What Is Cooperative Society? And How It Makes Your Community Better

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Relevant to Users in India about cooperative societies and its management

A business organization can take many forms. One such form is held by cooperative societies. It is a voluntary association of individuals having common needs who join hands for the achievement of common interests. Such societies aim to serve the interest of the poorer sections of the society through the principles of self-help and mutual help. The main objective is to provide support to its members. 

Earning profits is not the only reason why people join cooperative societies. People come forward as a group, pool their individual resources, utilize them in the best possible manner, and derive some common benefits out of it. 

In India, the formation of a cooperative society can be done under provisions concerning the Co-operative Societies Act, 1912. The Act mandates that a minimum of 10 people over 18 years who can engage contractually with common economic activities such as weaving, agriculture, and irrigation can form one such society.

Let us now take a look at the different types of cooperative societies, a brief history of their formation, types, and the features of typical cooperative societies.

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History of Cooperative Societies

The historical timeline of cooperative societies in India is diverse as the cooperative movement started initially mainly reducing debts in poorer classes. The ultimate goal was to reduce financial inequalities among members by arranging proper loans and decreasing trader exploitation. 

Jawaharlal Nehru, India’s first Prime Minister, believed that the cooperative movement will gradually blend into the common thinking of India. Cut to the present where cooperative housing societies provide affordable residential properties to their members. Also, the welfare of the common mass spread in both rural and urban areas. But who planted that seed?

Robert Owen, a social reformer of England, worked to improve the lives of the working class. Distressed by the wealthier class putting pressure on the less privileged classes, Owen started working for the benefit of the community by introducing Cooperatives. As his idea started gaining momentum, cooperative societies were useful to avoid getting exploited by the wealthy class. 

History of Cooperative Societies in India

The history of cooperatives in India can be divided into two phases – the pre-Independence era and the post-Independence era. Here is a timeline of their inception, progress, and brief history –

Pre-Independence Era

• 1904: British first enacted the  Credit Cooperative Societies Act, 1904.

• 1909: The establishment of the first housing cooperative society in Bangalore named the Bangalore Building Co-operative Society.

• 1913: The formation of the first model bye-laws with the establishment of the Bombay Co-operative Housing Association.

• 1919: Under the Montague Chelmsford Reforms for revision of provincial self-government. Changes were handed to regional levels from the existing Centre. 

• 1942: British enacted the Multi-Unit Cooperative Societies Act, intended to cover such societies whose operation extended to cover more than one province.

Post-Independence Era

Cooperatives were placed under the influence of both the center and the state. Large Public Sectors like Cooperatives NAFED, KRIBHCO, IFFICO, etc. started functioning in the country. 

• 1958: The National Development Council (NDC) recommended a national policy on cooperatives with the setting up of Cooperative societies.

• 1984: Parliament enacted the Multi-State Cooperative Societies Act to declutter different laws governing the same types of societies. 

• 2002: The then NDA government under Atal Bihari Vajpayee announced a National Policy on Cooperatives to support the development and promotion of cooperative societies. 

AMUL and Lijjat Papad are some of the most popular examples of cooperative companies in recent years. The impact solely being such cooperatives occupy more than 97% of the rural area, sharing a substantial GDP share in the overall economy of the country.

Present Day

• The Union Budget 2022-23 has allocated Rs. 900 crores against the revised Rs. 403.30 crores estimate in the current fiscal to the Ministry of Cooperation formed in 2019 to restructure and facilitate the cooperative sector, headed by Mr. Amit Shah.

• Out of the entire Cooperative allocation, Rs. 624 crores have been divided into two centrally cooperative development schemes. Rs. 350 crores went out to Digitization of Primary Agriculture Cooperative Societies and Prosperity through Cooperatives, an umbrella scheme that received Rs. 274 crores.

• Apart from granting cooperative society reliefs to rural & farming communities, Ms. Nirmala Sitharaman also reduced the Alternate Minimum Tax (AMT) from 18.5% to 15% at par with companies.

• Similarly, for cooperatives with a net income of Rs. 1 crore to Rs. 10 crores got the surcharge was reduced from 12% to 7% for the betterment and balance of the entire sector.

• A total of Rs. 30 crores is under the provision for Cooperative Education, while Rs. 25 crores have been set up for Cooperative Training.

Types of Cooperative Societies

In India, cooperative societies are categorized on the basis of several sectors such as housing, agriculture, retail, banking, etc. The six major types are listed below –

1. Housing Cooperative Society

To combat the skyrocketing prices of land in towns & cities for housing, Cooperative Housing Societies were established. These kinds of societies offer to provide affordable housing to middle and low-income groups. Members purchase land, develop and construct houses or flats and allot the same to members. They also arrange for loans from financial institutions and government agencies. Such societies can be found in urban and semi-urban cities. To become a part of the cooperative, a member either has to buy a house or buy shares in the cooperative. For detailed information on how to manage a housing society, check the linked blog.

