How Cooperatives Can Boost MSME Potential
Micro, Small, and Medium Enterprises (MSMEs) are often called the backbone of the Indian economy, contributing significantly to GDP, employment, and exports. However, they face numerous challenges, including limited access to finance, technology, markets, and skilled labor. This is where the cooperative model can play a transformative role, offering a powerful avenue to unlock MSME potential and foster inclusive growth.
I. The Promise of Cooperatives for MSMEs:
The cooperative model, based on the principles of self-help, self-responsibility, democracy, equality, equity, and solidarity, inherently aligns with the needs of MSMEs, especially those run by artisans, farmers, and small producers.
- Resource Pooling & Shared Infrastructure:
- Economies of Scale: Individual MSMEs, particularly small ones, often cannot afford expensive machinery, advanced technology, or large-scale marketing. Cooperatives allow them to pool resources for shared tools, common production facilities, testing labs, or even larger marketing budgets. This reduces individual costs and increases efficiency.
- Examples: Artisan cooperatives can share workshops and specialized equipment. Small food processors can share a common facility for packaging and quality control.
- Enhanced Access to Finance:
- Collective Bargaining Power: Cooperatives, being larger entities, have greater credibility and bargaining power when seeking loans from banks and financial institutions.
- Internal Capital Generation: Members contribute to the cooperative’s capital, fostering a sense of ownership and providing an internal source of funds.
- Simplified Credit: Cooperative banks and credit societies are often more attuned to the needs of small businesses and farmers, offering more accessible and affordable credit compared to conventional banks, especially in remote areas. Initiatives like the Cooperative Credit Guarantee Fund (CCGF) for MSME-linked cooperatives can further enhance this.
- Improved Market Linkages & Branding:
- Collective Marketing & Branding: Cooperatives enable MSMEs to create a unified brand identity, helping them reach wider markets nationally and globally. A collective brand inspires greater trust and recognition than individual small brands.
- Quality Certification: Cooperatives can collectively invest in obtaining quality certifications, which are often out of reach for individual MSMEs, opening doors to larger retail chains and export markets.
- E-commerce Integration: Cooperatives can facilitate MSMEs’ entry into digital marketplaces like ONDC (Open Network for Digital Commerce) or GeM (Government eMarketplace), overcoming individual digital literacy and logistical challenges.
- Example: Amul, the iconic dairy cooperative, is a prime example of how collective branding and marketing can empower millions of small dairy farmers.
- Skill Development & Knowledge Sharing:
- Training Programs: Cooperatives can organize or facilitate skill upgradation and management training programs for their members, addressing the human resource quality gap.
- Peer Learning: The cooperative structure fosters a supportive environment for knowledge sharing, allowing members to learn best practices from each other.
- Technology Adoption: Cooperatives can collectively acquire and disseminate knowledge about new technologies, helping members adopt more efficient production methods. The PM Vishwakarma Yojana, designed to empower traditional artisans, relies on cooperatives to provide this ecosystem of collective access to tools, credit, branding, and digital platforms.
- Collective Bargaining & Advocacy:
- Input Procurement: Cooperatives can procure raw materials, machinery, or services in bulk, securing better prices and quality for their members.
- Policy Influence: By representing the collective interests of numerous MSMEs, cooperatives can advocate more effectively for their needs in policy forums, ensuring their voices are heard by the government and regulatory bodies.
- Risk Mitigation & Resilience:
- Shared Risk: The cooperative model distributes risks among members, making individual MSMEs more resilient to market fluctuations, economic shocks, or unforeseen challenges.
- Safety Net: Members can collectively build a solidarity fund or insurance mechanisms to support each other during distress.
II. Challenges Limiting Cooperative Effectiveness for MSMEs:
Despite the immense potential, several hurdles prevent cooperatives from fully empowering MSMEs in India:
- Governance Deficits & Lack of Professionalism: Many cooperatives suffer from weak governance, lack of transparency, political interference, and an absence of professional management, leading to inefficiencies and reduced member trust.
- Limited Awareness & Misconceptions: Many MSME owners are unaware of the benefits of the cooperative model or mistakenly perceive cooperatives as government-controlled, bureaucratic, or politically driven entities rather than business enablers.
- Financial Weakness of Cooperative Banks: Many cooperative banks face liquidity issues, limiting their capacity to lend effectively to MSMEs. Traditional banks often hesitate to lend to cooperatives due to perceived risks.
- Regulatory Complexity: Cooperatives often navigate multiple layers of laws (Central, State Cooperative Acts, company laws, GST), leading to confusion and operational delays.
