India

Legal framework

 

The legal framework analysis aims to provide general knowledge of the national cooperative legislation and of its main characteristics and contents, with particular regard to those aspects of regulation regarding the identity of cooperatives and its distinction from other types of business organisations, notably the for-profit shareholder corporation.

It aims to evaluate whether the national legislation in place supports or hampers the development of cooperatives, and is, therefore “cooperative friendly” or not, and the degree to which it may be considered so, also in comparison to the legislation in force in other countries of the ICA region, or at the supranational level.

In addition, the research aims to provide recommendations for eventual renewal of the legal frameworks in place in order to understand what changes in the current legislation would be necessary to improve its degree of “cooperative friendliness”, which is to say, to make the legislation more favourable to cooperatives, also in consideration of their specific identity. This webpage presents a snapshot of the legal framework analysis results for India.

 

Indian co-operatives are governed by the Central Act for national co-operatives and co-operatives which operate in more than one state. In case of co-operatives which have the area of operation within the state, they are governed by the co-operative societies Act of the respective States.

India follows a legal regime under which a single law governs all types of co-operatives (as against multiple legislations, one for each subsector such as agriculture, consumer, credit etc., in some countries) though there are different state level and central level legislation.  The changes in legislation, therefore, affect all types of co-operatives.

 

Main laws relevant to cooperatives in India

The Legal Framework established by the National Cooperative Law of India is found in the following legislations:

  • The national government enacted a separate legislation facilitating the incorporation of co-operatives that operate in more than one state titled the Multi-State Cooperative Societies Act (No.51 of 1984) in the year 1984.
  • India also has 29 state laws for that specifically govern and regulate cooperatives within its respective 29 States. In 1956, when India was reorganized as a federation of linguistic States with each state having a great degree of autonomy with respective state governments.  The socio-economic responsibilities of governments were categorized into State List, Central List and Concurrent List that specified the controlling authority.  Co-operation became a subject under State List and thus all matters related to changes in co-operative legislation came under the purview of State governments that functioned through a Ministry of Co-operation.

 

Cooperative Friendliness

The cooperative legal environment of India is ‘only limitedly cooperative friendly’ to cooperative development. The relationship between State and co-operative sector in independent India has moved from that of promotion and patronage to control and regimentation and then to a political partnership of parties in power and co-operative leaders.  The governments have created a huge bureaucratic set up to handle the large co-operative sector, which now ensures that the governments continue to have their say on co-operatives, for the bureaucracy can survive only with the status quo. The situation that exists now is that of mutuality of interest on the part of State and the co-operative sector where Governments want co-operatives to serve as their agents – to dispense credit, to distribute goods under PDS and to deliver any state-sponsored service that the state may seek to do from time to time and the co-operatives need government money and patronage businesses for the ease of survival.  The co-operative leaders need government-co-operative mutual dependence, for the benefit of finding political shelters.  These forces have ensured that despite changes in the legal regime, the situation on the ground remains the same.  It is more politics and less economics in the dynamics of the state-co-operative relationship in India.

 

Key recommendations for improvement

 A few key recommendations are given below:

  • The Government of India needs to have a separate Ministry for Co-operation instead of acting as an adjunct of the Department of Agriculture and Farmers welfare and nomenclature of the Registrar ie Department(s) of co-operation should be changed to Co-operative Promotion and Regulation Department (CPRD).
  • The model bylaw has become mandatory bylaw in practice. Hence while approving the bylaws, the Registrar of Co-operative Societies needs to look into the provisions of the Co-operative Societies Act only.
  • The organisational structure and staff remuneration are according to the directive of the Registrar of Co-operative Societies in most of the states. Co-operative being an autonomous and independent organisation the structure and staff remuneration needs to be decided by the concerned co-operative. The Government may give certain guidelines so as to ensure that the financial stability of the society is not affected.
  • The co-operatives should have discretion over their expenditure and investments. Law should not mandate expenditures on specific functions or require Government approval of basic business decisions. This is subject to general auditing requirements.
  • The distribution of surplus of the co-operative should be according to the patronage of the co-operative rather than capital subscribed.
  • There are a lot of variations in the co-operative societies Act of various states. There is a need to adopt the features that provide enabling provisions in the State Co-operative Societies Act. However, this does not mean that a uniform law across the country should be framed since Co-operation is a state subject and there are a lot of regional variations.

 

Conclusions

India needs a favorable legal environment that ensures autonomy as well as accountability. Co-operation in India is a state subject and there are a lot of variations in the State Co-operative Societies Act of different states. Therefore reform would be a tedious legislative process which would have to happen at the State level. In certain states, the law is very liberal whereas in some states it is very rigid. It is in this context the Government of India introduced the 97th constitutional amendment Act in 2011. However, it could not be implemented, as the litigation is pending in the Supreme Court of India. There are a few states which introduced the Self-reliant Act applicable to the societies which do not receive government assistance. Historically the Co-operatives in India where registered through the Act and the Co-operative Movement was not spontaneous. This is precisely the reason why the law is prescriptive in nature and does not play the role of a facilitator.

 

The legal frameworks analysis is a tool developed under the ICA-EU Partnership #coops4dev. It is an overview of the national legal frameworks at the time of writing. The views expressed within are not necessarily those of the ICA, nor does a reference to any specific content constitute an explicit endorsement or recommendation by the ICA. 

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