Multistate cooperatives

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Multistate cooperatives

  • Union Home and Cooperation Minister Amit Shah has said the Centre has decided to amend the Multi State Cooperative Societies (MSCS) Act, 2002 to ""plug the loopholes in the Act""
  • He was speaking at the convocation of the Vaikunth Mehta National Institute of Cooperative Management, Pune.

About Multi State Cooperative Societies (MSCS) Act, 2002:

  • Cooperatives are a state subject, but there are many societies whose members and areas of operation are spread across more than one state such as those for sugar and milk, banks, milk unions etc
  • The Act was passed to govern such cooperatives.
  • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.

About Multi state cooperative societies:

  • They draw their membership from both states, and they are thus registered under the MSCS Act.
  • Their board of directors has representation from all states they operate in.
  • Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.
  • Maharashtra has the highest number at 567, followed by Uttar Pradesh (147) and New Delhi (133).
  • Credit societies constitute the bulk of registered societies at 610, followed by agro-based ones (which include sugar mills, spinning mills etc).

Reasons for amending the act:

  • Exclusive control of the central registrar: also known as the Central Cooperative Commissioner was meant to allow smooth functioning of these societies.
  • The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
  • But instead of smooth functioning this has created obstacles.
  • Lack of checks and balances: systems for state-registered societies include checks and balances at multiple layers to ensure transparency in the process; these layers do not exist in the case of multi state societies.
  • Instead, the board of directors has control of all finances and administration
  • For expenditure above a certain level, the annual general body meeting of the society has to be called.
  • The annual report of these societies has to be submitted either online or offline to the central registrar before September every year.

Other issues with Act:

  • Lack of government control: there is an apparent lack of day-to-day government control on such societies.

  • Multistate cooperatives need not to submit multiple reports to the state registrar like state cooperatives

  • Prior permission for inspection: Inspections can happen only after prior intimation to societies.

  • a central registrar can only allow inspection of the societies under special conditions, a written request has to be sent to the office of the registrar by not less than one-third of the members of the board, or not less than one-fifth of the number of members of the society.

  • Weak infrastructure: on-ground infrastructure for central registrar is thin

  • there are no officers or offices at state level, with most work being carried out either online or through correspondence.

  • Lack of complaint proper redressal mechanism: The complaints of the members of the societies can only be redressed in Delhi

  • state authorities can only forward their complaints to the central registrar.

  • Ponzi schemes functioning as MCS: There have been instances when credit societies have launched ponzi schemes taking advantage of these loopholes.

  • Such schemes mostly target small and medium holders with the lure of high returns.

  • Fly-by-night operators get people to invest and, after a few instalments, wind up their operation

Expected amendments:

  • The Centre is holding extensive consultations with experts from various fields: bankers, sugar commissioners, cooperative commissioners, housing societies federations etc.
  • There can be an increase in manpower first in Delhi and then in the states, to ensure better governance of the societies.
  • Technology will be used to bring in transparency in the system