Sanitizers And Mask Notified As Essential Commodities
- In a bid to curb the transmission of Novel Coronavirus (COVID-19), the Central government on 13th March, 2020, declared masks and hand sanitizers to be "essential commodities" until June 30, 2020, by amending the schedule of the Essential Commodities (EC) Act 1955.
- The move is seen as efforts to boost supply and prevent hoarding of these items in its fight to check spread of coronavirus disease.
- However, it is important to note that the designation of masks and hand sanitisers as “essential commodities” does not mean that the government considers them to be ‘essential’, in the literal sense, in the fight against COVID-19.
- The government’s order has come in the wake of reports of a shortage of these commodities and a sudden and sharp spike in their prices, and the alleged hoarding of stocks by manufacturers.
- Both masks (2ply & 3 ply surgical masks, N95 masks) and hand sanitisers have been brought under Essential Commodities Act, 1955, empowering States to regulate production, distribution and prices of these items and also crackdown on hoarding and black-marketing.
- The Centre has also invoked Disaster Management Act to ensure price regulation and availability of these items.
- Under the EC Act, state governments can ask manufacturers to enhance their production capacity of these items for augmenting supply.
- State may take action against offenders under the EC Act and PBMMSEC Act (Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act) 1980.
- The government has also issued an advisory under the Legal Metrology, in order to ensure sale of items at maximum retail prices (MRP).
- Regulating Production and Distribution: The decision would empower the government and States/UTs to regulate production, quality and distribution of masks and hand sanitizers for smooth sale and availability of these items.
- Curbing Black Marketing: It also empowers to carry out operations against speculators and those involved in over pricing and black marketing.
- Enhancing Availability: It will enhance the availability of concerned items to the general people at reasonable prices.
What is Essential Commodity Act (ECA)?
- Enacted in 1955, the act is used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
What kinds of items are generally classified as essential commodities?
- The list of items under the Act includes drugs, fertilisers, pulses and edible oils, and petroleum and petroleum products.
- The Act empowers the central government to add new commodities to the list of Essential Commodities as and when the need arises, and to remove them from the list once the crisis is over or the situation improves.
How it works?
- If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
- The States act on this notification to specify limits and take steps to ensure that these are adhered to.
- Anybody trading or dealing in a commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
- A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity. This improves supplies and brings down prices.
What is its significance?
- The ECA gives consumers protection against irrational spikes in prices of essential commodities.
- It helps government to crack down on hoarders and black-marketeers of such commodities.
- It allows States to issue control orders related to dealer licensing, regulate stock limits and restrict movement of goods.
- It also gives them power to confiscate the stock seized and impose punishments like imprisonment on the trader/dealer.
Limitations of ECA
- Given that almost all crops are seasonal, ensuring round-the-clock supply requires adequate build-up of stocks during the season.
- So, it may not always be possible to differentiate between genuine stock build-up and speculative hoarding.
- Also, there can be genuine shortages triggered by weather-related disruptions in which case prices will move up. So, if prices are always monitored, farmers may have no incentive to farm.
- With too-frequent stock limits, traders also may have no reason to invest in better storage infrastructure.
- Also, food processing industries need to maintain large stocks to run their operations smoothly.
- Stock limits curtail their operations. In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities.
Recent Controversy with ECA
- Recently, the Economic Survey-2020, released in January, 2020, pitched for scrapping of the ECA, stating the law is "anachronistic" that leads to harassment and is of no help in checking price volatility.
- 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, just a few months later, 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.
Reasons Given by Economic Survey
- 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.