The recent incident of the removal of the managing director of the National Agriculture Cooperative Marketing Federation (Nafed) by its board and the government’s insistence on his reinstatement is not an isolated case of blatant official interference in the functioning of a cooperative. Such instances are countless. Regardless of the merits and demerits of this particular case, such diktats from the government need to be viewed in the broader perspective of functional freedom of cooperatives. The Centre and the state governments have been treating cooperatives as governmental appendages, which they are not; nor should they be. Marketing cooperatives are essentially organisations of borrowers, farmers, small entrepreneurs and others who come together to collectively take advantage of economies of scale in marketing their produce. To be successful, these cooperatives need to function democratically and efficiently as they are accountable to their members. Of course, they do require professional management but for that they should be allowed to hire professional managers rather than externally imposed civil servants (read IAS officials) as managers. While there are serious problems of organisational failure among cooperatives, the successful functioning of sugar, fertiliser and milk cooperatives shows the way forward to others. Most of these are headed by capable professionals and not government officials. The Indian cooperative movement, despite being over 100 years old, has failed to emerge as a viable “third sector”, distinct from the private and public sectors, outside of sugar, milk and a few other commodities. Indeed, the genesis of the cooperative sector’s woes can be traced to the statutory framework that governs it.
Right from the first law, the Cooperative Credit Societies Act, 1904, all laws passed by the Union and state governments for this sector bestow on the state the right to intervene in the functioning of the cooperatives as well as equity participation in them, paving the way for the induction of official representatives on their boards. The Model Cooperative Bill, which was drafted by the Centre in 1991 on the lines of the recommendations of the Choudhary Brahm Prakash Committee on cooperative sector reforms — and was circulated to the states for amending their laws accordingly — had raised some hopes for things to change. It had specifically barred equity participation by the government and appointment of its nominees on the management of the cooperatives. However, not only most states but even the Centre ignored this key provision while enacting the Multi-state Cooperative Societies Act, 2002. This law, which is still operative, allowed the cooperatives to return government equity if they so wished, but it fell short of putting an end to the practice of equity participation. Worse still, it also does not prohibit the nomination of officials on the boards of the cooperatives, though it limits their number to a maximum of three. This is a provision that needs to be abolished. Some of the bigger and well-run cooperatives have paid back government equity and liberated themselves from official control, but many others have not. The Nafed incident reminds once again that cooperatives in India have still a long way to go to become really cooperative institutions.