Cooperative reforms since 2021

Detail

1. What a cooperative is and where it sits in the Constitution

• Cooperative society: a group of people who join together of their own free will. They own and run a business together, such as a credit, dairy or sugar business. The rule is one member, one vote, whatever the size of each member's share.
• NCERT counts such bodies among the democratic institutions of everyday life. They are places where ordinary people practise working together and choosing leaders.
• 97th Constitutional Amendment (2011) added three things:
• Article 19(1)(c): the right to form cooperative societies became a Fundamental Right.
• Article 43B: a Directive Principle (a goal the state should follow but no court can enforce). It asks the state to promote cooperatives that are voluntary, autonomous, democratically controlled and professionally managed.

• Part IXB (Articles 243ZH–243ZT): rules for cooperatives. It sets a board of at most 21 directors and a 5-year term. Boards must reserve 1 seat for an SC/ST member and 2 for women. Elections and audits must be held on time.

• Division of powers (Seventh Schedule):

• "Cooperative societies" is a State subject (State List, Entry 32).
• Corporations whose work spreads over more than one state belong to the Union (Union List, Entry 44). Parliament makes laws for multi-state cooperatives under this entry.

2. Ministry of Cooperation (July 2021)

• It was created in July 2021. Cooperation was taken out of the Ministry of Agriculture and made a separate ministry. The Union Home Minister also holds this ministry.
• Slogan: "Sahakar se Samriddhi" ("prosperity through cooperation").
• Its work: to strengthen cooperatives across the country and to run the Multi-State Cooperative Societies (MSCS) Act, 2002. The Central Registrar of Cooperative Societies comes under it.
• The federal question (federalism means power is shared between the Centre and the states):
• Cooperation is a State subject, so the Centre cannot directly make laws for state cooperatives.

• The Centre therefore works in indirect ways:

  • the MSCS Act
  • model bye-laws that states choose to adopt (bye-laws are the internal rule-book of a society)
  • centrally funded schemes and incentives

• Union of India v. Rajendra N. Shah (2021): this case sets the limit on central action.

• Part IXB changed a State List subject. So under the proviso to Article 368(2) it needed ratification by at least half of the state legislatures. It never got that approval.
• The Supreme Court therefore struck down Part IXB as it applies to state cooperatives. It survives only for multi-state cooperatives.

• Result: the Centre cannot use the Constitution to control state cooperatives.

• Criticism: some states and opposition parties fear the Centre is slowly taking control of a state domain. They say it does this through money and model rules (see federalism-centre-state).

3. PACS reforms — rebuilding the village base

• Primary Agricultural Credit Society (PACS): a village-level cooperative. It gives farmers short-term loans for seeds, fertiliser and the crop season.
• The short-term cooperative credit chain has three tiers:

Tier	Body	Level
1	PACS	Village
2	District Central Cooperative Bank (DCCB)	District
3	State Cooperative Bank (StCB)	State

• The old problem: many PACS were not viable. They earned little, their records were poor and too many loans went unpaid. The Vaidyanathan Committee (2004) studied this and proposed a revival package along with legal reforms for autonomy.

Model bye-laws for PACS (2023)

• Under these bye-laws a PACS can do more than 25 kinds of business. Examples: dairy, fisheries, storage godowns, fertiliser and fuel (petrol/LPG) outlets, Jan Aushadhi Kendras (low-cost generic medicine shops) and Common Service Centres (village counters for digital government services).
• They also open membership to more people and give women and SC/ST members a fair share in running the society [6].
• By late 2025, 32 States/UTs had adopted the model bye-laws or brought their laws in line with them [6].

Other PACS reforms

• Computerisation of PACS:
• Total cost of ₹2,925.39 crore [4].
• All working PACS are brought onto one national ERP software (common accounting and management software). They are linked to NABARD through the StCBs and DCCBs [4].

• Progress (20 January 2026): 79,630 PACS sanctioned; 61,478 onboarded on the ERP; 44,860 have completed audit on the system [4].

• 2 lakh new multipurpose PACS, dairy and fishery cooperatives (plan approved February 2023):

• Aim: cover every panchayat/village within five years.
• A Margdarshika (standard operating procedure) guides the work [4].

• 23,173 new societies registered by 22 July 2025 [4].

• "World's largest grain storage plan" in the cooperative sector (2023):

• It builds godowns and other farm buildings at PACS level.

• Pilot: 11 godowns in 11 PACS built, giving 9,750 MT of storage; 575 PACS identified for the next stage [4].

• National Cooperative Database: one digital record of cooperatives across the country. It helps find villages that still have no cooperative.

4. Multi-State Cooperative Societies (Amendment) Act, 2023

• Multi-State Cooperative Society (MSCS): a cooperative whose members and work spread over more than one state, for example IFFCO or KRIBHCO. It is registered with the Central Registrar under the MSCS Act, 2002.
• Legislative timeline:

Step	Date
Bill introduced in Lok Sabha	7 December 2022 [3]
Amendment Act notified	3 August 2023 [2]
Rules notified	4 August 2023 [2]

• New bodies created:

Body	Composition / rule	Function
Cooperative Election Authority	A Chairperson, a Vice-Chairperson and up to 3 Members. The Centre appoints them on a Selection Committee's advice [2][3]	Holds timely, free and transparent board elections; prepares voter lists
Cooperative Ombudsman	One or more, appointed by the Centre, each for a fixed area [2]	Hears members' complaints about deposits, fair benefits and individual rights. Must decide within 3 months. Appeal goes to the Central Registrar within 1 month [2][3]
Cooperative Rehabilitation, Reconstruction and Development Fund	Paid for by societies that made a profit for 3 years in a row. Each pays ₹1 crore or 1% of net profit, whichever is lower [3]	Revives sick (loss-making) multi-state societies

• Board reforms:
• Board seats are reserved for 1 SC/ST member and 2 women. This copies the rule in Part IXB [3].

