THE ART OF CONTROL
The new cooperation ministry has raised alarm in states and invited restraining comments from the Supreme Court but a ‘national cooperative framework’ is not without merit
The Centre’s new ministry raises both fears and cheers
ON
On July 6, Prime Minister Narendra Modi surprised everyone by constituting a new ministry of cooperation, with a government press release stating that the new entity would help cooperatives across states progress (‘sahkar se samriddhi’) as a true people-based movement reaching the grassroots. In the cabinet reshuffle the next day, Union home minister Amit Shah was given charge of the new ministry. As expected, the move has raised hackles in the opposition, who fear that more than the wellbeing of the cooperatives, there may be a “sinister agenda” behind the move, as CPI(M) general secretary Sitaram Yechury put it.
But even as the wheels started turning, the new ministry’s offices were being set up and there was talk of a new ‘national cooperative framework’, the Supreme Court stepped in to apply the brakes. On July 20, the apex court was categorical in stating that the Centre has legislative power with respect to only multi-state cooperative societies (those not confined to just one state). It also made it clear that states have exclusive power to legislate on topics reserved for them. This is extremely significant, as cooperation is a state subject. Thus, the SC upheld an eight-year-old Gujarat High Court verdict limiting the Centre’s say in the cooperative sector. Incidentally, it was Prime Minister Narendra Modi, as then chief minister of Gujarat, who had in 2013 challenged certain provisions of the 97th constitutional amendment that empowered the Centre to design a framework for the cooperative sector.
Banking expert Vidyadhar Anaskar says the Centre will now have to seek permission from each of the 28 states if it wants to create a ‘national framework’ for the cooperative sector. However, this will be virtually impossible with BJP antagonists in power in states like Maharashtra, Tamil Nadu, West Bengal and Andhra Pradesh where cooperative movements are strong.
It will also test Shah’s mettle, though he has a foot in the door with access to the multi-state coops (which come under the ambit of the central Multi-State Cooperative Societies Act of 2002).
Another Shah show?
Shah is no stranger to such battles, especially in the cooperatives sector. Indeed, his political journey started through Gujarat’s cooperative banks. For many years, he even chaired the board of the Ahmedabad District Cooperative Bank (ADCB). Legend has it that Shah turned around ADCB, which had a registered net loss of Rs 20 crore when he took over in 2000, with a profit of Rs 6 crore the next fiscal (he apparently did this by getting the bank into securities’ trading).
Shah also played a big role in saving the Madhepura Mercantile Cooperative Bank from going under in 2001, which earned him brownie points with the then BJP leadership in the state and Centre. Shah quit as chairman of ADCB after Modi, then the new Gujarat CM, got him in as MoS for home in his cabinet in 2002. However, he continued to keep a close eye on the state’s district cooperative banks. By 2016, the BJP had edged out the Congress in all 33 district cooperative banks in Gujarat.
The same is true of Gujarat’s famed dairy cooperatives, including Amul. By 2017, the BJP had taken control of all of them. It’s a formidable political weapon too, when one considers credit lines and the fact that in over 97 per cent of Gujarat’s 17,000-odd villages, dairies are a huge part of the economy. Shah learnt the lessons of political manoeuvring during his association with the cooperative sector in Gujarat. It wouldn’t be an exaggeration to say that the cooperative network has helped the BJP wipe out the opposition in various pockets of the state.
The opposition fears the newly minted ministry of cooperation is a way of exporting the ‘Gujarat model’ to other states in the country, though it will take heart from the Supreme Court ruling. As per the seventh schedule of the Constitution, the incorporation, regulation and even winding up of cooperatives is a state subject; the Centre has a limited role to play. States where the cooperative sector is pivotal in politics, such as Maharashtra, are particularly worried. On July 16, former agriculture minister and NCP chief Sharad Pawar met Prime Minister Modi to convey his party’s apprehensions about the “formation of the cooperation ministry and the amendment to the Banking Regulation Act” (the NCP
By 2017, the BJP had taken control of all the dairy cooperatives in Gujarat too. It wouldn’t be an exaggeration to say that the cooperative network has helped the BJP wipe out the opposition in various pockets of the state
and the Congress have a stranglehold on the sugar cooperatives and co-op banks in the state). Some of those apprehensions are relevant even with the new SC restraints, for many coop banks are multi-state entities, and will fall under Shah’s new ministry.
Former Kerala finance minister Thomas Isaac, too, has red-flagged the co-op banks issue. He pointed out that there are 870 registered cooperatives in the state that want to run ‘Hindu banks’ in Kerala (their stated slogan is ‘Hindu money belongs to Hindus’). Some of them are multistate cooperative societies and Isaac fears the new Shah ministry’s writ will soon run in these institutions. Many of them also run chit funds, which means a fairly large and potentially manipulable customer base.
The tussle to control the cooperatives sector is also about quid pro quos, extending largesse and, in turn, having the backing of a trusted votebank. Maharashtra is a prime example, with its strong network of cooperative bodies. NCP boss Pawar, his nephew and state deputy CM Ajit Pawar and other party leaders have a major stake in the state’s cooperative sector. In fact, the Congress and NCP have controlled it for decades, a hegemony the BJP has been trying to break for over a decade. At present, Maharashtra has around 225,000 cooperative bodies, with some like Gokul, a dairy unit in Kolhapur, considered to be more influential than the post of an MLA or MP.
