The Essential Commodities (Amendment) Act, 2020 — A timely amendment

Dr. Bharat

The Essential Commodities (Amendment) Act, 2020 is one of the three key farm laws recently enacted in India. It amends the Essential Commodities Act which was enacted in 1955 to deal with the control of the production, supply and distribution of, and trade and commerce in, certain commodities which are declared as ‘essential commodities’ and specified in the ‘Schedule’ to that Act.

Essential Commodities

 The Essential Commodities Act, 1955 empowered the Union Government to designate “essential commodities” in the above said ‘Schedule’ and thus control the production, supply, and distribution of that commodity, and impose a stock limit. At last, the “Schedule” contained seven commodities namely 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; and seeds of food-crops / fruits / vegetables / cattle fodder, jute seed, cotton seed.

‘Face masks’ and ‘sanitisers’ were added in this list, in the best interest of public at large, from March 13, 2020 till June 30, 2020 to crackdown on hoarding and black-marketing in the wake of COVID-19 outbreak, to boost their supply and prevent hoarding, in fight to check the spread of pandemic.

 Erstwhile law and the rationale of Amendment

 The Essential Commodities Act, 1955 was enacted to ensure the easy availability of ‘essential commodities’ to consumers and to protect them from exploitation by unprincipled traders. At a time, when this law was initially brought, India was not self-sufficient in food grains production. But now the situation has changed, therefore, this amendment was necessitated as a part of the process of globalisation. And, also the Government is steadily and securely following the policy of eliminating all unnecessary restrictions on the movement of goods, coupled with the trimming of ‘essential commodities’ list so as to promote free trade besides safeguarding the consumers interest in general and the farmers interest in particular.

 The Department of Consumer Affairs, under the Union Ministry of Consumer Affairs, Food and Public Distribution administers this law and the task of its implementation is with the State Governments and Union Territory administration.

The ministerial note showed 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 making the erstwhile law anachronistic.

 Further, according to the Economic Survey 2019-20, frequent and unpredictable imposition of blanket stock limits on commodities under the Essential Commodities Act neither brings down prices nor reduces price volatility. “However, such intervention does enable opportunities for rent-seeking (unproductive income) and harassment,” it says.

 Attributes of the Essential Commodities (Amendment) Act, 2020

 The twin attributes of the amendment to the six-and-half-decade law are as under:

 Deregulation of foodstuffs: The excessive regulatory regime proved detrimental for the growth of agriculture sector. The amended law provides that the Union Government can regulate the supply of certain foodstuffs including cereals, pulses, potato, onions, edible oilseeds, and oils, only under extraordinary circumstances which include war, famine, extraordinary price rise and natural calamity of grave nature. The main object is to ensure ‘equitable distribution’ of foodstuffs and their ‘availability at fair prices’ in exceptional situations as against ‘regular-routine regulation regime’.

Removal of stock limit action: The law now states that any action on imposition of stock limit on agricultural produce must be based on price rise. A stock limit may be imposed only if there is 100% increase in retail price of horticultural produce or 50% increase in the retail price of non-perishable agricultural food items.

The increase will be calculated over the price prevailing immediately preceding 12 months, or the average retail price of the last five years, whichever is lower.

However, processors and value chain participants (involving processing, packaging, storage, transport and distribution) of any agricultural produce, are exempted from the stock limit, if the stock limit does not exceed the overall ceiling of installed capacity of processing, or the demand for export in case of an exporter. Further, it will not be applicable to any order, relating to the Public Distribution System (PDS) or the Targeted Public Distribution System, made by the Government.

  The amendment, on one hand, deregulates the supply of certain foodstuffs; whereas on the other hand, it also opens the floodgates for stocking which will lead to harnessing of economies of scale and attract private/foreign direct investment (FDI).

With the advent of infrastructural investment in cold storage, warehouses, processing and export, the farmers will be saved from post-harvest loss on account bumper crops, especially of perishable commodities.

 The key changes seek to free agricultural markets from the limitations designed originally for an era of scarcity and goes a step ahead to create an environment based for ease of doing business by eliminating and eradicating the outlived statutory ‘checks’ and ‘controls’. To wrap up, food from farm is not just an end, but it is also an essential ingredient in the growth of human capital and therefore, important for wealth creation!

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