By facilitating access to credit and resources for farmers, cooperatives are currently diversifying into various sectors
- Erosion of Autonomy and Politicisation: Cooperatives, intended to be member-driven democratic bodies, have often become extensions of state power. Excessive government interference, frequent supersession of elected boards, and the appointment of administrators have undermined their autonomy. This political capture turns them into tools for patronage rather than member-centric enterprises.
- Lack of Professional Management: A significant number of cooperatives suffer from a lack of professional expertise in management, finance, and marketing. They are often run by individuals without the necessary skills to compete in a modern, dynamic economy, leading to inefficiency, poor decision-making, and an inability to innovate.
- Weak Financial Base and Governance: Many cooperatives, particularly in the credit sector, are marred by a poor capital base, high Non-Performing Assets (NPAs), and over-dependence on government funding. This is compounded by weak internal controls and a lack of accountability, which dilutes the foundational principle of mutual trust.
- Dormant Membership: The principle of active member participation is often non-existent. A large portion of the membership is passive, unaware of their rights and responsibilities, which allows a small coterie to control the society’s affairs, defeating its democratic purpose.
- Dual Control of Cooperative Banks: Urban and Rural Cooperative Banks are a classic example. They are regulated by the Reserve Bank of India (RBI) for their banking functions under the Banking Regulation Act, 1949, and simultaneously by the state-level Registrar of Cooperative Societies (RCS) for their administrative and governance aspects. This duality creates confusion, delays in supervisory action, and allows for regulatory arbitrage, as witnessed in the PMC Bank crisis.
- Centre-State Tussle: While ‘cooperatives’ is a State Subject under the Constitution, the Union government regulates Multi-State Cooperative Societies (MSCS). This creates a fragmented legal landscape. Recent central initiatives, while well-intentioned, can be seen as encroaching on state turf, leading to implementation challenges without cooperative federalism.
- Multiple Agencies: The involvement of NABARD in supervision and refinance for rural cooperatives adds another layer to the regulatory framework. This multiplicity, or ‘regulatory cholesterol’, stifles agility and imposes a heavy compliance burden on these institutions.
- Ensure Genuine Autonomy: The principles of the 97th Constitutional Amendment, which sought to empower cooperatives, must be implemented in letter and spirit by all states. This includes ensuring timely elections, limiting the government’s power to supersede boards, and fostering a culture of member control.
- Harmonise the Regulatory Architecture: There is an urgent need to streamline the regulatory framework. A clear demarcation of roles between the RBI, NABARD, and RCS is essential. A single-point regulatory contact or a more integrated supervisory mechanism could reduce confusion and improve oversight.
- Invest in Capacity Building: A massive drive is needed to train both the management and the members of cooperatives. Professionalising management, introducing modern accounting and risk-management practices, and educating members about their rights are non-negotiable for building robust institutions.
- Promote Financial Independence and Technology Adoption: Cooperatives must be encouraged to diversify their business, improve internal resource generation, and reduce dependency on government grants. The government’s initiative to computerise Primary Agricultural Credit Societies (PACS) is a good start, but it must be supplemented with the adoption of fintech solutions to enhance efficiency and transparency.