• The board can still have at most 21 directors, plus 2 co-opted experts (experts the board adds by its own choice) in banking, finance or management [3].

• Transparency and accountability:

• Every society must name an information officer to give members information.
• Concurrent audit (a continuous audit running during the year, not only at year-end) for large societies.

• Limits on related-party dealings: directors cannot vote on deals in which they or their relatives have an interest.

• Merger: a state-registered cooperative can merge into a multi-state cooperative if at least two-thirds of its members present and voting pass a resolution [3].

5. New national multi-state cooperatives (2023) and a cooperative university

• National Cooperative Exports Ltd (NCEL): helps cooperatives sell their products abroad.
• National Cooperative Organics Ltd (NCOL): buys, certifies and sells organic produce.
• Bharatiya Beej Sahakari Samiti Ltd (BBSSL): produces and sells quality seeds.
• Tribhuvan Sahkari University Act, 2025:

Step	Date
Passed by Lok Sabha	26 March 2025 [7]
Passed by Rajya Sabha	1 April 2025 [7]
Presidential assent	3 April 2025 [7]

• The university was set up in Anand (Gujarat) by converting the Institute of Rural Management Anand (IRMA) [7].
• The Act declares it an institution of national importance. It may open schools in other states and affiliate existing cooperative institutes [7].

6. National Cooperation Policy 2025

• Launched on 24 July 2025 by the Union Minister of Cooperation [5]. It replaces the National Policy on Cooperatives of 2002.
• Drafting: a 48-member national committee headed by former Union Minister Suresh Prabhu. Members came from cooperative federations, central and state ministries, and universities [5].
• Structure: 6 strategic pillars, 16 objectives and 83 recommendations [5].
• Targets:
• The policy sets a two-decade vision. Its main targets are set for the next 10 years [5].
• Bring 50 crore people into cooperatives [5].
• Triple the cooperative sector's share in the economy [5].
• Set up at least one cooperative in every village or panchayat.

• Bring in professional management and technology, and draw in more youth and women.

• International context: the UN declared 2025 the International Year of Cooperatives [8].

7. Debates

• Autonomy vs state control:
• Article 43B promises autonomous cooperatives.

• In practice, registrars (state officials in charge of cooperatives) can remove boards, delay elections and appoint administrators.

• Politicised cooperatives:

• Sugar cooperatives (Maharashtra), dairy unions and cooperative banks often serve as political bases.

• Board posts become a route into electoral politics.

• Dual control of cooperative banks:

• The RBI regulates their banking work.
• State registrars control their management and elections.

• This split allowed failures such as the PMC Bank crisis (2019). The Banking Regulation (Amendment) Act, 2020 then gave the RBI more power over cooperative banks.

• Civil society or para-state body?

• Cooperatives are meant to be voluntary groups of citizens, which makes them part of civil society.
• But heavy state funding, appointed boards and government schemes make many of them work like arms of the government.

Prelims Hooks

• Ministry of Cooperation: created in July 2021, carved out of the Agriculture Ministry. Slogan: "Sahakar se Samriddhi".
• Union of India v. Rajendra N. Shah (2021): Part IXB was struck down for state cooperatives because half the states had not ratified it under the proviso to Article 368(2). It still applies to multi-state cooperatives.
• 97th Amendment (2011): Article 19(1)(c) (Fundamental Right), Article 43B (Directive Principle), Part IXB (Articles 243ZH–243ZT).
• Short-term cooperative credit chain: PACS → DCCB → StCB.
• MSCS (Amendment) Act 2023: Election Authority = Chairperson + Vice-Chairperson + up to 3 members. The Ombudsman must decide complaints within 3 months [2][3].
• Rehabilitation Fund: paid for by societies profitable for 3 years in a row, each paying ₹1 crore or 1% of net profit, whichever is lower [3].
• Board reservation under both Part IXB and the MSCS Act 2023: 1 SC/ST member + 2 women. Board size: at most 21 directors.
• National Cooperation Policy 2025: launched 24 July 2025; Suresh Prabhu committee; 6 pillars, 16 objectives, 83 recommendations; target of 50 crore members [5].
• Tribhuvan Sahkari University: in Anand, converted from IRMA; Act of 2025; institution of national importance [7].
• Trap: NCEL handles exports, NCOL handles organics and BBSSL handles seeds. All three are multi-state societies set up in 2023.

Mains Points

• Cooperative federalism or centralisation?
• Cooperation is a State subject. Rajendra Shah (2021) bars the Centre from controlling state cooperatives through constitutional amendment.
• Yet model bye-laws, ERP computerisation and centrally funded schemes create pressure for uniform rules.

• Answer frame: use incentive-based cooperation with states, not central control.

• Governance reform vs autonomy:

• The Election Authority, the Ombudsman and concurrent audit tackle delayed elections, fraud and capture by a few.

• But central appointment of these bodies may reduce the member control that Article 43B promises.

• PACS as multipurpose village hubs:

• Wider business can make PACS viable, a long-standing problem noted by the Vaidyanathan Committee (2004).
• Risk: weak PACS may overstretch themselves.

• Needs: professional staff (the role of Tribhuvan Sahkari University), timely audits and an end to RBI–registrar dual control of cooperative banks.

• Cooperatives as civil society:

• True member-owned bodies build social capital (trust and networks) and grassroots democracy.
• Politicised sugar and dairy cooperatives show how state funding and party capture can turn them into para-state bodies.
• So the NCP 2025 goal of a cooperative in every village depends on keeping them autonomous.