Cooperative Policies in India: An Overview

When India became independent in 1947, its rural economy was in a fragile state. Partition had displaced fertile agricultural regions, millions of farmers were trapped in debt with moneylenders, and institutional credit was virtually absent in the countryside. The government faced a clear choice: leave the rural economy to market forces or actively shape it through planned policy. It chose the latter – and cooperatives became the cornerstone of that choice. Understanding how cooperative policies evolved in post-independence India means tracing a deliberate shift from colonial indifference to state-led promotion, shaped at every turn by Five-Year Plans, agricultural crises, and the ambitions of planned economic development.

The pre-independence backdrop: a limited cooperative structure 🔗

Cooperatives in India have a legal history going back to the Cooperative Credit Societies Act of 1904, which gave cooperatives a formal legal identity for the first time. That law was primarily restricted to credit societies. The Cooperative Societies Act of 1912 broadened the scope to include non-credit activities such as marketing and handloom societies. But through the colonial period, cooperatives were largely urban-focused, weakly democratic, and used mainly as credit conduits – not as instruments of community development.

The real intellectual groundwork for a more expansive cooperative policy came from the Cooperative Planning Committee of 1945, chaired by Shri R.G. Saraiya. It concluded that cooperative societies were the most suitable medium for the democratisation of economic planning. This thinking directly influenced post-independence policymaking, especially after the Planning Commission was established in March 1950.

From laissez-faire to active promotion: the policy shift after independence 🔗

Before independence, the government’s approach to cooperatives was largely hands-off – cooperatives were facilitated through legislation but not actively promoted. After 1947, this changed fundamentally. After India attained independence, cooperative development received a boost, with cooperatives being given a vital role in the various plans formulated by the Planning Commission. The state moved from being a regulator to being a partner – contributing to share capital, providing subsidies, and embedding cooperatives into every Five-Year Plan.

Prime Minister Jawaharlal Nehru’s socialist vision was central to this shift. He saw cooperatives as institutions that could balance modernisation with democratic community values, and prevent the concentration of rural economic power in the hands of a few large landowners or private traders.

The First Five-Year Plan (1951-56): laying the foundation 🔗

India’s First Five-Year Plan (1951-1956) marked a watershed moment in the nation’s economic history, establishing cooperatives as essential pillars of democratic economic development. Unlike the colonial approach that viewed cooperatives narrowly as credit institutions, the Plan envisioned them as comprehensive vehicles for community development.

The First Plan recommended that every government department follow the policy of building up cooperatives. It provided for urban cooperative banks, industrial cooperatives of workers, consumer cooperatives, housing cooperatives, and the spread of cooperative training and education. This breadth of vision – spanning both rural and urban India – was genuinely new.

A critical parallel development was the All India Rural Credit Survey Committee (the Gorwala Committee), appointed in 1951 and which submitted its report in 1954. It found that even where cooperatives existed, farmers sourced over 75% of their credit from informal moneylenders. It recommended an integrated system of rural credit backed by active government partnership in cooperative share capital. A landmark achievement of the First Plan was the establishment of the National Cooperative Development and Warehousing Board in 1956, which coordinated cooperative development activities and provided technical and financial support to emerging cooperatives.

The First Plan also pioneered the concept of Multi-Purpose Credit Societies (MPCS) – transforming single-function lending bodies into multi-purpose cooperatives that could supply inputs, assist with marketing, and support broader rural needs.

The Second and Third Plans: deepening the cooperative framework 🔗

The Second Five-Year Plan (1956-61) shifted the national focus to rapid industrialisation, but cooperatives continued to receive policy attention, particularly for agricultural marketing and rural credit. The National Development Council (NDC), in 1958, recommended a national policy on cooperatives and called for the training of personnel and the establishment of Cooperative Marketing Societies across the country.

