The cooperative movement is one of the quiet foundations of the Indian economy. A cooperative is an enterprise that is owned, financed and run by the very people who use its services, whether they are farmers selling milk, weavers buying yarn, families seeking a home loan or workers pooling their savings. Instead of profit flowing to distant shareholders, the benefits come back to the members, and every member has one vote regardless of how much money or produce they bring in.
In a country where hundreds of millions of people live and work in villages, this people-centred model has proved remarkably useful. From the dairy cooperatives behind the Amul brand to the village credit societies that lend to small farmers, cooperatives have shaped rural livelihoods for well over a century. This article explains the principles, history, structure, major success stories, constitutional status and present-day challenges of the cooperative movement in India.
Quick Facts
| Topic | Detail |
|---|---|
| First dedicated law | Cooperative Credit Societies Act, 1904 |
| Broader law | Cooperative Societies Act, 1912 (extended coverage beyond credit) |
| Core idea | Joint ownership and democratic control by members; one member, one vote |
| Village-level credit unit | Primary Agricultural Credit Society (PACS) |
| Apex agricultural finance body | NABARD, set up in 1982 |
| Constitutional status | 97th Amendment, 2011: Article 19(1)(c), Article 43B and Part IXB |
| Dedicated ministry | Ministry of Cooperation, created in July 2021 |
| Official motto of the ministry’s vision | “Sahakar se Samriddhi” (prosperity through cooperation) |
| Landmark success | Amul and the Anand model of dairy cooperatives |
What Is a Cooperative and Why Does It Matter?
A cooperative society is a voluntary association of persons who join hands to meet a shared economic, social or cultural need through a jointly owned and democratically controlled enterprise. The Hindi word sahakar, which means working together, captures the idea neatly. Members contribute capital, share the risks and divide the benefits according to how much they use the cooperative, not according to how much money they hold.
How it differs from a company
- Voting: in a company, votes follow shareholding; in a cooperative, each member has one vote.
- Purpose: a company exists to maximise returns to investors; a cooperative exists to serve its members.
- Surplus: profits are shared as limited dividends, reserves or patronage bonuses, often in proportion to a member’s transactions.
- Membership: open to anyone who qualifies and wishes to use the services, rather than to whoever can buy shares.
Why it suits India
Indian agriculture is dominated by small and marginal holdings. A single farmer rarely has the bargaining power to secure fair credit, inputs or market prices. By pooling resources, farmers can buy fertiliser in bulk, process their produce, share cold storage and sell collectively. The same logic works for artisans, fishers, labourers and urban households.
The Principles Behind the Cooperative Movement
Modern cooperatives around the world follow a set of values first articulated by the Rochdale Pioneers, a group of weavers in England who opened a consumer store in 1844. The International Co-operative Alliance, founded in 1895, later codified these as seven principles, and Indian law and practice broadly follow them.
- Voluntary and open membership: no one can be forced to join, and membership should not be denied on grounds of gender, social status, race, politics or religion.
- Democratic member control: members elect the management and take key policy decisions, with equal voting rights.
- Member economic participation: members contribute equitably to the capital and democratically control it; surpluses go to reserves, to members in proportion to their dealings, or to community activities.
- Autonomy and independence: cooperatives are self-help organisations controlled by members, even when they deal with governments or raise outside funds.
- Education, training and information: members, elected representatives and staff are trained so they can manage the enterprise well.
- Cooperation among cooperatives: local societies federate into district, state and national bodies to serve members more effectively.
- Concern for community: cooperatives work for the sustainable development of the communities in which they operate.
These principles explain why the cooperative movement is often described as an economic model with a social conscience. When they are followed in letter and spirit, cooperatives tend to be resilient and trusted. When they are neglected, the movement loses its character, a point we return to under challenges.
Origins: The Cooperative Credit Societies Act of 1904
The Indian cooperative movement began as a response to rural indebtedness. In the late nineteenth century, many farmers were trapped in debt to moneylenders who charged very high interest. Crop failures, famines and fragmented landholdings made repayment difficult, and land was frequently lost to creditors. Colonial administrators, studying credit cooperatives in Germany, such as the Raiffeisen model, and in other European countries, concluded that a similar institution could help Indian peasants.
The result was the Cooperative Credit Societies Act, 1904, which gave legal recognition to village credit societies. Members of such a society pooled their savings, borrowed from outside sources against their collective security, and lent to one another at fair rates for productive purposes.
From credit to every sector
The 1904 Act covered only credit. The Cooperative Societies Act, 1912 allowed non-credit societies, recognised federations of societies and distinguished between rural and urban credit societies. The Maclagan Committee on Cooperation (1914-15) reviewed progress and stressed better audit, training and the need for sound banking at the district level. Under the reforms of 1919, cooperation became a provincial subject, meaning it was handled by the provinces rather than the centre. This is the root of the strong role of state governments in cooperatives even today.
