A cooperative society is built on a fundamental promise: that people can come together voluntarily, govern themselves democratically, and collectively improve their economic lives. Yet, across India’s long history of cooperative legislation, this promise has repeatedly collided with an uncomfortable reality – the government’s well-intentioned involvement has often become the biggest obstacle to that very promise being fulfilled. The tension between governmental support and governmental overreach sits at the heart of co-operative law, and understanding it is essential for anyone studying how law shapes economic institutions in India.
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The government’s dual role: supporter and regulator
The government’s relationship with cooperatives in India has never been simple. On one hand, cooperatives – especially in rural and agricultural sectors – require initial financial support, legal frameworks, and institutional backing to survive. On the other hand, once the government becomes a funder and regulator, the line between oversight and control can blur quickly.
The Ministry of Cooperation’s own historical account acknowledges that the sector has long suffered from the “politicization and excessive role of the government, chiefly arising out of the loopholes and restrictive provisions in the Cooperative Acts.” This is not a minor critique – it is an admission embedded in the government’s official documentation that the legal architecture created to protect cooperatives was itself responsible for weakening them.
The International Co-operative Alliance (ICA) defines a cooperative as an autonomous association of persons united voluntarily to meet common economic, social, and cultural needs through a jointly owned and democratically controlled enterprise. The word “autonomous” here is not decorative. It reflects a core principle that the cooperative movement globally insists upon – that cooperatives must remain free from external political or governmental domination. Indian law, however, has repeatedly struggled to honour this principle in practice.
How restrictive legislation undermines autonomy
State Cooperative Acts across India have historically contained provisions that give the government sweeping powers – from appointing administrators to superseding elected boards, conducting audits, and even dissolving cooperatives. These provisions were often justified as safeguards against mismanagement. In practice, they created an ecosystem where state governments could intervene in the internal affairs of cooperatives almost at will.
PRS Legislative Research’s analysis of the Multi-State Co-operative Societies (Amendment) Bill, 2022, highlights a particularly revealing problem: the Bill proposed that government-held shares in a cooperative could not be redeemed without prior government approval. While framed as a protective measure, such a provision directly contradicts the cooperative principle of democratic member control. As noted in the analysis, it “may go against the co-operative principles of autonomy and independence.” The High-Powered Committee on Co-operatives (2009) had in fact explicitly recommended against government participation in cooperative share capital precisely because it enables this kind of backdoor control.
A closely related problem is that of elections. Cooperative acts in many states did not mandate timely elections, allowing state-appointed administrators to run cooperatives indefinitely. This meant elected boards – the democratic core of the cooperative – could be bypassed for years at a stretch, reducing accountability and enabling corruption. As documented in policy analyses, irregular elections kept office-bearers in place without democratic renewal, effectively converting cooperatives into extensions of state patronage networks.
IRMA’s 2021 analysis pointed out that the inclusion of cooperatives in government planning as development instruments effectively turned them into supporters of ruling political parties. By contributing to share capital and providing financial assistance, state governments gained the leverage to directly intervene in the functioning of legally autonomous cooperatives. The institutional design was supposed to ensure independence; the financial dependency ensured the opposite.
The 97th Constitutional Amendment: reform or overreach?
The Constitution (97th Amendment) Act, 2011 was Parliament’s most ambitious attempt to fix this problem through constitutional intervention. It added Article 43B to the Directive Principles of State Policy, mandating that the state shall promote voluntary formation, autonomous functioning, democratic control, and professional management of cooperative societies. It also inserted Part IX-B (Articles 243ZH to 243ZT), which set out detailed governance norms – number of directors, their terms, election timelines, audit requirements, and more.
The amendment’s intentions were sound: reduce political interference, ensure elections on time, bring professionalism. But the method chosen created a serious legal problem. As explained in detail by law scholars, “cooperative societies” falls under Entry 32 of the State List in the Seventh Schedule – meaning state legislatures have exclusive power to legislate on them. Any constitutional amendment touching state legislative subjects requires ratification by at least half the state legislatures under Article 368(2). The 97th Amendment was passed without this ratification.
In July 2021, the Supreme Court in Rajendre N. Shah v. Union of India struck down Part IX-B of the Constitution insofar as it applied to state cooperative societies. The court applied the Doctrine of Severability, saving the provisions that related to multi-state cooperative societies (which fall under Parliament’s domain under Entry 44 of the Union List), but declaring the rest unconstitutional. The judgment reaffirmed that even reform-oriented constitutional amendments cannot bypass federalism’s procedural safeguards. As noted by analysts, the verdict implied that “even well-intentioned efforts towards reforms cannot be at the cost of quasi-federal principles.”
What remains intact is significant: Article 19(1)(c) now includes the fundamental right to form cooperative societies, and Article 43B continues to impose a duty on the state to promote autonomous and democratic cooperative functioning. The constitutional aspiration survives; the prescriptive framework for state cooperatives does not.
