Strengthening Cooperatives in India: Key Reforms, Governance Changes, and the Road Ahead

The 97th Constitutional Amendment Act, 2011, granted constitutional status to Cooperative Societies, which came into force with effect from February 15, 2012. It made three key provisions:
(a)  The right to form cooperative societies was inserted as a Fundamental Right under Article 19(1)(c) in Part III of the Constitution.
(b)  Article 43B was inserted in Part IV of the Constitution as a Directive Principle of State Policy for the promotion of cooperative societies.
(c)  Part IXB, ‘The Cooperative Societies’, was inserted with provisions for the incorporation, regulation, and winding up of cooperative societies.

This faced a legal challenge. The High Court of Gujarat, in its judgment dated April 22, 2013, declared that the insertion of Part IXB containing Articles 243ZH to 243ZT by the Constitution (Ninety-Seventh Amendment) Act, 2011, was ultra vires for not taking recourse to Article 368(2) of the Constitution, which required ratification by the majority of the State Legislatures. It was also made clear in the order that this ruling would not affect other parts of the Constitution (Ninety-Seventh) Amendment Act, 2011. However, in a Special Leave Petition, the Supreme Court of India, by a majority judgment dated July 20, 2021, held that Part IXB of the Constitution of India is operative only insofar as it concerns Multi-State Co-operative Societies. This judgment came simultaneously after the creation of a new Ministry of Cooperation on July 6, 2021, by the Modi government to realize the vision of Sahkar se Samridhi (Prosperity through Cooperation).

The creation of a new Ministry brought a focus on cooperative reforms. The government's reform initiatives have been inclusive, touching the entire ecosystem of cooperatives. This also included the framing of model bylaws for PACS to strengthen the base of the ecosystem, and it is a notable achievement that these model bylaws have been adopted by all the state governments. Strengthening the foundation is also the first strategic mission pillar as per the National Cooperation Policy 2025. These reforms offered a mechanism to convert PACS into multi-purpose business entities. The Ministry brought a diverse portfolio of products (like grain storage, medical stores, LPG distributorship, etc.) and services (CSC, opening of additional branches) to the doorstep of the PACS, nudging them to think beyond the geographical borders of their villages and creating linkages with a new world of possibilities by bringing them on the GeM platform and linking with many e-markets. National Federations like National Cooperative Exports Ltd (NCEL) and National Cooperative Organics Ltd (NCOL) can even bring the products of primary societies to global markets.

This was followed by comprehensive reforms through an amendment to the Multi-State Cooperative Societies Act, 2002, which was formally notified by the Central Government on August 3, 2023. The Multi-State Cooperative Societies (Amendment) Act, 2023, brought in the provisions of the Ninety-Seventh Constitutional Amendment to strengthen governance, enhance transparency, increase accountability, and reform the electoral process in the Multi-State Cooperative Societies. The Multi-State Co-operative Society Rules, 2002, were also amended, and the modified rules were notified on August 4, 2023. These changes reflected the government's deep commitment to reforms. Over time, governance in cooperatives had weakened considerably. Hence, the key focus of these reforms has been improving governance and bringing accountability so that cooperative members receive maximum benefit.

The Biggest Governance Reform: The Cooperative Election Authority
Article 243K of the Constitution of India envisioned the establishment of an authority for the superintendence, direction, and control of the preparation of electoral rolls and the conduct of cooperative elections by an authority or body as provided by law. The establishment of a Cooperative Election Authority (CEA) under Section 45 of the MSCS Act for multi-state cooperative societies has been the most important change in governance. The creation of the Authority has been a major disruptor. This authority, which is a multi-member body, has been entrusted with conducting elections for societies registered under the Multi-State Cooperative Societies Act. Its role includes maintaining accurate electoral rolls of members and ensuring timely elections. Earlier, societies conducted their own elections, which often lacked transparency. With the introduction of this authority, the process has become far more transparent. The amended act has also provided reservation for two women and one SC/ST member on the board, ensuring social inclusion and the participation of weaker sections in the decision-making process.

Transparency in Cooperative Elections
Under the new system, every election program is published on the authority’s website. The District Collector is designated as the Returning Officer, supported by one or more Assistant Returning Officers (AROs), who are officers from the State Cooperative Department. The Collector issues an election notice, which is also published in newspapers in the society’s area of operation to ensure that members get information. In addition, all election-related information is required to be hosted by the society on its website. Since many multi-state society members belong to two or three different states, they often did not know when elections were happening. This transparent process is increasing conversation about democracy in elections and participation. A monthly information note highlighting the major activities of the Authority is also available on the website of the Central Registrar (https://crcs.gov.in).

