Why in News: The National Cooperative Policy, 2025, recently unveiled by the Ministry of Cooperation, has generated debate in Kerala, which has a long-standing tradition of cooperative institutions.
Constitutional and Federal Context
- Entry 32, State List, Seventh Schedule: Cooperative societies are a State subject.
- 97th Constitutional Amendment (2011): Introduced provisions on cooperative societies (Part IXB), later read down by the Supreme Court (Union of India v. Rajendra Shah, 2021) reaffirming that regulation of cooperatives is largely under State jurisdiction.
- The policy has renewed discussions on the need for cooperative federalism while maintaining a national framework for reform.
Kerala’s Cooperative Legacy
- Origins: Early 20th century in Cochin, Travancore, and Malabar regions.
- Institutionalisation: Post-1956, governed by the Kerala Cooperative Societies Act, 1969.
- Role in economy:
- Primary Agricultural Credit Societies (PACS) form the backbone of rural credit.
- Kerala Bank was created by merging district cooperative banks with the State cooperative bank, creating a two-tier structure.
- Financial scale: Cooperatives in Kerala handle significant deposits and play a central role in rural economic life.
Emerging Challenges
1. Governance issues – Instances of mismanagement and financial irregularities in some cooperative banks have raised public concerns.
2. Credibility crisis – Cases of delayed repayments and financial stress have dented depositor confidence.
3. Regulatory reforms – Kerala amended its Cooperative Societies Act in 2023 to strengthen oversight and improve accountability.
4. Changing socio-economic trends – Urbanisation, new job aspirations, and technology-led financial services are reshaping expectations from cooperatives.
5. Competition – Growing presence of commercial banks, NBFCs, and fintech in rural areas.
Opportunities Ahead
- Diversification: Beyond credit into healthcare, housing, renewable energy, shipping, consumer cooperatives, and digital services.
- Financial inclusion: PACS network can drive digital banking, microcredit, and last-mile service delivery.
- Women empowerment: Integration with self-help groups and community networks.
- Youth engagement: Opportunities for young professionals to modernise cooperative governance.
- Technology adoption: Leveraging IT platforms for transparency, efficiency, and wider outreach.
Way Forward
- Strengthen federal spirit – Encourage Centre–State cooperation to balance national policy goals with State autonomy.
- Good governance reforms – Regular audits, transparent management, professional training.
- Safeguard depositors – Stronger financial safeguards, insurance cover, and oversight to maintain trust.
- Capacity building – Skilling cooperative staff and managers in digital finance, compliance, and emerging sectors.
- Adaptation to new economy – Expand cooperatives’ role in renewable energy, agri-value chains, urban housing, and health services.
UPSC Relevance
GS Paper II
- Issues of cooperative federalism and distribution of powers.
Mains Practice Questions
Q. “Cooperatives in India are facing a credibility crisis but also hold vast potential for inclusive growth. Analyse the challenges in cooperative governance and suggest reforms for their modernization.”