Industrial Co-operatives: Fostering Small-Scale Industries and Artisanship in India

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India is home to millions of small-scale producers – weavers in Varanasi, potters in Rajasthan, coir workers in Kerala, and tribal artisans across the Northeast – who possess generations of skill but often lack the capital, raw materials, and market access to sustain their livelihoods. For these producers, competing against mechanised industries and corporate supply chains on their own is nearly impossible. This is precisely where industrial co-operatives step in. By bringing small producers together under a collective framework, industrial co-operatives allow members to pool resources, share costs, and access markets they could never reach individually – all while preserving the co-operative principles of democratic control and equitable distribution of benefits.

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What are industrial co-operatives?

Industrial co-operatives – also called producers’ co-operatives – are associations of small-scale manufacturers, artisans, and workers who come together to carry out the production and distribution of goods collectively. These societies look out for small-scale producers in a competitive market by handling production and distribution from within the co-operative, with raw materials, tools, and processing units obtained directly by the members and the final output distributed to buyers without any middlemen.

Members of industrial co-operatives could be farmers, ayurvedic herbal medicine producers, organic produce sellers, handicraft or handloom producers, artisans, and others. By pooling resources and increasing production volumes, they minimise individual risk in the face of competitive capitalistic markets.

There are broadly two models of functioning within industrial co-operatives. In the first, the co-operative itself organises production centrally, with members contributing labour and the society owning the means of production. In the second type, the co-operative buys goods produced by the members independently, then markets and sells them collectively. Both models share the same goal: protecting producers from exploitation and ensuring fair returns for their work.

Who do industrial co-operatives serve?

The primary beneficiaries of industrial co-operatives are those at the economic margins – workers and artisans who lack bargaining power when dealing alone with raw material suppliers, moneylenders, or corporate buyers.

Industrial co-operatives play a vital role in providing gainful employment to weaker sections including rural artisans, workers, and labourers. They also help farmers cultivating crops like tea and tapioca get a reasonable rate for their produce.

This makes industrial co-operatives especially critical in rural India, where a large portion of the workforce is employed in cottage industries, handlooms, handicrafts, and small-scale processing units. With 98% coverage in rural India, co-operatives are the mainstay of the rural economy, ensuring sustainable livelihoods and income for people across diverse sectors including forestry, fisheries, dairy, and small industries.

Key functions of industrial co-operatives

Collective procurement of raw materials

One of the most immediate benefits an industrial co-operative offers its members is the ability to procure raw materials in bulk. Individual artisans or small producers are often at the mercy of traders who charge higher prices precisely because they buy in small quantities. A co-operative aggregates demand across all members and negotiates directly with suppliers, driving down input costs for everyone.

The Khadi and Village Industries Commission (KVIC) – the apex organisation under the Ministry of MSME for khadi and village industries – extends assistance for the procurement of raw materials for artisans, and also arranges the manufacture and distribution of improved tools, equipment, and machinery to producers on concessional terms.

Shared manufacturing and production infrastructure

Setting up even modest manufacturing infrastructure – a processing unit, a kiln, a loom shed – can be out of reach for individual artisans. Industrial co-operatives solve this by creating shared production facilities that members can use collectively. This reduces per-unit costs dramatically and improves the quality and consistency of output.

The Ministry of MSME’s Micro and Small Enterprises – Cluster Development Programme (MSE-CDP) is aimed at enhancing the productivity of rural clusters of artisans , and industrial co-operatives are a key vehicle through which these cluster benefits are channelled to ground-level producers.

Collective marketing and elimination of middlemen

Perhaps the most transformative function of industrial co-operatives is in marketing. Artisans and small producers historically lose a significant portion of their earnings to middlemen who buy low and sell high. A co-operative removes this layer by marketing products directly to buyers or consumers on behalf of its members.

Producers’ co-operative organisations are founded to safeguard the interests of small producers, with the society handling both production and marketing distribution, collecting raw materials and other processing instruments directly and supplying them to producers. Notable examples in the handloom sector include APPCO and Haryana Handloom , which market handloom products on behalf of their member weavers.

Industrial co-operatives and the handloom sector

The handloom industry is one of the most prominent sectors where industrial co-operatives operate in India. The handloom industry is one of the largest employment sectors both directly and indirectly, providing jobs to lakhs of weavers across the country, and historically thrived because it required minimum capital and little to no power, with an environment-friendly and flexible production process.

State-level apex societies in this sector demonstrate how industrial co-operatives can scale. The Kerala State Handloom Weavers Co-operative Society (HANTEX), established in 1961, functions as an apex organisation over 300 primary societies across the state, supporting handloom weavers in production and marketing of quality handloom products, with 100 showrooms and two weaving factories providing employment to more than 2,000 weavers.

Similarly, in West Bengal, TANTUJA functions as a central marketing organisation rendering marketing support to Primary Weavers Co-operative Societies and handloom artisans working outside co-operatives through their marketing outlets.

