In the state budget this year, the Karnataka government set aside Rs 198 cr to streamline the finances of cooperative banks and other cooperative lending institutions after years of complaints over the opaque nature of transactions.
The move came a couple of years after the Comptroller General of India, in a performance audit of cooperative banks and societies, laid bare the severe shortcomings of these financial institutions and recommended reforms for regulatory oversight. This is what experts hope a new Co-operation Ministry would achieve.
Though critics welcome the Union government’s decision to set up the new ministry they are wary that it would infringe on the rights of the states — especially since such cooperative financial institutions are at the heart of many welfare schemes announced by state governments.
Moreover, these institutions also wield significant political influence, as reflected in the appointments of ruling party leaders to key elected positions of these institutions.
What the new ministry can offer is focus and direction to the sector, said DV Gopalappa, Professor in Economics, University of Mysore. "For established cooperatives in the state and the country, this could help in expanding their operations. There will also be a budgetary allocation for the sector from next year, which will offer a helping hand for states," he said.
Political interference when it comes to appointing the chairpersons for various cooperative institutions is a serious matter.
"One of the main reasons for the poor repayment of loans is due to such political appointments. Loan waivers are also mostly from cooperative sector banks, which has strained their finances," he said.
In 2017, for instance, Siddaramaiah waived crop loans worth Rs 8,165 crore that farmers had borrowed from cooperative banks. The very next year, H D Kumaraswamy announced a crop loan waiver of Rs 34,000 cr, a majority of which was from cooperative banks.
When the scheme ended last year, around Rs 15,200 cr was waived off and the government reimbursed around Rs 7,600 cr to cooperative banks and Rs 7,200 cr to commercial banks.
"In Mumbai-Karnataka region, due to the strong presence of cooperatives, the share is more than 75%," he said, noting that despite the wide prevalence of cooperative institutions across the country, there has been no reforms for a period now.
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Now, the Government of India has taken the initiative to handle cooperatives at the Central level. This will help revive many sick cooperatives in the state, he said, citing Vaishnavi Credit Society as an example. "Since public money is involved, monitoring them is essential," he said.
The new ministry, he hoped, would provide financial guidance, and help assist in digitising the documents of cooperatives across the country. A clear picture of the new ministry will emerge only after guidelines are issued by the Centre, he said.
Though H K Patil, Congress leader and executive committee member of the National cooperatives Union of India, welcomed the move, said that the Central government should not employ the new ministry to infringe on the rights of the state with respect to cooperatives.
Of all the cooperatives, 95% were governed by various legislation of the state government while the remaining five were governed under central government. "If the Centre follows the mandate mentioned in the recent notification about the Ministry, there should not be any apprehension about encroaching on state cooperatives," he said.
The focus of the new Ministry, he suggested, should be on developing the multi-state cooperative institutions.
Karnataka Co-operation minister S T Somashekar has dismissed apprehensions about the formation of a new Ministry. "This won't affect the Cooperation Departments run by state governments. Some of the amendments enacted by the Centre were not being implemented by states. This led to confusion, which will be addressed by the new ministry," Somashekhar said recently.