Cracking the code
Cooperatives in India are mostly grassroots organisations formed to harness the power of collective bargaining for a common goal. In agriculture, dairy, sugar, textile and other sectors, cooperatives have been formed with the pooled resources of farmers and other workers. The biggest beneficiaries of state funds and subsidies are the cooperatives in the finance, sugar and dairy segments. In the current fiscal (FY22), the agriculture credit target was enhanced to Rs 16.5 lakh crore, and the rural infrastructure development fund to Rs 40,000 crore. Most of these funds are routed through cooperatives. In addition to this, many states also provide funds through cooperatives to build farm infrastructure, for microirrigation, and to buy raw material like seed, fertilisers and manure.
India currently has 194,195 cooperative dairy societies and 330 cooperative sugar mills, according to agriculture ministry data. In 2019-20, dairy cooperatives around the country procured 48 million litres of milk from 17 million members and sold 37 million litres of liquid milk every day. As for the sugar co-op mills, they manufacture 35 per cent of the sugar produced in India.
The NDA-1 government of Atal Bihari Vajpayee had passed a law in 2002 allowing multi-state cooperative societies (MSCS), to help co-ops diversify and operate outside their home state.
For finance, the village-level primary agricultural credit societies (PACS) formed by farmer associations and front-loaded with the district central cooperative banks (DCCB), determine the grassroots-level credit flow (the PACS anticipate the credit demand of a village and make the demand to the DCCB). The NABARD (National Bank for Agriculture and Rural Development) 2019-20 annual report identified 95,238 PACS, 363 DCCBs and 33 state cooperative banks in the country. This is in addition to the 1,482 urban and 58 multistate cooperative banks. Some justify the formation of a separate ministry and the RBI monitoring on grounds that in the past there have been allegations of scams in several cooperatives—in the absence of regulations, money was siphoned off to fund businesses of politicians, bureaucrats and, in many cases, cooperative leaders themselves.
The Centre has been pushing reforms in the financial sector cooperatives after the Rs 6,500 crore PMC
In India, the cooperative movement has largely failed except in some states .... A central ministry can play a positive role by synergising efforts and weeding out contradictions”
A.K. GUPTA, Former professor, IIM Ahmedabad; Founder, Honey Bee Network
If the national cooperative framework is implemented well, it can create more entrepreneurial opportunities, even avenues for farmers to get better value for their produce”
SATISH MARATHE, Sahakar Bharati head and RBI board member
(Punjab & Maharashtra Cooperative) Bank scam broke in 2019 in Mumbai. In September last year, the Banking Regulation Act, 1949, was amended and the RBI was given powers to regulate operations of urban and multi-state cooperative banks. On June 25 this year, the RBI tightened the screws and set the standards for appointments of CEOs and wholetime directors, aligning them with norms for private banks. This means no mainstream politician—elected to the state assembly or Parliament—can be appointed to these posts.
Pawar has already raised objections on this, calling it a breach of federalism and the state’s powers. In a letter to Modi, he said the Banking Regulation Act is ‘in conflict, most specifically, with the 97th constitutional amendment, State Cooperative Societies Acts and with the cooperative principles. The amended act overrules various provisions of the Cooperative Act in regard to the formation of the board and election of chairman, appointment of managing director etc. by holding a caveat in terms of such appointments’.
Co-op logjams
Before the creation of the cooperation ministry, the Centre oversaw the cooperatives sector as a section of the agriculture ministry. But with cooperatives diversifying in the past few decades to non-agricultural sectors like housing, urban finance and labour, the logic of retaining them under the agriculture ministry has become untenable.
Anil K. Gupta, a former professor at IIM Ahmedabad and founder of the Honey Bee Network, says, “In India, apart from some states, the cooperative movements have failed. But they must succeed if the country has to chart an inclusive growth trajectory. The central ministry can play a positive role by synergising efforts of several ministries and weeding out contradictions.”
Finance minister Nirmala Sitharaman had, in her budget speech earlier this year, announced the ministry’s commitment to strengthening the cooperatives. The RSS-linked outfit, Sahakar Bharati, had also been constantly pushing for it. “There is a need for capacity building, skill development of management, upgrading infrastructure along with developing access to the capital markets,” says Satish Marathe, who leads Sahakar Bharati and also sits on the RBI board.
The other reason proffered for a central ministry is that cooperative institutions currently get capital from the Centre, either as equity or working capital, for which the state governments stand guarantors. This formula has seen most of the funds going to a few states such as Maharashtra, Gujarat and Karnataka while others are left playing catch-up. Under the new ministry, the cooperative structure could possibly get a new lease of life and more clarity on access to fresh capital. Also, some of the biggest names in cooperatives are the Gujarat Cooperative Milk Marketing Federation (Amul) and the Tamil Nadu Handloom Weavers’ Co-operative Society Ltd. (Co-optex). Despite having a healthy balance sheet, these entities are not listed on the stock exchanges because of complexities in the co-op space. With a central ministry overseeing matters, stakeholders feel doors could open (with changes in the laws) for the cooperatives to access capital markets.
Both Marathe and Gupta cite these examples to press the case for a national cooperative framework. “If implemented well, this can create more entrepreneurial opportunities, even avenues for farmers to get better value for their produce,” says Marathe. He says the strengthening of the cooperative movement could also reduce exploitation by middlemen. “There is a need to bring in acts governed by other ministries to get real benefits. For example, if the Forest Rights Act is clubbed with this, it can open up the agroforestry industry for tribals,” says Gupta. But both Marathe and Gupta reserve judgment on where this is headed till they have read the fineprint.