The 1942 Multi-unit Cooperative Societies Act addressed societies whose members or operations spread across more than one province, a forerunner of the later multi-state cooperative law.
Growth After Independence
After 1947, cooperatives were seen as a key instrument of planned development. The Five Year Plans gave the cooperative sector a central place in rural credit, food-grain marketing, agro-processing and public distribution. The All India Rural Credit Survey of the early 1950s concluded that the cooperative structure should be strengthened to supply rural credit, with state partnership in share capital.
Key milestones
| Period | Development |
|---|---|
| 1904 | Cooperative Credit Societies Act passed |
| 1912 | Cooperative Societies Act broadens the scope to non-credit societies |
| 1919 | Cooperation becomes a provincial subject |
| 1942 | Multi-unit Cooperative Societies Act |
| 1946 | Kaira district dairy cooperative founded at Anand, Gujarat |
| 1958 | NAFED established for marketing of agricultural produce |
| 1965 | National Dairy Development Board (NDDB) set up |
| 1967 | IFFCO, a fertiliser cooperative, established |
| 1970 | Operation Flood launched |
| 1982 | NABARD created to oversee rural credit |
| 2002 | Multi-State Cooperative Societies Act |
| 2011 | 97th Constitutional Amendment |
| 2021 | Ministry of Cooperation created |
The sector expanded into fertilisers, sugar, dairy, housing, fisheries, handlooms and consumer retail. National-level bodies such as NAFED, IFFCO and the National Cooperative Union of India gave the movement an apex structure to represent its interests.
The Rural Credit Structure: PACS, District and State Cooperative Banks
The backbone of cooperative finance is a layered system that links the village to the state capital. For short-term and medium-term agricultural lending, it works as a three-tier structure.
- Primary Agricultural Credit Societies (PACS): village-level societies that take deposits from members and lend to them for seeds, fertiliser and other farm needs. They are the closest financial institution to many farmers.
- District Central Cooperative Banks (DCCBs): federations of the PACS in a district, which provide them funds and supervision.
- State Cooperative Banks: apex banks at the state level, which link the district banks to the wider banking system and to NABARD.
Role of the RBI and NABARD
The Reserve Bank of India regulates the banking business of cooperative banks, while NABARD, established in 1982, provides refinance, supervision and developmental support for rural cooperative banks. Registration and day-to-day administration of societies, however, rest largely with state Registrars of Cooperative Societies. Long-term credit for investments such as land development has traditionally been handled by separate agricultural and rural development banks.
For millions of farmers, particularly in states where commercial bank branches are sparse, the PACS remains the first and sometimes only point of formal credit, which is why the cooperative movement is closely tied to financial inclusion.
AMUL and the White Revolution
No story illustrates the cooperative movement better than Amul. In the 1940s, small milk producers in Kaira district of Gujarat were at the mercy of private traders and a dominant dairy contractor. Led by the farmer-leader Tribhuvandas Patel and guided by Sardar Vallabhbhai Patel’s advice to organise cooperatively, they set up the Kaira District Cooperative Milk Producers’ Union at Anand in 1946. Verghese Kurien, a young dairy engineer, joined and helped turn the venture into a professionally managed enterprise.
The Anand model
The Anand pattern is a three-tier dairy structure. Village-level milk producers’ societies collect milk twice a day and pay farmers based on quality and quantity. District unions process the milk and make products. A state federation markets the products under a common brand. Farmers own the whole chain, and a large part of the consumer rupee flows back to them. The Gujarat Cooperative Milk Marketing Federation, formed in 1973, sells products under the Amul name.
Operation Flood
Impressed by the success of Anand, the government set up the National Dairy Development Board in 1965 and launched Operation Flood in 1970. This programme, popularly called the White Revolution, replicated the Anand pattern across the country. It helped India move from being a milk-short nation to becoming among the world’s largest milk producers, with millions of small producers, many of them women, earning a steady income. You can read more in our explainer on the White Revolution in India.
Sugar, Fertiliser and Other Major Cooperative Sectors
Sugar cooperatives in Maharashtra
Maharashtra pioneered cooperative sugar factories, with the early example at Pravaranagar in the late 1940s and early 1950s. Cane growers became shareholders in the mills that crushed their cane, which assured them of a market and a share in the processing margin. Sugar cooperatives grew into powerful rural institutions that also financed schools, colleges and hospitals in their areas. Western India, especially Maharashtra and Gujarat, remains the heartland of this model.