2. Credit Cooperative Society

These societies are formed to help develop the habit of savings among members (usually middle and low-income groups and to protect members from exploitation by moneylenders charging high-interest rates. The society accepts deposits in the form of saving accounts, RD, FD, pension schemes, etc., and grants loans at low-interest rates whenever needed. These societies are aided by state and the national government found in both rural and urban areas. It’s worth mentioning that cooperative credit societies function like cooperative banks, i.e., members can deposit and withdraw in cash. 

3. Marketing Cooperative Society

These co-ops function by marketing the produce profitably and helping small farmers earn the maximum price. Members also receive loan funds. These cooperatives strengthen the bargaining power of the farmers and secure them from individual losses and middlemen exploitation. Some of the factors which make it self-sustainable are –

• Profit distribution is done on the basis of produce contribution.
• Education of farmers based on the market price
• Price ceiling stabilization by meeting supply against demand
• Various marketing functions to sell produce such as grading, processing, packaging, transporting, and warehouse to buyer facilities directly.
• Prominent examples include Amul (Gujarat milk Co-operatives), Maha grape, etc.

4. Farming Cooperative Society

These are voluntary associations of small farmers who come together to gain the profits of large-scale farming. The entire land is managed by a unit of members elected by farmers themselves. In better agricultural cooperative societies, farmers share joint holdings with common agencies for the purchase and distribution of agriculture inputs like seed, equipment, fertilizers & agri-produces. Farmer also pools their resources, retains land rights and each member earns a share of total produce as per land & contribution made.

In cooperative tenant farming, lease farming is done on a rent basis whereas, in collective co-ops farming, farmers become lifelong members but can only transfer land rights.

5. Producer Cooperative Society

Producer or industrial cooperative societies are formed to protect the interests of small producers/ farmers or even land or fishery owners. As both production and marketing distribution is handled within the society, members obtain the raw materials and other processing tools directly and provide the same to the producers. As production efficiency with lower cost is a priority, the producers only provide the final output to the non-members or buyers without middlemen. Dairy farmers, fishers, weavers, artisans & cooperative tribes are big examples as they combine resources to increase production volumes and minimize market risks with mutual advantages to each producer. 

6. Consumer Cooperative Society

Here, society buys the domestic goods in bulk from the producer and directly sells them to the consumers/members in cash. The aim is to promote reasonable wholesale prices for mutual aid rather than making profits. These cooperative societies rely on word-of-mouth as consumers operate within a particular area. They also function as retail outlets run by the consumers themselves and reap large producer discounts. Prime consumer co-ops are taking shape in various sectors such as healthcare, housing, finance & not-for-profit credit unions, etc. 

Top Features of Cooperative Societies

If economic equality and membership welfare is the concern, cooperative societies matter. It’s formed generally by weaker sections of society to stop discrimination on fair prices from the stronger section. As right goods are provided at reasonable rates, co-ops have emerged today to raise capital voluntarily for both producers and consumers.

In a democratic system changing, the top features of cooperative societies are listed below –

• Open Membership: Membership is done upon choice, irrespective of caste, creed, color, etc. As per the Co-operative Societies Act 1912, at least 10 members can join without maximum limitations. However, once it’s formed members can decide its size and shares held by each. 

• Voluntary Association: A cooperative society holds voluntary membership, i.e, people can choose to join or exit as they deem fit. As members share common interests, they can dissociate from society once their notice period is over. 

• Service Motive: The primary motive for running a
• is different than other business organizations. Here, the general welfare of the public is the key. Goods are sold at cheaper rates to consumers while the producer has small profit margins. Members also get a share of dividends if the society earns profits. 

• Registration: A cooperative society becomes a legal entity once it’s registered i.e, owns assets and acquires contracts in its name. The registration process is simple and fast. 

• State Supervision: The fact that cooperatives came into existence from the 1912 Societies Act and has been reformed by further govt. regulations can’t be stressed enough. The society maintains accounts, and the state government audits their books independently.  

Cooperative Societies – The Final Headsup!

The scene for setting up cooperative societies emerged with improving the condition of farmers trapped by moneylenders and traders. The word “Cooperative” came out of mutual cooperation in a democratic manner. With open membership in place, a larger fair price distribution could be made. As public welfare comes above personal profit in surplus, co-operatives can function smoothly with the distribution of dividends among members in accordance with the society’s bye-laws.

However, today the scene has emerged further with govt. relief funds & subsidies on training and education programs available to both producers and consumers. Therefore, being a part of either a retail or food co-op is a sign of self-sustainability in a world of constant change and transitions.

If you want to learn more about housing cooperative societies in general, reach out to our experts at sales@adda.io or 022-48905764 today.

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