Impact of GST Reforms on Cooperative Sector

Syllabus: GS3/Economy

Context

• The government has said the GST reforms will strengthen the cooperative sector, make their products competitive, increase demand for their products and increase the income of cooperatives.

About

• In the dairy sector: The tax on butter, ghee and similar products has been reduced from 12% to 5%.
  • GST on milk cans made of iron, steel or aluminium has also been lowered from 12% to 5%. 
  • These measures will make dairy products more competitive, provide direct relief to dairy farmers, and strengthen women-led rural enterprises. 
• GST on Tractors: The GST on tractors below 1800 cc has been reduced to 5%, which will make tractors more affordable and benefit not only crop farmers but also those engaged in animal husbandry and mixed farming. 
• GST on key fertiliser inputs such as ammonia, sulphuric acid and nitric acid has been reduced from 18% to 5%.
  • This has lowered input costs for fertiliser companies, preventing price hikes for farmers, and ensuring the timely availability of affordable fertilisers during sowing seasons.

What are Cooperatives?

• A cooperative (or co-op) is an organization or business that is owned and operated by a group of individuals who share a common interest, goal, or need. 
• These individuals, known as members, participate in the cooperative’s activities and decision-making process, typically on a one-member, one-vote basis, regardless of the amount of capital or resources each member contributes. 
• The main purpose of a cooperative is to meet the economic, social, or cultural needs of its members, rather than to maximize profits for external shareholders.
• The UN SDGs recognize cooperatives as crucial drivers of sustainable development, particularly in reducing inequality, promoting decent work, and alleviating poverty. 

Benefits of Cooperatives

• Democratic Control: Members have a voice in decision-making.
• Economic Participation: Profits are distributed based on usage or contribution, not capital invested.
• Community Focus: Co-ops often aim to benefit local communities by keeping resources and profits within the group.
• Better Services/Prices: By pooling resources, cooperatives often offer better services or prices than for-profit businesses.

Types of Cooperatives in India

• Agricultural Cooperatives:
  • Dairy Cooperatives: Focus on the collective production, processing, and marketing of dairy products (e.g., Amul).
  • Farmers’ Cooperatives: Provide services like access to seeds, fertilizers, and agricultural equipment, and help with marketing and processing crops.
  • Fishermen Cooperatives: Support fishermen in managing resources and marketing their catch collectively.
• Consumer Cooperatives: These cooperatives are formed to provide goods and services to members at reasonable prices, reducing reliance on middlemen. Examples include consumer stores and fair-price shops.
• Worker Cooperatives: In these cooperatives, workers own and manage the business, sharing profits and decision-making. Examples include small-scale manufacturing cooperatives or artisan co-ops.
• Credit Cooperatives: Cooperative Banks and Credit Societies offer financial services, such as savings accounts, loans, and credit, to members, particularly in rural and underserved areas.
• Housing Cooperatives: These cooperatives help members collectively build or manage housing projects, providing affordable living spaces, especially in urban areas.

Success Stories of Cooperatives in India:

• Amul (Gujarat): Amul, a dairy cooperative, has been one of India’s most successful cooperatives, transforming the dairy sector by empowering millions of small farmers and bringing India to the forefront of the global dairy market.
• Irrigation Cooperatives in Maharashtra: Water-user associations and cooperatives in Maharashtra have successfully managed water resources for irrigation purposes, helping farmers achieve better yields.
• Kerala’s Co-operative Movement: Kerala has one of the most successful cooperative movements in India, with strong cooperatives in sectors like banking, farming, consumer goods, and housing.

Challenges Faced:

• Weak Governance: They are issues of poor management, corruption, and political interference, leading to inefficiency and lack of transparency.
• Limited Access to Credit: Many cooperatives struggle with access to financing, which hinders their ability to expand or improve their operations.
• Competition from Private Sector: Cooperatives often face stiff competition from large private enterprises and multinational corporations, especially in sectors like retail and agriculture.
• Technological Gaps: Many cooperatives, especially in rural areas, lack access to modern technology or are slow to adopt new systems that could improve efficiency.

Legal Framework and Support for Cooperatives:

• In India, cooperatives are governed by the Cooperative Societies Act, which is implemented at both the state and national levels.
  • The Multi-State Cooperative Societies Act (2002): This law regulates cooperatives that operate in more than one state.
  • The National Cooperative Policy (2002): Aimed at creating an enabling environment for the cooperative movement, it focuses on improving governance, member participation, and financial sustainability.
  • The Ministry of Cooperation: Established in 2021, this ministry focuses on supporting the growth of cooperatives in India, including reforming their governance and providing financial support.

Way Ahead

• Cooperatives in India have proven to be an essential tool for economic empowerment, especially for marginalized groups, and contribute significantly to rural development. 
• The GST reforms will directly impact cooperatives, farmers, rural enterprises and benefit more than 10 crore dairy farmers in the country.
• With the right support and reforms, cooperatives can continue to contribute to inclusive growth and social development in India.

Source: AIR