India's Cooperative Movement

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A cooperative is a business owned by the people who use it. Farmers who pool their milk, weavers who share a dyeing vat, depositors who own their own small bank: in each case the customers are also the shareholders, and any surplus returns to them rather than to outside investors. India has more of these organisations than any other country, several hundred thousand of them, ranging from village credit societies with a few dozen members to dairy federations that handle millions of litres a day. They are woven so deeply into rural India that a household may borrow, sell its produce, buy fertiliser and buy sugar all through cooperatives without ever thinking of them as a movement.

The legal foundation was laid by the colonial state, and for a fairly hard-headed reason. Rural indebtedness in the late nineteenth century was severe, moneylender interest rates were punishing, and the Deccan riots of 1875 had shown the administration what agrarian debt distress could produce. Officials studied German credit cooperatives, particularly the Raiffeisen village banks, and the result was the Cooperative Credit Societies Act of 1904, followed by a broader Cooperative Societies Act in 1912 that allowed societies for purposes other than credit and permitted federations of societies. Under the Montagu to Chelmsford reforms and the Government of India Act of 1919, cooperation was transferred to provincial governments, which is why to this day cooperatives sit primarily in the State List of the Indian Constitution and are governed by a patchwork of state legislation rather than one national code.

Anand, milk and the model that travelled

The movement's most famous chapter began not with a law but with a strike. In 1946, milk producers around Anand in the Kaira district of Gujarat, frustrated at being squeezed by a private contractor holding the supply monopoly to Bombay, organised under Tribhuvandas Patel with encouragement from Sardar Vallabhbhai Patel and Morarji Desai, and formed the Kaira District Co-operative Milk Producers' Union Limited. Village societies collected milk twice daily, tested it for fat content, and paid producers on the spot according to quality. The union owned the processing plant. The brand it created, Amul, became one of the most recognised names in Indian retail.

What made Anand more than a local success was the engineer who ran its dairy, Verghese Kurien, and the institution built around his work. The National Dairy Development Board was established at Anand in 1965 to replicate the structure elsewhere, and from 1970 it ran Operation Flood, a programme that used donated European surplus milk powder and butter oil, sold in Indian cities, to fund the construction of village societies, district unions and state federations across the country. The three tier structure became known simply as the Anand pattern. Over the following decades India moved from being a milk deficit country dependent on imports to the largest milk producer in the world. The scheme also had a technical dimension that is easy to overlook: a national milk grid of chilling centres and insulated rail tankers that allowed surplus rural production to reach distant urban markets without spoiling.

Other sectors followed. Sugar cooperatives, beginning in western Maharashtra in the early 1950s at Pravaranagar under Vithalrao Vikhe Patil, gave cane growers ownership of the crushing mills that had previously dictated their prices, and became so numerous that control of a sugar factory board became a recognised step in a Maharashtra political career. The Indian Farmers Fertiliser Cooperative, formed in 1967 and owned by cooperative societies rather than by the state, became one of the country's largest fertiliser manufacturers. Handloom and handicraft cooperatives, fisheries societies, and urban cooperative banks all grew under the same legal umbrella.

The politics of a member owned sector

Democratic ownership is also the movement's greatest vulnerability. A cooperative with tens of thousands of members holds elections, and elections attract politicians. In Maharashtra, Gujarat, Karnataka and Kerala, cooperative boards became a durable base of local power, since a chairman controls procurement prices, employment, credit and contracts. This produced genuine mass institutions in some places and captured shells in others, where a society existed mainly to route subsidised credit to the well connected. Primary agricultural credit societies, the base tier of the rural credit system, have long carried a large burden of dormant or unviable units, and successive committees have recommended consolidation, professional management and computerisation.

Regulation has been contested in exactly the way one would expect of a subject split between the states and the centre. Societies operating in more than one state fall under central law, currently the Multi State Cooperative Societies Act of 2002, while everything else answers to a state registrar with wide powers to supersede boards and postpone elections. In 2011 Parliament passed the Ninety Seventh Constitutional Amendment, which inserted a new part into the Constitution prescribing board sizes, fixed terms and audit requirements for cooperatives, and added the right to form cooperative societies to the freedom of association guaranteed by Article 19. In 2021 the Supreme Court held that this new part could not validly bind state level cooperatives because the amendment had not been ratified by the state legislatures as the Constitution requires for changes touching the distribution of powers, while leaving it operative for multi state societies. The same year the Union government created a separate Ministry of Cooperation, a move welcomed by those who wanted a national push on modernisation and criticised by state governments and opposition parties as an encroachment on a state subject. That argument has not been settled.

Banking has been the other pressure point. Urban cooperative banks take deposits from the public but historically answered to two masters, the Reserve Bank of India for banking functions and a state registrar for management. A series of failures, most prominently the collapse of a large Mumbai based urban cooperative bank in 2019 that froze the savings of ordinary depositors, led to legislation in 2020 bringing cooperative banks more fully under Reserve Bank supervision, including powers over boards and reconstruction schemes.

The honest assessment is mixed. Where cooperatives have worked, and dairy is the clearest case, they have shifted a large share of the consumer price back to small producers, including many landless households with one or two animals, and have drawn women into formal economic participation through all women village societies. Where they have failed, they have failed as institutions of patronage rather than of enterprise. Both outcomes come from the same feature: a business whose owners are also voters.

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