THE ESSENTIAL COMMODITIES (AMENDMENT) BILL, 2020
WHAT IS THE ESSENTIAL COMMODITIES ACT, 1955?
1955: A mere 8 years after independence, our country faced the terrible ordeal of food scarcity. This was consistent with rampant poverty, unstable administration and widespread illiteracy as would be the norm in any country that had just broken free from leeching colonial rule. India was importing food grain from the United States under the PL-480 program.
Hoarding was prevalent and the country was suffering. It was at this juncture, that the central government decided to introduce a rather efficient Act, keeping the conditions in mind. The Act was designed to prevent hoarding and black marketing of what were classified as essential goods to survive a day to day life. Thus the Essential Commodities Act, 1955 was introduced.
As per the Essential commodities Act, 1955, a list was made for commodities deemed essential. The central government could add or remove commodities that they deemed essential/non-essential from the list of essential items. Items in the essential list upon introduction were foodstuffs, petrol and petroleum products, drugs, fertilizers, seeds etc. If a commodity was declared essential, the central government could control its production, supply, distribution and could also impose a stock limit to prevent hoarding and stockpiling. As per the Act of 1955, no exact definition or criteria has been given for the classification of commodities as essential. The classification of a commodity as essential is completely up to the discretion of the central government. Presently, seven commodities, namely: drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products are listed under the schedule.
WHAT IS THE ESSENTIAL COMMODITIES AMENDMENT BILL, 2020 PROPOSING AND WHAT IS THE NEED FOR THIS AMENDMENT?
The ECA 1955 was used to combat inflation by authorizing the Centre to allow trade in a wide range of goods to be regulated by state governments. To restrict the movement of any commodity deemed essential, the states imposed stock limits. It helped to deter the hoarding of products such as pulses, edible oils and vegetables, besides agricultural commodities. The Economic Survey 2019-20, however, highlighted that under the ECA 1955, government interference frequently skewed agricultural trade while being completely unsuccessful in curbing inflation.
Such intervention allows for rent-seeking and harassment opportunities. Rent-seeking is a term used to describe unproductive income, including from corruption, by economists. Traders tend to buy far less than their normal capacity and, during surplus harvests of perishables, farmers often suffer enormous losses, as large stocks held by traders can be outlawed at any time under the ECA 1955.Because of the lack of investment in cold storage, workshops, manufacturing and export, which resulted in farmers being unable to get decent prices. There were also less deposits and customers with the Food Corporation of India (FCI) managing stocks before.
The essential commodities Amendment bill, 2020 is addressing these exact concerns. This bill seeks to introduce a subsection to section 3 of the Act. As per this proposition, the central government will be deregulating or will be removing the following items from the essential commodities list. The items being deregulated are as follows: -cereals -pulses -oilseeds -edible oils -onions -potatoes
The aforementioned items will be taken out from the purview of section 3 of the Essential Commodities Act. In simple words, the central government will no longer be overseeing the production, distribution, supply or imposition of stock limits of the aforementioned commodities. Producers will be in sole control of producing, supplying and storing the commodities that are being deregulated. The Bill specifies that a stock cap control order shall not extend to processors and supply chain members in any conditionally produced agricultural product. Where the stock limit does not surpass the total ceiling of the installed processing capability or the demand for sale, such an order shall not apply. The supply of the aforementioned foodstuffs can now only be regulated in an extraordinary case synch as famine, calamity or war. This bill, like everything else, has its own pros and cons, more which will be elaborated on below.
MERITS OF THE AMENDMENT:
The Essential commodities Act of 1955 was a rather efficient and suitable Act at the time it was introduced. However, in today's day and age when India’s agricultural production has nearly quadrupled the original Act seems a little defunct. The conditions in India have changed dramatically and the Act calls for serious amendments.
-Speaking from a purely economic point of view, the freedom to produce, store, transport, export and supply would lead to economies of scale being accessed and private sector / foreign direct investment being drawn to the agricultural sector.
-The main changes are aimed at freeing agricultural markets from the constraints imposed by permits and mandis, which were intended for an era of scarcity.
-It is predicted that the move would draw private interest in the product supply chain excluded from the list of necessities. The Act of 1955 has become somewhat of a hurdle for investments in the agricultural sector. The private sector has thus far held back in hesitation at providing cold storages and other such facilities. The hesitation was due to the fact that a stock limit could be levied at any time and the commodities were under the ambit of the Act. Now that the aforementioned commodities have been removed from the ambit of the Act and the production, distribution and storage is completely under the purview of the producer itself.
Investments in cold storage facilities and modernization of the food chain are some of the concerns that the amendment will try to change to.
-The deregulation of the aforementioned items will bring with it an atmosphere of a competitive market which in turn will lead to price stability. The biggest benefit of this amendment thus far is the price stability factor. This amendment will bring with it price stability, both, for consumers and producers.
- The remuneration earned by farmers will increase as they will now be able to sell their produce anywhere, not just the mandi. CASE STUDY:
In September 2019, the Centre invoked the ECA 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. Although the restrictions on both retail and wholesale traders were intended to avoid hoarding and increase market supply, the survey showed that price volatility was actually increasing and that wholesale and retail prices were widening.
This was due to the fact that The Essential Commodities Act of 1955 failed to differentiate between hoarding and storage. The Act thus disincentives storage capacity growth in the long run, leading to increased market uncertainty after production / consumption shocks, the reverse of what it is meant for. The study finds that in 1955, as the economy was devastated by drought and food shortages, the ECA was implemented. The government should note that the scenario today is much more different.
DEMERITS OF AMENDMENT
The backlash for this bill had been rather volatile in nature. Various protests have been observed throughout the country as a response to this amendment. The main reason for this backlash is that opposition believes that the amendment will only benefit hoarders. The opposition believes that the price cap being introduced in the amendment is so unrealistic that it will hardly ever be used.
-Another issue is that of price instability. If the price of the goods that are being deregulated increases at the farm level due to the involvement of big players buying these commodities in bulk straight from the farm, it could lead to price hike. Not only that, but also after the amendment big businesses will have the liberty to hoard and stock-pile as there will not be a stock cap anymore.
-Hoarding and black marketing might be prevalent if the amendment is imposed as there will be a severe relaxation of stock limit regulations. This in turn might lead to inflation and monopoly. These are all just economic demerits.
-Speaking of constitutional demerits, the imposition of this bill will curb the state’s power. It will become a highly centralized law as the states will not be able to curb hoarding and stockpiling. The amendment of the Essential Commodities Act is somewhat of a double edged sword, much like everything else in life. Its true benefits and drawbacks will only be felt once it has been imposed and enacted.
Authored by: Hridyanshi Sharma