The role of KVIC and government support

Industrial co-operatives in India do not operate in isolation – they are embedded within a larger ecosystem of institutional support. The Khadi and Village Industries Commission (KVIC), a statutory body under the Ministry of MSMEs established in 1957, has supported khadi production, cottage industries, and self-employment across India for over six decades.

KVIC’s policies and programmes are executed through State Khadi and Village Industries Boards and Industrial Co-operative Societies registered under State Co-operative Societies Acts. Its wide range of activities include training artisans, extending assistance for raw material procurement, marketing finished products, and arranging manufacturing and distribution of improved tools and machinery on concessional terms.

The Ministry of Cooperation, created in July 2021 with the vision of “Sahkar se Samriddhi” (prosperity through cooperation), provides a distinct administrative, legal, and policy framework to strengthen the co-operative movement – including industrial co-operatives serving artisans and small producers.

The Ministry of MSME also extends protections to industrial co-operatives through legislation. Under the MSME Act, 2006, price and purchase preference is required to be given to Industrial Co-operative Societies alongside micro, small, and medium manufacturing and service enterprises. This means government procurement policies are supposed to prioritise the products of these societies – a significant advantage in accessing stable institutional markets.

Social and economic objectives of industrial co-operatives

Industrial co-operatives are not purely economic entities – they carry an explicitly social mandate. Their social objective is to safeguard the interest of the poorest sections against exploitative trends and to pave the way for the diffusion and dispersal of wealth. Their economic objectives are to create employment opportunities by increasing production and productivity, and to build competitive capability in trade and industry.

This dual mandate makes industrial co-operatives particularly well-suited to India’s development priorities. Unlike large corporations, co-operatives invest back into their communities, building skills and livelihoods, and help members get better prices by aggregating produce and bypassing middlemen.

From a governance standpoint, industrial co-operatives operate on the foundational co-operative principle of democratic control. A co-operative society runs on democratic principles – each member has only one vote irrespective of the number of shares held, and the main objective is to provide service to members, not to maximise profits. This ensures that decisions about procurement, production targets, and profit distribution are made collectively and cannot be captured by a single dominant stakeholder.

Challenges facing industrial co-operatives in India

Despite their promise, industrial co-operatives face significant challenges that limit their effectiveness in many parts of the country.

Withdrawal of purchase preference: The withdrawal of price and purchase preference for Industrial Co-operative Societies by state and central governments has adversely affected the marketing of products from these societies. While the MSME Act mandates such preferences, implementation has been inconsistent.

Competition from powerlooms and mechanised industries: The handloom sector faces challenges such as small productivity, insufficient working capital, rapid technology development, and unfair competition from powerlooms and the mill sector. Similar pressures apply to other artisan-based industrial co-operatives.

Modernisation vs. tradition: Differential wages and changing employment patterns show counter effects in the context of modernisation and upgradation of industrial co-operative societies, constraining their ability to meet the expectations of planners in terms of employment generation.

Addressing these challenges requires both policy consistency and investments in technology upgradation, skill development, and market linkages – areas where the government and co-operative federations must work in tandem.

Industrial co-operatives as engines of inclusive growth

India’s development story cannot be complete without accounting for the millions of artisans, weavers, potters, and small producers who sustain regional crafts and cottage industries. Industrial co-operatives offer these producers a structured, democratic, and economically viable way to participate in markets and benefit fairly from their labour.

The co-operative movement in India, which dates back to the early 20th century, has repeatedly demonstrated that collective action produces better outcomes for marginalised producers than individual competition. The Industrial Policy Resolution of 1956 itself emphasised the need for state assistance to enterprises operating through the cooperative model, and successive Five-Year Plans reinforced the importance of industrial co-operatives as instruments of decentralised, employment-intensive growth.

With the renewed institutional focus brought by the Ministry of Cooperation, digital platforms connecting artisans to markets through schemes like KVIC’s PMEGP and SFURTI, and a growing consumer interest in authentic, handmade products, industrial co-operatives are well-positioned to expand their reach. Co-operatives are now entering sectors like e-commerce, agri-export, organic food processing, and green energy, and there is every reason why industrial co-operatives serving artisans can similarly leverage digital channels to access national and global markets.

What do you think? Given that industrial co-operatives eliminate middlemen and distribute profits among members, do you think they offer a more sustainable model for rural artisans than individually run micro-enterprises? And with the government’s “Sahkar se Samriddhi” push, what structural reforms do you believe are most essential to help industrial co-operatives compete in today’s market?

