial basis. This situation can be changed by the intervention of the State, which can enable grants, subsidies and aid meant for farmers in need. Participation can be increased by improving resource as far as money is concerned.


Cooperative societies extend across the country and there are at present around 230 million members. Today the cooperative credit system supports biggest network in the world, and has lent more credit in the Indian agricultural sector than other commercial banks. Even in the area of production and distribution of fertilizers, Indian Fertilizer Cooperative, commands over 35% of the market. In the area of sugar production, the share of cooperative in market is over 58% and even in the cotton industry their share extends to 60%. In case of handlooms, the cooperative sector stands at a 55% share of the total hand-weaving sector.

50% of the total edible oil produced, is processed and distributed by Cooperatives. Under the leadership of the National Dairy Development Board, Dairy Co-operative Milk Marketing Federations has become the largest producer of milk.

Along with the National Cooperative Union of India, the Central Government passed a Multi State Cooperatives Societies Act, and formulated a national cooperative policy that gives required independence to cooperatives. Now with the Insurance Act, cooperatives also have the freedom to venture into Insurance, which is a field with immense potential for cooperatives to grab.

Though cooperatives have been instrumental in the socioeconomic development of India, it needs to revamp its working strategies to meet the current market demands. Cooperatives have benefitted the poor farmers and artisans in villages, improving their financial status, thereby helping rural development. But now it has to work on its potential to deliver products and services in areas where both government and private sectors have failed.


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