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Friday, July 10, 2020

Explained: What is the Essential Commodities Act, and how will amending it help?

By declaring a commodity as essential, the government can control the production, supply, and distribution of that commodity, and impose a stock limit.

Written by Harikishan Sharma , Edited by Explained Desk | New Delhi | Published: June 4, 2020 2:49:39 pm
Explained: What is the Essential Commodities Act, and how will amending it help? A vendor waits for customers at the Kharar fruit and vegetable market near Mohali on Thursday, April 30, 2020. (Express Photo: Jasbir Malhi)

The Union Cabinet has approved an ordinance to amend The Essential Commodities Act, 1955, to deregulate commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes.

The ordinance, once assented by the President of India and notified in the gazette, will become law. The text of the ordinance has not been made public so far. Here is what we know.

Essential Commodities Act: What is the amendment?

Sources at the Ministry of Consumer Affairs, Food and Public Distribution said that the ordinance has introduced a new subsection (1A) in Section 3 of The Essential Commodities Act, 1955.

The amended law provides a mechanism for the “regulation” of agricultural foodstuffs, namely cereals, pulses, oilseeds, edible oils, potato, and supplies under extraordinary circumstances, which include extraordinary price rise, war, famine, and natural calamity of a severe nature.

Explained: What is the Essential Commodities Act, and how will amending it help? Prime Minister Narendra Modi at a Union Cabinet meeting in New Delhi on Wednesday

What is the definition of an ‘essential commodity’?

There is no specific definition of essential commodities in The EC Act. Section 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.” The Centre, if it is satisfied that it is necessary to do so in public interest, 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 yarn 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 masks; and hand sanitisers.

The latest items added to this schedule are face masks and hand sanitisers, which were declared essential commodities with effect from March 13, 2020 in the wake of Covid-19 outbreak.

By declaring a commodity as essential, the government can control the production, supply, and distribution of that commodity, and impose a stock limit.

How and under what circumstances can the government impose stock limits?

Under the amended EC Act, agri-food stuffs can only be regulated under extraordinary circumstances such as war, famine, extraordinary price rise, and natural calamity.

However, any action on imposing stock limits will be based on the price trigger.

Thus, in case of horticultural produce, a 100 per cent increase in the retail price of the commodity over the immediately preceding 12 months or the average retail price of the last five years, whichever is lower, will be the trigger for invoking the stock limit for such commodities.

For non-perishable agricultural foodstuffs, the price trigger will be a 50 per cent increase in the retail price of the commodity over the immediately preceding 12 months or the average retail price of the last five years, whichever is lower.

However, exemptions from stock-holding limits will be provided to processors and value chain participants of any agricultural produce, and orders relating to the Public Distribution System, officials said.

Explained

Over to the private sector

The key changes seek to free agricultural markets from the limitations imposed by permits and mandis that were originally designed for an era of scarcity. The move provides more choices for farmers to trade their produce, but its success will depend on how the private sector leverages the opportunity.

So, why was an amendment needed in The EC Act?

The EC Act was legislated at a time when the country was facing scarcity of foodstuffs due to persistent abysmal levels of foodgrain production. The country was dependent on imports and assistance (such as wheat import form US under PL-480) to feed the population.

In this scenario, to stop the hoarding and black marketing of foodstuffs, The Essential Commodities Act was enacted in 1955.

But now the situation has changed.

A note prepared by the Ministry of Consumer Affairs, Food and Public Distribution shows that production of wheat has increased by 10 times (from less than 10 million tonnes in 1955-56 to more than 100 million tonnes in 2018-19); during the same period, the production of rice has increased more than four times from around 25 million tonnes to 110 million tonnes.

The production of pulses has increased by 2.5 times, from 10 million tonnes to 25 million tonnes.

In fact, India has now become an exporter of several agricultural products. With these developments, the EC Act has become anachronistic.

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Explained: What is the Essential Commodities Act, and how will amending it help? A worker at a fruit shop at the Naveen Galla Mandi in Lucknow. (Express Photo: Vishal Srivastava)

What will be the impact of the amendments?

The amendments will remove commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of regulated essential commodities.

The move is expected to attract private investment in the value chain of these commodities.

While the purpose of the Act was originally to protect the interests of consumers by checking illegal trade practices such as hoarding, it has now become detrimental for investment in the agriculture sector in general, and in post-harvesting activities in particular.

The private sector has so far hesitated investing in cold chains and storage facilities for perishable items as most of these commodities are under the ambit of the EC Act, and can attract sudden stock limits. But now the situation can change.

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