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References
  1. https://msme.gov.in
  2. https://www.cooperation.gov.in
  3. https://kviconline.gov.in
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Co-operation – Genesis, Principles, Values, Growth and Development

1 Genesis of Co-operative Movement in India and Few Selected Countries

  1. Characteristics of Co-operative Enterprise
  2. Objectives of Co-operation
  3. Origin and Development of Co-operative Movement in India
  4. History of the Co-operative Movement in India up to 1947
  5. England (Consumer Co-operative Movement)
  6. Germany (Raiffeisen and Schulze)
  7. Dairy Co-operatives in Denmark
  8. Co-operatives in Israel (Collective Farming)
  9. New Age Co-operatives

2 Development of Co-operative Principles and Values including ICA Restated Principles, 1995

  1. International Co-operative Alliance (ICA)
  2. Rochdale Principles
  3. ICA Statement on Co-operative Identity – 1995
  4. Principles of 1995 Co-operative Statement
  5. Co-operative Values

3 Co-operative Autonomy, Distinctive Features of Democratice Management in Co-operatives vis-a-vis Companies

  1. Nature of Co-operatives
  2. Principles of Co-operatives
  3. Democratic Member Control as a Restated Principle (1995)
  4. Features of a Co-operative
  5. Comparison between a Co-operative and Company

4 Co-operative Policy and Support at Centre and States (After 1990)

  1. Model Co-operative Law
  2. Andhra Pradesh Mutually Aided Co-operative Societies Act 1995
  3. Enactment of Multi-State Co-operative Societies Act 2002
  4. National Co-operative Policy 2002
  5. Vaidyanathan Committee Recommendations

5 Phase-I 1st to 3rd Five Year Plan

  1. First Five Year Plan (1951-1956)
  2. Second Five Year Plan (1956-1961)
  3. Third Five Year Plan (1961-1966)

6 Phase-II 4th to 8th Five Year Plan

  1. Introduction
  2. Fourth Five Year Plan (1969-1974)
  3. Fifth Five Year Plan (1974-1979)
  4. Sixth Five Year Plan (1980-1985)
  5. Seventh Five Year Plan (1985-1990)
  6. Eighth Five Year Plan (1992-1997)

7 Phase-III 9th to 11th Five Year Plan

  1. Ninth Five Year Plan (1997-2002)
  2. Tenth Five Year Plan (2002-2007)
  3. Eleventh Five Year Plan (2007-2012)

8 Present Status of Co-Operative Movement

  1. Spread of Co-operatives
  2. Share of Co-operatives in National Economy
  3. Significance of Co-operative Movement
  4. Important Sectors of Co-operative Movement
  5. Problems of Co-operative Movement
  6. Issues/Challenges before Co-operative Movement

9 Types of Co-Operatives

  1. Co-operative Marketing
  2. Co-operative Processing
  3. Co-operative Farming
  4. Consumer Co-operative
  5. Industrial Co-operatives
  6. Housing Co-operatives
  7. Dairy Co-operative
  8. Fishery Co-operatives
  9. Transport Co-operatives
  10. Education Societies
  11. Labour Co-operatives
  12. Hospital Co-operatives
  13. Agri-tourism Co-operatives

10 Study of Co-Operative Credit Institutions

  1. Origin
  2. Co-operative Rural Credit Institutions in India
  3. Credit Co-operative Movement after Independence
  4. Long Term Credit
  5. Co-operative Rural Credit Institutions – Issues
  6. Non-Agricultural Co-operative Credit Institutions

11 Study of Marketing, Consumer, Processing Co-Operatives

  1. Marketing Co-operative
  2. Consumer Co-operative
  3. Sugar Co-operative
  4. Dairy Co-operative

12 Study of Co-Operatives for Weaker Section– Labour, Tribal, Fishery, Weavers, Women

  1. Importance of Weaker Section Co-operatives
  2. Different Weaker Section Co-operatives
  3. Fishery Co-operatives
  4. Tribal Co-operatives
  5. Labour Co-operatives
  6. Weavers’ Co-operatives
  7. Women Co-operatives

13 Study of Other Types of Co-Operatives- Housing, Fertilizer

  1. Housing Co-operatives
  2. Fertilizer Co-operatives
  3. Health Co-operatives
  4. Tourism Co-operatives
  5. Tree Growers’ Co-operative Societies

14 Findings and Recommendations of Important Committees (1954- 1989)

  1. All India Rural Credit Survey Committee Report – 1954
  2. Committee on Co-operation – 1965
  3. All India Rural Credit Review Committee (AIRCRC) – 1969
  4. Madhava Das Committee – 1978
  5. Report of the Committee on Co-operative Law for Democratisation and Professionalisation of Management in Co-operatives – 1987
  6. Report of the Agricultural Credit Review Committee – 1989

15 Findings and Recommendations of Important Committees (1991- 2010)

  1. Report of the Committee on Model Co-operative Act – 1991
  2. Report of the Committee on Licensing of New Urban Co-operative Banks
  3. Report of the Task Force on Revival of Rural Co-operative Credit Institutions (2005)
  4. Report of the High Powered Committee on Co-operatives (2009)

16 Role of Regulatory and Development Institutions for Co-operative Movement

  1. Role Functions of Reserve Bank of India
  2. Role Functions of NABARD
  3. Role Functions of NCDC
  4. Role Functions of NDDB
  5. Promotional Role of Registrar of Co-operative Societies in Co-operative Development

17 Co-Operative Training and Education

  1. Evolution of Co-operative Training and Education
  2. Structure of Co-operative Training and Education under NCUI
  3. Co-operative Training and Education Facilities in Junior Training Centres in States
  4. Co-operative Training and Education provided by other Co-operative Organizations