Introduction & Overview
Cooperative societies, rooted in principles of self-help and mutual aid, have historically played a crucial role in India's socio-economic development, particularly in rural areas. Recognizing their potential and to provide a robust legal framework, the 97th Constitutional Amendment Act, 2011, granted constitutional status to cooperative societies by inserting Part IX-B (Articles 243ZH-243ZT) into the Constitution.
This amendment aimed to promote their voluntary formation, autonomous functioning, democratic control, and professional management. However, its implementation has faced challenges, particularly due to a Supreme Court ruling that highlighted federal concerns, and the movement continues to grapple with issues of state interference and lack of professionalism.
Rationale Behind the Amendment
The 97th Constitutional Amendment Act, 2011, was enacted with a multi-faceted rationale:
Promote Autonomy & Professionalism
Many cooperative societies were suffering from excessive government control, politicization, and lack of professionalism. The amendment aimed to free them from undue interference and enable them to operate more democratically and efficiently.
Strengthening Grassroots Democracy
Cooperatives empower people at the local level to collectively address their socio-economic needs, thereby deepening democratic participation.
Catalyst for Socio-economic Development
Crucial for rural development, poverty alleviation, and economic empowerment, especially in sectors like agriculture, dairy, credit, housing, and weaving.
Constitutional Recognition & Backing
To provide a strong constitutional backing to the cooperative movement, which was hitherto governed by state-level cooperative laws.
Key Amendments for Cooperatives (97th Act)
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Fundamental Right (Article 19(1)(c)): Made the right to form co-operative societies a fundamental right (Right to form associations or unions or co-operative societies).
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Directive Principle of State Policy (Article 43B): Added a new DPSP: "The State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies."
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New Part IX-B: Inserted a new Part IX-B titled "The Co-operative Societies" (Articles 243ZH to 243ZT) in the Constitution.
Key Constitutional Provisions (Part IX-B)
Part IX-B lays down various provisions aimed at ensuring the democratic and autonomous functioning of cooperatives:
State Legislature's Mandate
Mandates that State Legislatures shall make provisions by law for the incorporation, regulation, and winding up of cooperative societies. Such laws must be based on the principles of:
- Voluntary formation
- Democratic member-control
- Member-economic participation
- Autonomous functioning
- Professional management
Board of Directors
- Number of Directors: State law to specify maximum number (not exceeding 21).
- Reservation: Mandatory reservation of one seat for SC/ST and two seats for women on the board of every cooperative society.
- Term of Office Bearers: Fixed term of five years from the date of election.
- Co-option of Experts: State law may provide for co-option of persons with experience (up to two members) without voting rights.
Conduct of Elections & Audit
- Elections: State law to provide for elections by an authority before expiry of board term.
- Audit of Accounts: State law to provide for auditing of accounts within six months of the close of the financial year.
Supersession & Suspension of Board
- Board can be superseded for maximum 6 months on grounds of persistent default, negligence, or non-compliance.
- This provision was aimed at curbing arbitrary supersession by state governments.
- Other Provisions: Mandatory filing of annual reports, audited statements, and specified offences/penalties.
Issues and Challenges
Despite constitutional backing, the cooperative movement continues to face several challenges:
State Control & Politicisation
Historically, cooperative societies have been subject to excessive control by state governments, undermining their autonomous and democratic character. Politicization of board elections, appointment of government officials, and arbitrary supersession of elected boards are common issues.
Lack of Professionalism & Management
Many cooperatives lack professional management, leading to inefficiencies, poor decision-making, and financial losses. There is a dearth of trained personnel in cooperative management.
Financial Weaknesses & Dependence
Many cooperatives suffer from weak financial health, low capital base, and over-reliance on government grants or loans, compromising their autonomy.
Dormant Membership & Participation
Often, ordinary members are not actively involved in the functioning of the cooperative. This leads to a lack of democratic control and decision-making by a few dominant individuals.
Supreme Court Judgment (Union of India v. Rajendra N. Shah, 2021)
Ruling & Reasoning:
A three-judge bench of the Supreme Court struck down certain provisions of Part IX-B related to state cooperative societies (specifically, Articles 243ZL and 243ZT dealing with supersession of the board and auditing).
This was on the grounds that these provisions were enacted by the Parliament without being ratified by at least half of the State Legislatures (as required by Article 368(2) for provisions affecting federal structure).
The Court held that cooperative societies largely fall under the State List (Entry 32 of List II, Seventh Schedule). Therefore, Parliament unilaterally amending the Constitution on subjects primarily falling under the State List without state ratification violated the federal structure.