Fertiliser and marketing cooperatives
IFFCO, set up in 1967, is a farmer-owned fertiliser producer and distributor, and KRIBHCO is another cooperative in the same field. NAFED handles marketing and price-support operations for several agricultural commodities.
Other sectors
- Consumer cooperatives: stores such as Kendriya Bhandar and local cooperative supermarkets provide goods at fair prices to members.
- Housing cooperatives: in cities like Mumbai, Pune and Ahmedabad, residents jointly own and manage apartment buildings.
- Fisheries cooperatives: fishers pool boats, nets, ice and marketing, helping them bypass middlemen.
- Weavers’ and handloom cooperatives: artisans share looms, raw material and marketing, and organisations like state handloom cooperatives sell their products under common brands.
- Labour cooperatives: workers form societies to take on construction and contract work, as in some Kerala examples.
Types of Cooperatives at a Glance
| Type | Who the members are | What it does |
|---|---|---|
| Credit cooperatives | Farmers, small borrowers, urban households | Accept deposits and give loans (PACS, urban cooperative banks) |
| Dairy cooperatives | Milk producers | Collect, process and market milk and dairy products |
| Sugar cooperatives | Sugarcane growers | Run mills that crush members’ cane |
| Marketing cooperatives | Farmers and producers | Sell produce collectively and supply inputs |
| Consumer cooperatives | Households | Run stores selling goods at fair prices |
| Housing cooperatives | Flat and plot owners | Build and manage housing and shared facilities |
| Fisheries cooperatives | Fishers | Provide equipment, ice, credit and marketing |
| Weavers’ cooperatives | Handloom artisans | Supply yarn and looms and market the cloth |
The Scale of the Indian Cooperative Sector
India has one of the largest cooperative networks in the world. The country has several lakh registered cooperative societies, and their membership runs into the hundreds of millions of people, though exact figures change from year to year and include many overlapping memberships. The network covers a large majority of Indian villages through PACS, dairy societies or other cooperatives.
Cooperatives account for a substantial share of rural credit disbursement, a significant share of fertiliser distribution and a large part of sugar and milk output. The sector provides employment to a very large number of people, directly and indirectly. Its reach, particularly into places that private enterprise and commercial banks find unprofitable, is its main strength.
The International Day of Cooperatives is observed globally on the first Saturday of July, and India’s cooperatives take part in the observance each year.
Constitutional Status: The 97th Amendment
For decades, cooperatives were governed mainly by state laws, and many complaints arose about government interference in elections and management. To strengthen autonomy and democratic functioning, Parliament passed the 97th Constitutional Amendment Act, 2011, which came into force in 2012. It made three significant changes.
- Article 19(1)(c): the words “co-operative societies” were added, making the right to form cooperative societies a fundamental right.
- Article 43B: a new Directive Principle asks the State to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies.
- Part IXB (Articles 243ZH to 243ZT): a new part dealing with cooperative societies, with provisions on the number and terms of directors, fixed five-year terms for boards, restrictions on supersession, independent audit and the creation of election authorities.
The Supreme Court’s view
In 2021, in Union of India v. Rajendra N. Shah, the Supreme Court held that the amendment had not been ratified by half of the states as required for matters affecting the states’ powers. It therefore struck down Part IXB so far as it applied to cooperatives governed by state laws, while upholding it for multi-state cooperative societies, which fall under Parliament’s authority. The fundamental right and the Directive Principle remain part of the Constitution.
The Ministry of Cooperation and “Sahakar se Samriddhi”
In July 2021, the Government of India created a separate Ministry of Cooperation, carving it out of the agriculture ministry. Its stated aim is to give the sector a distinct administrative and legal framework, summed up in the slogan “Sahakar se Samriddhi”, or prosperity through cooperation.
Major initiatives
- Computerisation of PACS: a nationwide programme to bring PACS onto a common software platform so they can keep accounts digitally, link with banks and offer a wider range of services.
- New multi-state cooperatives: national-level multi-state cooperative societies were promoted for seeds, organic products and exports, so that small producers can reach larger markets.
- Legal reform: amendments to the Multi-State Cooperative Societies Act (2002) in 2023 sought to improve governance and transparency and to set up a cooperative election authority and an ombudsman.
- Diversified roles for PACS: encouraging them to act also as service centres, fair-price shops, storage operators and other village-level businesses.
Cooperatives, Financial Inclusion and Women’s Self-Help Groups
The cooperative approach underpins several routes to financial inclusion. Small borrowers who lack collateral or documents can still join a PACS or an urban cooperative bank and gain access to savings and credit. Cooperative banks often have deep local knowledge, which helps them serve clients whom larger banks consider risky.