The tenure of the board, which earlier varied between three and five years, has now been uniformly fixed at five years under the Act. This consistency helps create stability and smoother functioning of the board. Another important amendment is that once the board’s term ends, it cannot continue in office until elections are held; fresh elections are now mandatory. Earlier, several societies continued functioning without elections for many years—in some cases, the last election had been conducted nine years ago. Now, elections have become inevitable, resulting in greater accountability. Members are beginning to ask questions of their management, which is strengthening governance.

Challenges in Implementing the Provisions of the Act
The implementation process has, however, faced three key challenges:
(a)  Delay in amending bylaws of the society: When the Amendment Act came into force in 2023, all societies were required to amend their bylaws accordingly within six months. Yet, even after two years, many societies have failed to do so. Ensuring compliance is the first major challenge.
(b)  Authorized Share Capital: In a cooperative, membership requires holding shares. Only shareholders can vote or contest elections. Nominal members, who may not have shares in the society, avail services of the society, but such nominal members do not enjoy the right to contest elections and do not have the right to vote. Secondly, members are required to contribute equitably and control the capital democratically as per the cooperative principles. Deviation from prescribed rules or established principles creates difficulties.
(c)  Ambiguities in Bylaws: Many bylaws lack clarity on the following critical aspects:
(i) The number of directors to be elected: Some bylaws allow a minimum of seven and a maximum of 21 directors. Such provisions, which provide a range for the number of directors, create complications during elections, as the election notification requires a fixed number. Alignment of such bylaws is needed to eliminate these ambiguities.
(ii) Eligibility for directorship: Clear criteria or qualifications to contest elections must be specified to avoid unnecessary rejection of nominations by the returning officers.
(iii) Formation of constituency and Voting procedures: If these are not clearly defined or if constituency formation is not equitable, disputes may arise during elections. These provisions need to be unambiguous, as Returning Officers often raise questions that societies may fail to answer satisfactorily.
(iv) Use of Minimum level of products or services: Members are required to avail a minimum level of services. This must be clearly specified since it attracts disqualification for the membership of the society. Many bylaws often lack this.

(d)  Delay in submission of election request: It is the joint responsibility of the CEO of the society and the Chairman to submit an election request six months prior to the expiry of the board. Often there is a delay in submission, which may create a situation where there is no board as the election process is not complete. In many cases, the Central Registrar has to intervene to call the AGM of the general body. In case of a casual vacancy arising due to the death, resignation, disqualification, or removal of a member from the board or otherwise, the CEO is expected to inform the authority within a week of its occurrence. Such timelines have been framed to fix accountability.

Progress in Conduct of Elections
Since the notification of the Cooperative Election Authority (CEA) on March 11, 2024, around 160 elections have been successfully conducted, while elections in about 60 societies are still in progress. It is estimated that in the long term, the CEA may have to conduct elections for 250-300 societies in a year. Awareness among members about the authority is steadily increasing. Societies are being contacted through letters and emails to provide necessary details for conducting elections along with a factsheet. Together, these reforms are expected to significantly improve governance structures.

The Need for Professionals in Cooperatives
The cooperative sector requires professionals with both relevant skills and the right attitude. Unlike corporate setups, cooperatives demand a spirit of cooperation and collective growth. To nurture this mindset, Tribhuvan Cooperative University has been established by the government to prepare professionals dedicated to this sector. Faculty members of Cooperative Management Institutes also require training. Intensive training has been proposed for society secretaries, treasurers, directors, and office-bearers. For instance, every director should undergo a mandatory 15-day induction program to better understand their responsibilities. Training is now essential at all tiers of the cooperative structure to ensure a proper business understanding of opportunities, proper navigation to succeed, and to ensure that cooperative businesses are successfully managed. While the digitization of PACS and the migration of data to a single platform bring efficiency, it may require manpower to deal with aspects of cybersecurity and building appropriate safeguards.

With growing interest in exports, cooperatives are also moving in this direction. However, export requires knowledge of strict international standards and protocols for exports. For example, if bananas or mangoes are to be exported, the cooperative must understand the importing country’s phytosanitary requirements and adopt farming practices accordingly, including the preparation of disease-free soil. Specialized courses at Tribhuvan University can provide such training. Cooperative banking and credit societies also need expertise in risk management, cash flow management, and the investment of surplus funds. For this, all cooperative institutes across states must come under one umbrella, affiliate with the university, follow standard courses, and build consistent skill development systems nationwide.

A New Direction for Cooperatives
There was a period when the pace of cooperative growth had slowed significantly. However, with the creation of the new Ministry, much progress has been achieved in a short span under the leadership of the Prime Minister and the Minister for Cooperation. The cooperative sector has now gained new direction and momentum. At the same time, expectations from members have also risen. A growing sense of positivity is evident within cooperatives, with members confident that they can achieve greater goals.
The central focus remains economic development. If the income of cooperative members can be raised even marginally, it will be a massive contribution to the nation’s progress. Reforms always bring a bigger cake to share in happiness and prosperity.
(Writer is Chairperson, Co-operative Election Authority. Views expressed in the article are personal)