In order to cover cooperative societies with membership from more than one province, the Government of India enacted the Multi-Unit Cooperative Societies Act 1942.This Act dealt with incorporation and winding up of cooperative societies having jurisdiction in more than one province. A need was felt for a comprehensive Central legislation to consolidate laws governing cooperative societies. This led to the enactment of Multi-State Cooperative Societies Act 1984 by the Parliament under Entry No 44 of the Union List of the Constitution of India.
After Independence, cooperatives assumed a great significance in poverty removal and faster socio-economic growth. They became an integral part of the Five Year Plans. As a result they emerged as a distinct segment in Indian economy. In the First Year Plan it was specifically stated that the success of the Plan would be judged among other things, by the extent it was implemented through cooperative organizations.
In 1958 the National Development Council (NDC) had recommended a national policy on cooperatives. The cooperative sector has been playing a distinct and significant role in the country's process of socio-economic development. There has been a substantial growth of this sector in diverse areas of the economy during the past few decades. The number of all types of cooperatives increased from 1.81 lakh in 1950-51 to 4.53 lakh in 1996-97.The total membership of cooperative societies increased from 1.55 crore to 20.45 crore in the same period. The cooperatives have been operating in various areas of the economy such as credit, production, processing, marketing, input distribution, housing, dairying and textiles. In some of the areas of their activities like dairying, urban banking and housing, sugar and handlooms, the cooperatives have achieved success to an extent but there are larger areas where they have not been so successful.
The failure of cooperatives can be attributed to dormant membership and lack of active participation of members in the management of cooperatives. Mounting over dues in cooperative credit institutions, lack of mobilization of internal resources and over dependence on government assistance, lack of professional management, bureaucratic control and interference in the management, political interference and over-politicization have proved harmful to their growth. These are the areas which need to be attended to by evolving suitable legislative and policy support.
For the success of any developmental effort in the agricultural sector is to synergize with the efforts in the cooperative sector. Development of cooperative sector has many benefits. It will involve all sections of the society in development efforts. Cooperative sector of Indian economy has a spiritual content too when it was led by Vinoba Bhave.Cooperative sector has inbuilt democracy and only those who can demonstrate their commitment and efficiency can survive in the cooperative elections. Nowadays most of the financial institutions in the cooperative sector are also run on purely commercial basis. It is here that the State intervention can make the difference. The grant, subsidies and aid meant for the poor farmers must be channeled through the cooperative sector. Once there are enough resources in the sector in terms of money there will be increased participation by the people and will result in the all round development of the village.
Panchayat Raj institutions and cooperative sector can bring about positive change in the rural areas. Cooperatives have extended across the entire country and there are currently estimated 230 million members nationwide. The cooperative credit system has the largest network in the world and cooperatives have advanced more credit in the Indian agricultural sector than commercial banks. In fertilizer production and distribution the Indian Fertilizer Cooperative commands over 35% of the market. In the production of sugar the cooperative share of the market is over 58% and in cotton they have share of 60%.The cooperative sector accounts for 55% of the looms in the hand-weaving sector.
Cooperative process, market and distribute 50% of the edible oil. Dairy cooperative operating under the leadership of the National Dairy Development Board and through 15 state cooperative milk marketing federations as now become the largest producer of milk. With the rapid growth of the cooperative sector a supportive climate has been created for the development of cooperatives with the opportunities for diversification.
With the efforts of National Cooperative Union of India the Central Government passed the Multi State Cooperatives Societies Act and also formulated a national cooperative policy that provides greater autonomy to cooperatives. With the passage of the Insurance Act, cooperatives have been allowed to enter into the insurance business. Insurance is a field where the immense potential of cooperatives still remains untapped.
In the new economic environment cooperatives at all levels are making efforts to reorient their functions according to the market demands.
Cooperatives are also considered to have immense potential to deliver goods and services in areas where both the state and the private sector have failed.