Self-help groups
Women’s self-help groups (SHGs) share the cooperative spirit. In a typical SHG, around ten to twenty women save small amounts regularly, lend to one another and later obtain bank loans as a group. NABARD began the SHG-Bank Linkage Programme in the early 1990s, and it has become among the largest microfinance programmes in the world. Many SHGs graduate into producer groups and cooperatives that run dairies, tailoring units, food-processing enterprises and handicraft businesses. Cooperatives such as the SEWA Cooperative Bank, started in Ahmedabad in 1974 for women in the informal economy, show how collective ownership can empower women who are otherwise excluded from formal finance.
Challenges Facing the Cooperative Movement
Despite its achievements, the cooperative movement has uneven performance across states and sectors. Gujarat, Maharashtra, Kerala and a few others have strong cooperatives, while in other regions many societies exist only on paper.
Key problems
- Politicisation and state control: management positions are often used as stepping stones for political careers, and governments have historically held powers to supersede boards, nominate directors or influence elections.
- Poor governance and mismanagement: weak accounting, inadequate audit, lack of professional skills and conflicts of interest have led to losses and fraud in some societies.
- Dormant societies: a considerable number of registered cooperatives are inactive or defunct, yet remain in the registers.
- Weak member participation: when members do not attend meetings or vote, control passes to a small group.
- Overdues and capital shortage: loan recovery problems and thin capital bases limit the ability of credit societies to lend.
The urban cooperative bank problem
Urban cooperative banks have faced a particular challenge: dual regulation. State registrars oversee their management and administration, while the RBI regulates their banking functions. This split created gaps in supervision. The case of the Punjab and Maharashtra Co-operative (PMC) Bank, where the RBI imposed restrictions in 2019 after serious irregularities came to light, left thousands of depositors anxious and became a turning point. The Banking Regulation (Amendment) Act, 2020 extended more of the RBI’s powers over cooperative banks, and deposit insurance limits were later raised, but the debate on a clean regulatory structure continues.
The Road Ahead: Professionalisation and Reform
The future of the cooperative movement depends on combining its democratic ethos with professional management. Experts and policy documents often highlight the following steps.
- Autonomy with accountability: reduce unnecessary government interference while ensuring transparent audits and elections.
- Professional managers: hire trained chief executives and staff, as the Amul model did, while leaving policy to elected boards.
- Technology: digital accounting, online services and market linkages can improve efficiency and trust.
- Revival of dormant societies: merge, revive or wind up inactive units to keep the sector credible.
- New sectors: cooperatives in areas such as organic farming, warehousing, renewable energy and exports can open new opportunities for small producers.
- Member education: informed members are the best guarantee of good governance.
Conclusion
The cooperative movement in India grew from a modest attempt to free farmers from moneylenders in 1904 into a vast network touching credit, dairy, sugar, fertiliser, housing, fisheries and handlooms. Its greatest successes, led by Amul and the White Revolution, show what ordinary people can achieve when they own and control enterprises together. Its weaknesses, from politicisation to dormant societies and regulatory gaps, show that the model needs good governance to work. With constitutional recognition, a dedicated ministry and a push for digitisation, the sector is being asked to deliver on the promise of “Sahakar se Samriddhi”. Last updated: 1 October 2026.
Frequently Asked Questions
What is the cooperative movement in India?
It is the organised effort of people to form member-owned, democratically run enterprises for mutual benefit, such as credit societies, dairy unions, sugar mills and housing societies. Each member has one vote, and surpluses are shared on the basis of use rather than capital.
When did the cooperative movement start in India?
It began formally with the Cooperative Credit Societies Act of 1904, which allowed farmers to form village credit societies as an alternative to moneylenders. The Cooperative Societies Act of 1912 later extended the law to non-credit societies.
What is a PACS?
A Primary Agricultural Credit Society is a village-level cooperative that takes deposits and gives loans to its members. It forms the base of the three-tier short-term cooperative credit structure, above which stand the district central cooperative banks and the state cooperative bank.
What did the 97th Constitutional Amendment do?
The 97th Amendment of 2011 made the right to form cooperative societies a fundamental right under Article 19(1)(c), added the Directive Principle in Article 43B and inserted Part IXB on cooperative societies. In 2021 the Supreme Court struck down Part IXB for state-law societies but upheld it for multi-state cooperatives.
What is the Ministry of Cooperation?
It is a separate Union ministry created in July 2021 to strengthen the cooperative sector under the vision of “Sahakar se Samriddhi”. Its work includes computerising PACS, reforming cooperative laws and promoting new multi-state cooperatives for seeds, organic products and exports.
Why is Amul considered a model cooperative?
Amul grew from the Kaira district milk union formed at Anand in 1946 into a farmer-owned, professionally managed dairy enterprise. Its three-tier structure lets producers own the processing and marketing chain, and its approach inspired Operation Flood and the White Revolution.
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