Implication:
Provisions related to multi-state cooperative societies were upheld, as they fall under the Union List (Entry 44 of List I).
The ruling essentially means that while Part IX-B largely remains in the Constitution, the binding nature of some of its provisions on state-level cooperative societies is diluted without state-level legislative changes aligning with it or proper ratification. This has created ambiguity and further slowed reforms for state cooperatives.
Ministry of Cooperation (Created 2021)
Rationale & Mandate
In July 2021, the Union Government created a new Ministry of Cooperation. This step signifies the Union Government's renewed focus on the cooperative sector.
Rationale: To provide a separate administrative, legal, and policy framework to strengthen the cooperative movement in the country.
Mandate: The Ministry aims to realize the vision of 'Sahakar se Samriddhi' (prosperity through cooperation). It is responsible for providing policy guidance and promoting multi-state cooperative societies (which are clearly within the Union's domain, especially after the Rajendra N. Shah judgment).
Conclusion & Way Forward
The 97th Constitutional Amendment was a landmark attempt to democratize and professionalize the cooperative movement, recognizing its pivotal role in inclusive growth. While it provided a much-needed constitutional identity and framework, the Supreme Court's Rajendra N. Shah judgment introduced complexities, highlighting the intricate balance of federalism in legislative competence over cooperatives.
The creation of a dedicated Ministry of Cooperation signals a renewed commitment to the sector. The way forward involves greater policy clarity, securing state-level buy-in for reforms, fostering true member participation, enhancing professional management, and leveraging cooperatives as a tool for realizing the vision of "Sahakar se Samriddhi" at the grassroots, especially in rural and agricultural sectors.
Exam-Ready Notes
- Part IX-B (Articles 243ZH-243ZT): "The Co-operative Societies."
- Added by: 97th Constitutional Amendment Act, 2011.
- Rationale: Promote voluntary formation, autonomous functioning, democratic control, professional management.
- Related Amendments: Art 19(1)(c) (Fundamental Right), Art 43B (DPSP).
- Key Constitutional Provisions (Part IX-B): Max 21 directors; Reservation: 1 SC/ST, 2 women; Term: 5 years; Audit: 6 months; Supersession: Max 6 months.
- Issues/Challenges: State interference, politicisation, poor management, financial weakness.
- SC Judgment (Rajendra N. Shah, 2021): Struck down state-related provisions (federalism); upheld multi-state.
- Ministry of Cooperation: Created July 2021. Vision: 'Sahakar se Samriddhi'.
- Major Debates: Federalism vs. Legislative Competence (Rajendra N. Shah), Autonomy vs. State Control, Professionalism vs. Traditional Management, Member Participation.
- Historical Trends: Colonial debt relief → Post-Independence planned development (state-controlled) → Liberalization autonomy → 97th Amendment constitutional backing → SC judgment federal complexities → Ministry of Cooperation renewed focus.
- Contemporary Relevance: Vital for Rural Economy, Inclusive Growth, Sahakar se Samriddhi vision, Digitalization of Cooperatives (PACS), FPOs.
- Recent Developments: SC Judgment implications ongoing, Ministry of Cooperation initiatives (National Cooperative Database, Training, Multi-State promotion, Computerization of PACS).
- Way Forward: Policy clarity, state buy-in, genuine member participation, professional management.
UPSC Previous Year Questions (PYQs)
Prelims MCQs
- The right to form cooperative societies as a Fundamental Right.
- A new Directive Principle of State Policy on the promotion of cooperative societies.
- A new Part IX-B related to cooperative societies.
Select the correct code:
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
- The 97th Constitutional Amendment Act of 2011 inserted Part IX-B in the Constitution relating to cooperative societies.
- The board of directors of a cooperative society shall consist of such number of directors as may be provided by the State Legislature, not exceeding twenty-one.
- The election of members of the board shall be conducted by an authority or body as provided by the State Legislature.
Which of the statements given above are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
- (a) Fundamental Right
- (b) Directive Principle of State Policy
- (c) Constitutional Right
- (d) Both (a) and (b)
Mains Questions
Direction:
- Introduction: Briefly state the rationale and key objectives of the 97th Amendment.
- Reforms Provided: Detail the key provisions (Fundamental Right, DPSP, Part IX-B covering democratic control, professional management, fixed tenure, audit, limits on supersession, reservations).
- Challenges in Implementation: State Control/Politicisation; Lack of Professionalism; Dormant Membership; Supreme Court's Verdict (Union of India v. Rajendra N. Shah, 2021) – discuss how the SC struck down parts for lack of state ratification, creating ambiguity.
- Conclusion/Way Forward: Suggest renewed efforts for state-level legislative alignment, capacity building, and promoting genuine member-driven cooperatives.