- Digital Divide: Many rural cooperatives and MSMEs lack digital literacy, access to reliable internet, and the infrastructure for e-payments or online market integration, hindering their competitiveness in the digital age.
- Limited Diversification: While strong in agriculture and dairy, the cooperative model hasn’t adequately penetrated other diverse MSME sectors (e.g., manufacturing, services, tech-based MSMEs).
- Scale and Reach: While India boasts a vast network of cooperatives (over 8.42 lakh units), many are small, localized, and lack the scale to provide comprehensive support to MSMEs.
III. Way Forward: Unlocking Cooperative Potential:
To truly leverage cooperatives for MSME growth, a multi-pronged strategy is required:
- Reform Cooperative Governance: Implement time-bound, transparent elections, foster professional management, and enhance accountability mechanisms within cooperatives to build trust and efficiency.
- Promote Cluster-Based Development: Encourage the formation of activity-specific cooperatives at block or district levels under the Cluster Development Programme (CDP), enabling shared facilities and specialization.
- Strengthen Financial Ecosystem:
- Expand the mandate of Primary Agricultural Credit Societies (PACS) to support non-farm MSMEs.
- Link MSME-focused cooperatives to existing credit schemes like MUDRA and CGTMSE (Credit Guarantee Fund Trust for Micro & Small Enterprises).
- Strengthen NABARD’s refinancing schemes and explore dedicated Cooperative Credit Guarantee Funds.
- Encourage the development of cooperative fintech platforms and digital banking training.
- Invest in Digital Transformation:
- Promote digital literacy and e-payment capabilities among cooperative members and MSMEs.
- Facilitate e-commerce integration for cooperatives on platforms like ONDC and GeM.
- Digitize cooperative records under initiatives like the e-Sahakarita Mission Mode Project for transparency.
- Enhance Market Linkages & Branding:
- Promote collective branding and certification (e.g., a “CoopMade” label) to signify quality and ethical production.
- Organize buyer-seller meets and integrate cooperatives into national and international trade fairs.
- Link artisans and craftspeople through cooperatives to platforms like Amazon Karigar.
- Capacity Building and Awareness:
- Launch national campaigns like “Cooperatives for Atmanirbhar MSMEs” to showcase success stories and build awareness.
- Provide comprehensive training for MSME owners and cooperative managers on modern business practices, technology adoption, and governance.
- Engage Self-Help Groups (SHGs) and Farmer Producer Organizations (FPOs) as foundational units for forming MSME cooperatives.
- Policy Harmonization: Streamline and simplify the legal and regulatory framework governing cooperatives and MSMEs to reduce red tape and compliance burden.
Conclusion:
The cooperative model offers a powerful, democratic, and inclusive pathway to unleash the latent potential of India’s vast MSME sector. By fostering collective strength, providing access to resources, markets, and finance that are individually unattainable, and building a supportive ecosystem for skill development and risk mitigation, cooperatives can empower millions of small entrepreneurs and traditional artisans. However, merely having a strong cooperative network is not enough. To truly catalyze MSME growth, India must proactively address the existing governance gaps, digital disparities, and awareness deficits within the cooperative movement. By embracing strategic reforms, investing in capacity building, and leveraging technology, cooperatives can transform from being merely a sector to becoming a dynamic force for inclusive, resilient, and equitable industrial growth across the nation, truly embodying the spirit of “Sahkar se Samriddhi” (prosperity through cooperation).
Cease the cess
An editorial titled “Cease the Cess” would argue for a significant reduction or complete overhaul of the current system of cesses and surcharges levied by the Central Government in India. It would typically highlight the negative implications of these levies on fiscal federalism, transparency, and the overall tax structure, advocating for a return to a more streamlined and shared tax framework.
I. Understanding Cess and Surcharge:
The editorial would begin by clarifying what cesses and surcharges are, and how they differ from mainstream taxes:
- Cess: A cess is a tax on tax, levied for a specific purpose. The revenue collected from a cess is typically earmarked for that particular purpose (e.g., education, health, infrastructure) and cannot be diverted for other uses. Critically, as per Article 270 of the Constitution, cess proceeds are not part of the divisible pool of taxes that must be shared with state governments as per the recommendations of the Finance Commission.
- Surcharge: A surcharge is an additional tax on the existing tax liability, usually levied on higher income brackets or specific goods/services. Unlike a cess, the revenue from a surcharge goes into the Consolidated Fund of India and can be used for any purpose by the Union government. It is also not part of the divisible pool shared with states (Article 271).
- The “Problem”: While initially conceived as temporary measures for specific, urgent needs, both cesses and surcharges have become a semi-permanent and growing component of the Union government’s revenue.
