Impact of GST Reforms on Cooperative Sector

The GST Reforms: A Boon or Band-Aid for India’s Cooperatives?

On September 1, 2025, the GST Council slashed tax rates across key items integral to the cooperative sector: ghee and butter saw a reduction from 12% to 5%, GST on iron or steel milk cans dropped to 5%, and crucial fertiliser inputs like ammonia and sulphuric acid now attract 5% GST instead of 18%. Coupled with a reduction in GST for tractors below 1800 cc to just 5%, these measures are being heralded as a watershed moment for rural cooperatives, particularly dairy collectives. However, the question remains—do these measures merely scratch the surface of the deeper structural challenges faced by cooperatives in India?

The headline figures are undeniably attractive. Amul, one of India’s most iconic dairy cooperatives, could gain significantly given that dairy products form nearly 85% of its revenue stream. Similarly, cooperatives involved in fertiliser production or equipment leasing may save crores annually. But beneath these celebratory tax cuts lies a more complex reality. Without institutional reform, access to credit, and governance safeguards, these GST reforms may not provide the systemic push cooperatives so desperately need.

The Constitutional and Legal Architecture

Cooperatives in India owe their institutional sanctity to the 97th Constitutional Amendment (2011), which recognized the right to form cooperatives as a fundamental right under Article 19. Additionally, it introduced Article 43-B, emphasizing the state’s responsibility to promote voluntary, autonomous, and democratic functioning of cooperative societies. The amendment added Part IX-B (Articles 243-ZH to 243-ZT), delineating governance mechanisms.

At the national level, the Ministry of Cooperation (established in 2021) serves as the administrative backbone, working alongside frameworks like the Multi-State Cooperative Societies (MSCS) Act, 2002. This Act governs around 1,500 multi-state cooperatives in India, dealing with everything from dairy to credit. Despite these structures, weak monitoring and politicization often undermine cooperative autonomy. Absent functional oversight from either local registrars or the Centre, governance lapses persist.

Beneath the Surface: Realities on the Ground

Even with substantive GST reductions, cooperatives face glaring structural setbacks. Consider dairy cooperatives: while a lower 5% GST on butter and ghee brings relief to large collectives like Amul or Nandini, smaller cooperatives operating in Bihar or Uttar Pradesh might not benefit proportionally. Many lack cold storage infrastructure or reliable transport, issues that GST reductions cannot fix. The budget outlay for the dairy infrastructure fund—the National Programme for Dairy Development—was a mere ₹325 crore in FY2024-25. This funding pales when compared to the sector’s requirements.

Similarly, GST reforms in fertiliser inputs can help state-level cooperatives cut costs, ensuring cheaper availability during sowing seasons. However, opaque procurement practices and delays from distributive supply chains continue to negate benefits for small farmers. Fertiliser cooperatives such as IFFCO, despite being well-capitalized, still grapple with technological gaps that stymie operational efficiency among their smaller, dependent members.

The promise of lower GST on tractors also comes with limitations. Many marginal farmers cannot afford tractors outright—even at reduced costs—relying instead on leasing arrangements. While this reform aims to aid cooperatives focusing on equipment leasing, the Economics Survey 2023 revealed that only 23% of India’s agricultural equipment is leased through formal cooperatives. Private firms dominate the remaining share.

Structural Tensions: Between Vision and Reality

A recurring historical issue in India’s cooperative policy is the tremendous disparity between ambition and execution. The Central GST reforms, though commendable, operate in a space dominated by state-level politics. For instance, state registrars of cooperative societies often function under political pressure, weakening their impartiality. This dilution not only affects governance but also influences credit disbursal. Over 50% of India’s cooperative credit structure—primary agricultural credit societies (PACS)—operate with nearly ₹35,000 crore in accumulated losses.

Additionally, inter-ministerial coordination remains a critical gap. While the Ministry of Agriculture oversees agricultural inputs like seeds and fertiliser, and the Ministry of Cooperation looks at governance, neither liaises effectively on modernization funding or subsidy frameworks. Without such synergy, tax reductions cannot address deeper inefficiencies in supply chains or cooperative viability.

Another glaring tension lies in the competition dynamics. As GST reforms make cooperative products more affordable, they must still contend with deep-pocketed private players. Dairy cooperatives like Amul face growing, aggressive competition from corporate-led brands such as Nestlé or Danone, which have superior supply chain access, marketing clout, and technological leverage.

Lessons from Kenya’s Cooperative Movement

India might learn critical lessons from Kenya, where cooperatives contribute nearly 45% of GDP. Kenya’s model of Savings and Credit Cooperative Societies (SACCOS) sets it apart. These cooperatives function autonomously but benefit from robust monitoring by Kenya’s SASRA (Sacco Societies Regulatory Authority). SASRA ensures prudential oversight, credit-risk checks, and digital enabling frameworks. Indian cooperatives, reliant on traditional financial systems, lack comparable regulatory interventions. For instance, while Kenya hosts over 4.5 million SACCO members with mobile-enabled participation, India’s smaller cooperatives remain digitally excluded. The irony is glaring—India celebrates its IT prowess but lags in cooperative digitization.

What Would Success Look Like?

If GST reforms are to genuinely uplift cooperatives, success must extend beyond immediate tax relief. Metrics such as increasing rural women’s participation in cooperatives, halving PACS loan defaults, and improving cooperative infrastructure budgets at the state level would be telling indicators of progress. Furthermore, investment in digitization and transparency—akin to Kenya’s SACCO model—could pave the way toward sustainable growth.

The unresolved challenge, however, is governance reform. Unless cooperative elections become free from political affiliations, and state-level support is depoliticized, the sector will continue to operate at suboptimal capacity. The Centre’s fiscal interventions will likely remain Band-Aid solutions rather than systemic fixes.

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