Editorial

Co-operative solution

| Updated on July 27, 2021

States need to clean up the mess in cooperatives while the Centre should respect federal boundaries

The Supreme Court’s ruling last week on cooperatives restricts the operation of the 97th Amendment to the Constitution, passed by Parliament in 2011, to multi-State cooperative societies. This Amendment had sought to spell out a set of governance norms to be enforced by the Centre on cooperatives, the running of which is a State subject. The apex court has observed that for the amendment to hold, at least half the State assemblies should have passed it. Therefore, the newly formed Cooperation Ministry at the Centre can oversee the running of multi-State cooperatives (which form a fraction of the over 8.5 lakh such bodies in India). The Reserve Bank of India oversees the functioning of urban cooperative banks, following an amendment to the Banking Regulation Act last September. However, cooperatives that do not call themselves banks, do not issue cheques, and are restricted in their operations to a single State, will continue to be governed by the Registrar of Cooperative Societies (RoCS). Cooperative societies are set up either as quasi-banks (receiving term deposits and disbursing credit) or producing or marketing entities, such as in sugar, dairy and fertiliser sectors. A collapse of a credit cooperative can cause a serious contagion effect. The trouble here is that the district and State cooperative banks are under RBI and NABARD oversight, while primary agriculture credit societies (PACS) that accept lay deposits are under the RoCS. The unfolding of a cooperative bank scam in Kerala, where the primary agriculture credit societies (PACS) actually call themselves banks, underscores the need for cohesive regulation — which the States should appreciate. The RoCS has failed to ensure professional governance. For PACS an independent body that comprises the RoCC and other professionals should be set up in the States.

Producer cooperatives have achieved impressive socio-economic gains in Gujarat, Karnataka, Maharashtra, Kerala and Tamil Nadu. However, their structure and access to resources — financial, physical and human — opens them to political misuse and patronage. Revenues from cooperatives finance elections, while jockeying for political control of cooperatives is commonplace in these States. As for credit cooperatives, it is true that some PACS have produced remarkable outcomes but are deprived of necessary funding from district cooperative banks for political reasons. The challenge is to improve transparency in the running of all cooperatives.

There can be no denying that the States, while fiercely defending their turf here, need to set cooperatives right — and not merely blame the Centre for interference. Successes in Maharashtra, Gujarat, Karnataka, Tamil Nadu and Kerala should be replicated in the rest of the country. An independent oversight system for cooperatives could show the way forward. The Centre should operate with a light touch, recognising that decentralised governance works best.

Published on July 26, 2021

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