Redefining essential items: Why it was needed, and who it will impact

After the amendment, the supply of certain foodstuffs — including cereals, pulses, oilseeds, edible oils, potato — can be regulated only under extraordinary circumstances, which include an extraordinary price rise, war, famine, and natural calamity of a severe nature. In effect, the amendment takes these items out from the purview of Section 3(1), which gives powers to central government to “control production, supply, distribution, etc, of essential commodities”.

Earlier, these commodities were not mentioned under Section 3(1) and reasons for invoking the section were not specified. The amendments states that “such order for regulating stock limit shall not apply to a processor or value chain participant of any agricultural produce, if the stock limit of such person does not exceed the overall ceiling of installed capacity of processing, or the demand for export in case of an exporter…”

How is an ‘essential commodity’ defined?

There is no specific definition of essential commodities in the Essential Commodities Act, 1955. Section 2(A) states that an “essential commodity” means a commodity specified in the Schedule of the 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.

According to the Ministry of Consumer Affairs, Food and Public Distribution, which implements the Act, the Schedule at present contains seven 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.

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

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The move is expected to attract private investment in the value chain of commodities removed from the list of essentials, such as onions. (Express Photo: Shashi Ghosh)

Under what circumstances can the government impose stock limits?

While the 1955 Act did not provide a clear framework to impose stock limits, the amended Act provides for a price trigger. It says that agricultural foodstuffs 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% increase in the retail price of a commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower, will be the trigger for invoking the stock limit.

For non-perishable agricultural foodstuffs, the price trigger will be a 50% increase in the retail price of the commodity over the immediately preceding 12 months or over 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.

“Price triggers will also minimise the earlier uncertainties associated with the imposition of orders under stock limits. This will now be more transparent and help in better governance,” said a source at the Consumer Affairs Ministry.

“The last 10 years have seen periods of prolonged application of the EC Act. Once imposed, they were for long periods — pulses from 2006 to 2017, rice from 2008 to 2014, edible oilseeds from 2008 to 2018. Amendments to the EC Act seek to remove this uncertainty by defining criteria for the process of imposing stock limits and making it more transparent and accountable,” the source said.

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Why was the need for this felt?

The 1955 Act was legislated at a time when the country was facing a scarcity of foodstuffs due to persistent low levels of foodgrains production. The country was dependent on imports and assistance (such as wheat import form the US under PL-480) to feed the population. To prevent 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 10 times (from less than 10 million tonnes in 1955-56 to more than 100 million tonnes in 2018-19), while the production of rice has increased more than four times (from around 25 million tonnes to 110 million tonnes during the same period). The production of pulses has increased 2.5 times, from 10 million tonnes to 25 million tonnes.

In fact, India has now become an exporter of several agricultural products.

The Essential Commodities (Amendment) Bill, 2020 is aimed at deregulating commodities such as onion and potatoes. (Express Photo: Shashi Ghosh)

What will be the impact of the amendments?

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 is expected to attract private investment in the value chain of commodities removed from the list of essentials, such as cereals, pulses, oilseeds, edible oils, onions and potatoes.

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 a hurdle for investment in the agriculture sector in general, and in post-harvesting activities in particular. The private sector had so far hesitated about investing in cold chains and storage facilities for perishable items as most of these commodities were under the ambit of the EC Act, and could attract sudden stock limits. The amendment seeks to address such concerns.

Why is it being opposed?

This was one of the three ordinances/Bills that have seen protests from farmers in parts of the country. The Opposition says the amendment will hurt farmers and consumers, and will only benefit hoarders. They say the price triggers envisioned in the Bill are unrealistic — so high that they will hardly ever be invoked.

This article first appeared in the print edition on September 24, 2020 under the title ‘Redefining essential items’.