What a balanced approach looks like
Critics of excessive government control in cooperatives are not arguing for zero regulation. The argument is more nuanced: regulation should enable, not substitute, democratic self-governance.
The Brahm Prakash Committee’s Model Cooperative Act had proposed a member-centric legal framework – one where only active members could vote and contest elections, boards had clear defined roles separate from paid management, and cooperative laws specifically barred elected directors from contributing to political parties or holding office beyond a fixed term. These recommendations were designed to protect cooperatives from both internal mismanagement and external political capture.
The National Cooperative Policy of 2002 committed to providing cooperatives with the necessary support to ensure their functioning as autonomous, self-reliant, and democratically managed institutions. But policy commitments are only as strong as the legislative and administrative structures that back them. The 2002 Ministerial Task Force even recommended that sitting Members of Parliament and MLAs be barred from holding positions in cooperative boards – a direct acknowledgment that political presence in cooperatives was the single biggest threat to their independence.
The creation of the Ministry of Cooperation in July 2021 – with the stated vision of “Sahakar se Samriddhi” (prosperity through cooperatives) – is the government’s latest institutional bet. The Ministry’s focus on streamlining registration, enabling digital governance, promoting the computerization of Primary Agricultural Credit Societies (PACS), and developing a Cooperative Governance Index through NABARD are all steps in the right direction. The question remains, however, whether this institutional attention will translate into genuine autonomy for cooperatives on the ground, or simply introduce a new layer of central oversight.
The legal framework going forward
Post the 2021 Supreme Court verdict, state governments are now solely responsible for legislating on their cooperative sectors. The court’s ruling effectively returned the reform mandate to where it constitutionally belongs – with the states. This creates both an opportunity and a risk. States that amend their cooperative laws in the spirit of the Brahm Prakash Committee’s recommendations – prioritizing member participation, timely elections, and professional governance – can meaningfully transform their cooperative sectors. States that continue to rely on administrative supersession and financial leverage over cooperatives will simply reproduce the same problems the 97th Amendment was trying to solve.
For multi-state cooperative societies, Parliament retains the constitutional authority and responsibility to legislate. Here, the balance must be struck carefully. Provisions that give the central government veto powers over share redemption or that make board supersession easier may address governance failures in the short term but do so by compromising the very cooperative principles – democratic member control and autonomy – that give these institutions their distinct character and legal identity.
True reform requires that the government act as a facilitator rather than a controller: providing legal clarity, ensuring election infrastructure, enabling access to credit, and stepping back from day-to-day governance. The moment the government’s financial stake in a cooperative becomes a tool for political influence, the cooperative ceases to be one in any meaningful sense.
Critique and the way ahead
The core critique of the government’s role in cooperative development is not that the government should be absent, but that it has consistently confused support with control. Financial assistance accompanied by share capital gave governments equity stakes that doubled as political levers. Regulatory frameworks designed for accountability became vehicles for administrative supersession. Constitutional amendments aimed at reform were passed without the procedural respect the Constitution itself demands.
The cooperative sector in India has an impressive numerical footprint – over 8.5 lakh cooperatives and more than 1.3 crore people directly associated with them, according to Ministry of Cooperation data. But numbers alone do not measure health. A cooperative that exists on paper but is administered by a government-appointed official, whose board has not been elected in years, and whose finances are tethered to state patronage, is not a cooperative in the sense that cooperative law envisions. Restoring that vision requires legislative restraint as much as legislative ambition.
What do you think? When the government holds shares in a cooperative, should it always retain a veto over major financial decisions – or does that fundamentally compromise the cooperative’s independence? And if states are now solely responsible for reforming their cooperative laws post the 2021 Supreme Court verdict, what mechanisms should ensure that state governments do not simply replicate the same patterns of political overreach they were meant to correct?
References
- https://www.cooperation.gov.in/sites/default/files/2022-12/History_of_cooperatives_Movement.pdf
- https://ica.coop/en/cooperatives/cooperative-identity-values-principles
- https://prsindia.org/billtrack/the-multi-state-co-operative-societies-amendment-bill-2022
- https://prsindia.org/files/bills_acts/bills_parliament/2022/Joint_Committee_Report_on_the_Multi-State_Co-operative_Societies_(Amendment)_Bill_2022.pdf
- https://compass.rauias.com/polity/cooperatives/
- https://www.shankariasparliament.com/current-affairs/multi-state-cooperative-societies-amendment-bill-2022
- https://lawbhoomi.com/97th-amendment-to-the-indian-constitution/
- https://www.scconline.com/blog/post/2021/07/21/constitution-97th-amendment-act-2011/
- https://www.nabard.org/annual-report/cooperatives-tackling-challenges-building-opportunities.html
- https://www.cooperation.gov.in/faqs
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