Amendments To Essential Commodities Act

On 3rd June, 2020, the Union Cabinet approved an ordinance to amend the Essential Commodities Act, 1955, to deregulate price of certain agricultural commodities.

  • The law was enacted at the time when India was dependent on imports for food items and hoarding and black marketing of food items was rampant. However, now India has become surplus in most agri-commodities. Still farmers have not been unable to get better prices due to lack of investment in cold storage, ware- houses, processing and export as the entrepreneurial spirit gets dampened due to hanging sword of ECA.
  • The amendment comes against the backdrop of the government reaching out to financially weaker sections including farmers, who has been hit hard dueto pandemic crisis.

Recent Controversy with ECA, 1955

  • Back in July 2019, the NITI Aayog set up a panel of Chief Ministers to suggest agriculture reforms, whose mandate included possible amendments to the ECA.
  • However, in September 2019, the Centre invoked the Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the kharif crop and led to a sustained spike in prices.
  • The Economic Survey-2020, released in January, 2020, pitched for scraping of the ECA, stating the law is “anachronistic” that leads to harassment and is of no help in checking price volatility. In this light, some important reasons cited by the Economic Survey for pitching in the changes in ECA 1955 are following:
    • Price Volatility: Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
    • Hampering Creation of Infrastructure: The Act doesn’t distinguish between food processors and wholesale/retail food chains that stock food. It hampers the creation of what’s needed the most – storage and warehouse infrastructure in the agriculture space.
    • Burden on Administration: A considerable administrative effort goes into enforcement of this law assuming a minimum of 5 persons involved in a raid, citing that around 76,000 raids under the ECA were conducted in year 2019.
    • Tool of Harassment: Despite huge number of raids conducted under the ECA in 2019, the conviction rate was abysmally low. Further, raids have no impact on prices; the ECA only seems to enable rent- seeking and harassment.

Key Amendments in ECA, 1955

  • The ordinance has introduced a new subsection (IA) in Section 3 of The Essential Commodities Act, 1955.
  • It allows deregulation of commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes thereby effectively removing them from the list of essential commodities under the act.
  • However, during exceptional situations like war, natural calamities, or extraordinary price rise, the agricultural produce can be regulated by the government.

Impact

  • Smooth Business Operation: With this amendment, commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes will be removed from list of essential commodities. This will remove fears of private investors of excessive regulatory interference in their business operations.

Essential Commodities Act 1955

  • The Essential Commodities Act was enacted in 1955 when the country faced shortages of food iterms. This legislation allows the government to declare a commodity as essential commodities thereby allowing it to control the production, supply, and distribution of that commodity, and impose a stock limit.
  • There is no specific definition of essential commodities in the ECA. Seciton 2(A) of the act states that an “essential commodity” means a commodity specified in the “Schedule” of this Act.
  • The Act gives powers to the central government to add or remove a commodity in the “Schedule.” If the Centre is satisfied that it necessary to do to in public, interest, it can notify an item as essential, in consultation with state governments.
  • At present, the “Schedule” contains 9 commodities – drugs; fertilisers, whether inorganic, organic or mixed; foodstuffs, including edible oils; hank yam made wholly from cotton; petroleum and petroleum products; raw jute and jute textiles; seeds of food-crops and seeds of fruits and vegetables, seeds of cattle fodder, jute seed, cotton seed; face maske; and hand sanitisers.
  • Attracting Large Scale Investments: The freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/foreign direct investment into agriculture sector. It will help drive up investment in cold storages and modernization of food supply chain.
  • Stabilising Price: The amendment announced will help both farmers and consumers while bringing in price stability.
  • Preventing Wastage: It will create competitive market environment and also prevent wastage of agri-produce that happens due to lack of storage facilities.

Way Forward

  • The amendment to the act is a welcome reform in agricultural sector. If enacted, it will give more confidence to the participants in the market; be it farmers, traders, or processors.
  • However, it is pertinent to plug the loopholes in time to reap maximum benefit out of it

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