II. The Growing Concern: Why “Cease the Cess” is Needed:
The editorial would articulate several key reasons why the reliance on cesses and surcharges is problematic:
- Undermining Fiscal Federalism: This is the strongest and most frequently cited argument.
- Reduced Divisible Pool: The increasing share of cesses and surcharges in the Gross Tax Revenue (GTR) effectively shrinks the pool of taxes that are mandatory for sharing with states. This directly reduces the fiscal resources available to state governments, impacting their ability to fund critical programs in areas like health, education, and social welfare, which primarily fall under their purview.
- Centralization of Resources: It centralizes financial power in the hands of the Union government, giving it disproportionate control over spending, even on subjects that are concurrent or state list subjects.
- Against the Spirit of Finance Commissions: It goes against the spirit of recommendations by successive Finance Commissions, which aim to ensure a robust and predictable devolution of funds to states.
- Lack of Transparency and Accountability:
- Earmarking Issues: While cesses are earmarked for specific purposes, reports by the Comptroller and Auditor General (CAG) have often highlighted discrepancies, with funds collected under cesses not always being fully transferred to the designated reserve funds or being utilized for purposes other than those specified. For example, the use of the Research and Development Cess or the Education Cess has faced scrutiny.
- Reduced Parliamentary Scrutiny: Because they are often introduced through Finance Acts rather than standalone legislation, cesses and surcharges may receive less detailed parliamentary debate and oversight compared to general tax changes.
- Complexity and Inefficiency in the Tax System:
- Increased Tax Burden (Hidden): Cesses and surcharges are additional layers on top of existing taxes, making the overall tax structure more complex for taxpayers to understand and comply with. They can disproportionately impact different income groups or sectors depending on their design.
- Distortionary Effects: They can sometimes lead to distortions in economic decision-making by making certain goods or services disproportionately expensive.
- “Temporary” Becoming Permanent: Many cesses were introduced as temporary measures for specific crises or short-term goals. However, they have often continued long after their stated purpose might have been fulfilled, contributing to their permanent nature in the tax structure.
III. The Data Speaks:
The editorial would likely cite recent data to substantiate its claims:
- The share of cesses and surcharges in India’s Gross Tax Revenue (GTR) saw a significant increase, peaking around 20% in 2020-21, although it has seen a slight decline to around 14.5% in 2023-24. Even at this reduced level, it represents a substantial portion of the government’s total tax collections that is not shared with states.
- Specific cesses like the Health and Education Cess and the Road and Infrastructure Cess continue to contribute significant amounts.
IV. Way Forward: Recommendations for “Ceasing the Cess”:
The editorial would offer concrete suggestions for reform:
- Merge Cesses into Mainstream Taxes: The most direct solution would be to merge most cesses into the basic tax rates (e.g., income tax, corporate tax, GST). This would automatically make the revenue part of the divisible pool, improving fiscal transfers to states.
- Strict “Sunset Clauses”: For any new cesses introduced for genuine emergencies or very specific, time-bound projects, strict “sunset clauses” (expiry dates) must be mandated in the legislation, ensuring they are truly temporary.
- Enhanced Transparency and Accountability: If cesses must exist, there needs to be real-time, public reporting on cess collections and their utilization, with stringent oversight by the CAG and parliamentary committees.
- Broader Tax Base and Improved Compliance: The government should focus on widening the overall tax base and improving tax compliance to increase general revenue, thereby reducing the perceived need for cesses.
- Strengthening Fiscal Federalism: Engage with state governments through forums like the GST Council to find mutually agreeable solutions for revenue sharing and expenditure responsibilities, fostering trust and cooperation rather than relying on non-shareable levies.
- Rationalize Surcharges: Review the applicability and rates of surcharges, perhaps integrating them into the progressive income tax slabs to simplify the direct tax structure.
Conclusion:
The editorial would conclude with a strong statement on the importance of fiscal health and cooperative federalism for India’s growth trajectory:
“While the Central government’s intent behind levying cesses – to address specific, pressing needs – may be understandable, their prolonged and growing presence in the tax architecture poses a serious threat to the principles of fiscal federalism and democratic accountability. They quietly chip away at the financial autonomy of states, centralizing resources and creating an opaque system of revenue utilization. For India to truly thrive as a cooperative federal republic, it is imperative to ‘cease the cess’ as a permanent feature of our tax system. This means merging them into the divisible pool, ensuring greater transparency, and building a more streamlined, equitable, and predictable tax framework that truly empowers both the Union and the States to fulfill their respective developmental mandates. Only then can India’s fiscal architecture truly reflect its constitutional spirit of shared prosperity and decentralized governance.”
