The development of cooperatives in Indonesia demonstrates a complex dynamic between their strategic potential as pillars of the people’s economy and structural challenges that hinder the optimization of their role. Based on policy analysis, sector performance data, and modernization initiatives, this study identifies that cooperatives face dual challenges: limitations in internal capacity (capital, human resources, governance) and external pressures (digital competition, dynamic regulations). Although the contribution to national GDP remains around 4.48% (2024), transformation efforts through digitalization, institutional strengthening, and multi-stakeholder synergy show significant potential for improvement. This article highlights the need to integrate cooperative principles with sustainable development agendas and the digital economy to achieve the target contribution of 5.5% by 2025.