Direction:
- Introduction: Briefly state the 97th Amendment's aim (autonomy, democracy for cooperatives).
- SC's Ruling (Union of India v. Rajendra N. Shah, 2021): Explain the core of the judgment: Struck down provisions of Part IX-B related to state cooperatives for lack of ratification (violates Art 368(2) and federalism); upheld provisions for multi-state cooperatives.
- Federal Conundrum: Legislative Competence (Union overstepping State List); Ambiguity for States; Uneven Reforms; Slowed Progress.
- Conclusion/Way Forward: Emphasize need for dialogue and legislative alignment between Union and States, respecting federal boundaries.
Direction:
- Introduction: State the creation of the Ministry of Cooperation (July 2021).
- Rationale Behind Creation: Realize 'Sahakar se Samriddhi'; focused administrative, legal, policy framework; strengthen movement.
- How it can Strengthen Movement: Policy Focus, Resource Allocation, Promote Multi-State Cooperatives, Capacity Building, Reduce Interference (aim), Coordinate Efforts, Address Challenges.
- Challenges Faced (briefly link to Ministry's role): State control, politicisation, professionalism, financial weakness, Rajendra N. Shah judgment.
- Conclusion: Conclude that Ministry holds immense potential, but success hinges on navigating federal complexities and addressing ground-level issues.
Original MCQs for Prelims
- Making the right to form cooperative societies a Fundamental Right under Article 19(1)(c).
- Insertion of Article 43B as a Directive Principle of State Policy.
- Provisions related to the election and supersession of boards of state cooperative societies.
Select the correct code:
- (a) 1 only
- (b) 3 only
- (c) 1 and 2 only
- (d) 1, 2 and 3
- The 97th Constitutional Amendment Act mandates a maximum of 21 directors on the board of a cooperative society.
- It provides for mandatory reservation of two seats for women on the board of every cooperative society.
- The board of a cooperative society can be superseded by the State Government for a maximum period of one year.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Original Descriptive Questions for Mains
Key Points/Structure:
- Introduction: Briefly introduce cooperatives and the 97th Amendment's intent.
- Objectives of 97th Amendment: Promote voluntary formation, autonomous functioning, democratic control, professional management (link to Art 19(1)(c), 43B, Part IX-B).
- Key Provisions (briefly): Fixed tenure, audit, reservation for women/SC/ST, limits on supersession.
- Impact of SC Ruling (Union of India v. Rajendra N. Shah, 2021): Federal Conundrum (SC struck down parts for lack of state ratification, as cooperatives are a State subject); Upholding Multi-State; Consequences (ambiguity, diluted universal binding nature, highlighted federal sensitivity).
- Balance of Power: Discuss how the judgment reaffirmed federal principles and states' legislative autonomy, but also challenged the Union's ambitious attempt for uniform cooperative reform.
- Conclusion/Way Forward: Conclude that while the amendment was progressive, its fragmented implementation due to federal complexities necessitates a more collaborative approach.
Key Points/Structure:
- Introduction: Briefly acknowledge cooperative movement's significance and challenges.
- Challenges: Politicisation/State Interference; Lack of Professionalism/Poor Management; Dormant Membership; Financial Weaknesses.
- Role of Ministry of Cooperation: Policy Focus, Capacity Building, Digitalization, Promote Multi-State Cooperatives, Advocacy, Financial Support.
- Conclusion: Conclude that the Ministry has potential to revitalize, but success depends on navigating complexities and achieving state cooperation.
Trend Analysis (UPSC PYQs)
Prelims Trends
- 97th Amendment: Consistently tests the 97th Amendment, its year (2011), and the specific changes it brought (Art 19(1)(c), 43B, Part IX-B).
- Key Provisions: Questions on fixed tenure, reservation on board, audit period, supersession limit.
- Supreme Court Judgment (Rajendra N. Shah): Very high-yield topic since 2021, testing its implications (struck down parts for state cooperatives, upheld for multi-state).
- Ministry of Cooperation: Questions on its creation year and vision.
- Trend: Factual, testing precise knowledge of constitutional amendments, their content, and recent judicial interpretations/policy initiatives.
Mains Trends
- Problem-Solution Approach: Focus on challenges and how reforms/Ministry address them.
- Federalism Angle: Rajendra N. Shah judgment makes federalism a critical analytical point.
- Impact of Reforms: Analyzing effectiveness of amendments/Ministry.
- Contemporary Relevance: Role of cooperatives in rural development and inclusive growth.
- Trend: Demands nuanced understanding of constitutional and practical journey, especially post-recent legal/administrative developments.