What The New Ministry Of Cooperation Can Shape Up To

In a surprise move ahead of the planned Cabinet expansion and reshuffle on 7 July 2021, the Narendra Modi government announced the creation of a new Ministry of Cooperation. The Press Information Bureau (PIB) note which made the announcement stated that “this ministry will provide a separate administrative, legal and policy framework for strengthening the cooperative movement in the country.”

The PIB note talked about the importance of Cooperatives in general to the Indian economy and also specifically called out the need to develop Multistate Cooperatives (MSCS). These MSCS are societies operating on either sides of state borders, taking deposits and extending credit and are governed today by the Department of Agriculture, Cooperatives and Farmers Welfare under the Ministry of Agriculture and Farmers Welfare. The department lists 1295 MSCS.

This announcement is also linked to the Union Budget presented by Finance Ministry Nirmala Sitharaman on 1 February 2021. The paragraph 94 of the Budget stated: “The Government is committed to the development of Multi-State Cooperatives and will provide all support to them. To further streamline the ‘Ease of Doing Business’ for Cooperatives, I propose to set up a separate Administrative Structure for them.”

This announcement didn’t get much attention then, but there was no hint of an 'administrative structure' translating to a full-fledged new ministry. The intent of this new ministry can be gauged in two ways.

Firstly, the impact on the Ministry of Agriculture and Farmers Welfare. This move reduces the relative importance of the Agriculture ministry. While the scope of ministry is quite large, carving out a large part of one department in the ministry defangs the parent body.

It also opens up the possibility of annulling the Agriculture ministry altogether in the future. Apart from managing MSCS, the ministry has functions related to irrigation, fisheries and animal husbandry, research and education and agriculture skills development. There is also the issue of minimum support price (MSP).

Theoretically, irrigation can be part of the Water Resources Ministry, research under Science and Technology, education under Human Resources and agriculture skills development under the Skills Development ministry. The function of minimum support price setting – a key activity, can be given to a regulatory authority and need not be with the ministry at all. That will leave development of fisheries and animal husbandry, which will need to be housed.

Secondly, it remains to be seen which other cooperatives will be brought under the ambit of this ministry.

One possible area of intervention could be chit funds. Today, the Chit Funds Bill, 1982, amended in 2019, governs the working of chit funds. These bodies are regulated by state governments although the Act government them is central in nature. Chit funds are considered Non-Banking Finance Companies but do not have the requirement of registration under Section 45-IA of the Reserve Bank of India (RBI) Act, 1934. Chit funds also do not take deposits, but work on a subscription model.

Historically, chit funds have been responsible for many a financial scam and losses for the general public. The chit funds usually tend to have significant big political nexus in states they operate. The subscribers or members getting duped find it difficult to get justice in the event of financial irregularities due to political connections of the chit funds.

Will the government entrust this department with chit funds management with greater RBI involvement?

Another area of potential intervention could be rural cooperatives. RS Sodhi, Managing Director of the Gujarat Cooperative Milk Marketing Federation or Amul was one of the first people to welcome this move on his Twitter handle. Can there be more Amuls in the making? Will the regulation of the Farmer Producer Organizations (FPOs) promoted in a big way in the Union Budget 2019 and 2020 be vested in this department?

There are cooperatives also in the field of education. These however tend to be very state specific, so perhaps it may not be very gainful to change the oversight to a central ministry.

Like most of the decisions of the Modi government, the enigma around this announcement will continue for a while. But it does open up interesting possibilities on shifting political power in many traditionally clienteling areas, so important for political financing.