The Third Five-Year Plan (1961-66) pushed further, emphasising cooperatives as instruments of a self-reliant rural economy. It sought to extend the cooperative network into areas still untouched by institutional credit and marketing. A key institutional milestone during this period was the establishment of the National Cooperative Development Corporation (NCDC) in 1963. The NCDC is a statutory corporation set up under an Act of Indian Parliament on 14 March 1963, with the objectives of planning and promoting programmes for production, processing, marketing, storage, export and import of agricultural produce and foodstuffs on cooperative principles. The NCDC became a major financial and technical engine for cooperative development – providing loans and grants to state governments and cooperative federations across sectors ranging from dairy and fisheries to handlooms and housing.

The Green Revolution era and cooperatives (1960s-1970s) 🔗

The mid-1960s brought a severe agricultural crisis. In India, the Green Revolution began in 1965-66, a time when the country experienced two back-to-back droughts, resulting in severe food scarcity and a dependence on food imports. In response, the government launched the Green Revolution – introducing high-yielding varieties (HYV) of wheat and rice, chemical fertilisers, and expanded irrigation systems.

Cooperatives were directly embedded in this agricultural transformation. Loans for seeds, fertilisers, and equipment were provided by cooperative and nationalised banks, enabling farmers to participate in the Green Revolution. The cooperative credit network became the primary delivery mechanism for agricultural inputs and institutional finance in rural areas, especially for small and marginal farmers who could not access private banks.

States that had already built strong cooperative credit structures fared significantly better during this period. Punjab’s state government worked to develop irrigation systems, a foundation of agricultural research and extension, and a solid cooperative credit structure for its population – and Punjab went on to become the leading state in Green Revolution adoption and agricultural output.

The Green Revolution’s success also revealed the limits of a purely credit-focused cooperative model. It accelerated the need for cooperatives in agricultural marketing, storage, and input supply – not just credit. This demand gave rise to a more diverse range of cooperative forms: input supply cooperatives, sugar cooperatives, dairy cooperatives, and large-scale marketing societies.

The Fourth through Seventh Plans: diversification and reform 🔗

The Fourth Five-Year Plan (1969-74) placed major emphasis on agricultural growth and rural welfare. During this period, the establishment of NABARD in 1982 was a crucial milestone for supporting rural credit and cooperative development. NABARD took over the agricultural credit functions of the Reserve Bank of India and became the apex body for refinancing cooperative banks and rural financial institutions.

The Seventh Five-Year Plan (1985-90) pointed out that while cooperatives had made all-round progress in credit, poor loan recovery and high overdues were serious concerns. It recommended developing Primary Agricultural Credit Societies (PACS) as multiple-purpose viable units and strengthening the consumer cooperative movement in both urban and rural areas. This plan also called for special programmes in the North-Eastern Region, where cooperative penetration remained limited.

In 1984, the Indian Parliament passed the Multi-State Cooperative Societies Act to streamline laws governing cooperatives that operated across state boundaries – an important step given the growth of national-level cooperative giants like IFFCO (Indian Farmers Fertiliser Cooperative) and NAFED.

The Eighth Plan and liberalisation: cooperatives at a crossroads 🔗

The opening up of India’s economy in 1991 created both opportunities and pressures for the cooperative sector. The Eighth Five-Year Plan (1992-97) laid emphasis on building up the cooperative movement as a self-managed, self-regulated, and self-reliant institutional setup, by giving it more autonomy and democratising the movement. It also spoke of enhancing the capability of cooperatives to improve economic activity and create employment opportunities for small farmers, labourers, artisans, scheduled castes, scheduled tribes, and women.

The liberalisation era forced a rethink of state-heavy cooperative governance. Private enterprises could now compete directly with cooperatives in marketing, processing, and input supply. This competitive pressure made the case for cooperatives to professionalise management and reduce political interference – a challenge that policymakers would continue to grapple with.

The National Policy on Cooperatives, 2002: a landmark framework 🔗

The Government of India announced a National Policy on Cooperatives in 2002, formulated in consultation with states and union territories. Its core objective was to facilitate the all-round development of cooperatives in the country by ensuring they worked as autonomous, self-reliant, and democratically managed institutions – accountable to their members rather than to state governments. The policy aimed to make cooperatives significant contributors to the national economy, especially in areas requiring community participation.

This policy marked a conscious departure from earlier paternalistic approaches where state governments frequently superseded elected cooperative boards. It was a step toward treating cooperatives as genuinely member-driven organisations, not administrative extensions of the state.

Constitutional recognition and recent policy developments 🔗

A major milestone came with the 97th Constitutional Amendment Act of 2011. The 97th Amendment established the right to form cooperative societies as a fundamental right (Article 19) and introduced a new Directive Principle of State Policy on Cooperative Societies (Article 43-B). A new Part IX-B was added to the Constitution, laying out governance provisions covering democratic elections, audit, and members’ rights in cooperatives.

In 2021, the government established a dedicated Ministry of Cooperation – the first of its kind – signalling renewed political commitment to the cooperative sector. The Ministry of Cooperation, established in 2021, has further reinforced the government’s commitment to supporting cooperatives as a key driver of economic progress. Its focus areas include modernising Primary Agricultural Credit Societies (PACS), promoting Farmer Producer Organisations (FPOs), and expanding cooperatives into sectors such as dairy, fisheries, organic farming, and digital services.

Most recently, a National Cooperation Policy 2025 has been formulated to replace the 2002 policy, setting a roadmap for cooperative growth over the next two decades. The policy aims to establish 2 lakh new multipurpose Primary Agricultural Credit Societies (M-PACS) within five years and push cooperatives to expand into over 25 sectors, while focusing on inclusive growth for Dalits, Adivasis, women, and youth.

The diverse cooperative forms that policy shaped 🔗

Decades of policy focus produced a richly diverse cooperative landscape in India. Today, the cooperative sector spans agricultural credit through PACS, dairy through societies like Amul, fertilisers through IFFCO, sugar processing, handloom and handicrafts, consumer goods through Kendriya Bhandar, housing, and fisheries. The country has 1,94,195 cooperative dairy societies and cooperative sugar mills that account for 35% of the sugar produced in the country. This diversity is a direct result of successive policy frameworks pushing cooperatives beyond credit into every domain of rural and semi-urban economic life.

The NCDC alone disbursed ₹95,182.88 crore in FY 2024-25, a nearly 17-fold increase from ₹5,735.51 crore in 2014-15, reflecting the sector’s expanding scale. At the global level, India’s Amul and IFFCO have topped the International Cooperative Alliance’s World Cooperative Monitor 2025 rankings by turnover relative to GDP per capita – a testament to what policy-driven cooperative development can achieve over seven decades.

Key takeaways from India’s cooperative policy evolution 🔗

India’s cooperative policy journey is essentially a story of the state recognising that markets alone cannot deliver equity in a predominantly agrarian economy. The shift from the colonial laissez-faire approach to active state partnership – through Five-Year Plans, institutional creation (NCDC, NABARD), constitutional protection, and dedicated ministries – has built one of the world’s largest cooperative movements. Along the way, policy had to repeatedly correct course: from over-centralisation in the cooperative structure, to dependence on government finance, to political interference in management. Each Five-Year Plan reflected the learning of the previous one, even as the larger economic environment – from socialist planning to liberalisation – kept changing the rules of the game.

The Green Revolution highlighted the need for cooperatives to go beyond credit into inputs and marketing. Liberalisation in 1991 demanded that they become more autonomous and competitive. The 2011 constitutional amendment gave them legal teeth. And the 2021 Ministry of Cooperation signals that the state still sees cooperatives as an indispensable tool for rural development – not a relic of the planning era, but a framework that can be modernised for a digital, market-linked economy.

What do you think? Given that successive Five-Year Plans consistently flagged poor loan recovery and political interference as persistent challenges, do you think India’s cooperative policies have been structurally sound but poorly implemented – or were there fundamental design flaws from the start? And with a dedicated Ministry of Cooperation now in place, what specific reforms would make the biggest difference for small and marginal farmers today?

References

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4. https://en.wikipedia.org/wiki/National_Cooperative_Development_Corporation_(India)
5. https://padhai.ai/economy/green-revolution-in-india
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