essential-commodities-act

Recently Parliament passed ECA (Amendment ) Bill 2020

Provisions :

  • Removes commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities.
  • Aims to remove fears of private investors of excessive regulatory interference in their business operations.
  • Ensures that interests of consumers are safeguarded by regulating agricultural foodstuff in situations such as war, famine, extraordinary price rise and natural calamity.
     
    • However, the installed capacity of a value chain participant and the export demand of an exporter will remain exempted from such regulation so as to ensure that investments in agriculture are not discouraged.

Context :

  • The ECA 1955 was used to curb inflation by allowing the Centre to enable control by state governments of trade in a wide variety of commodities.
  • The states imposed stock limits to restrict the movement of any commodity deemed essential. It helped to discourage hoarding of items, including food commodities, such as pulses, edible oils and vegetables.
  • However, the Economic Survey 2019-20 highlighted that government intervention under the ECA 1955 often distorted agricultural trade while being totally ineffective in curbing inflation.
    • Such intervention does enable opportunities for rent-seeking and harassment.
    • Rent-seeking is a term used by economists to describe unproductive income, including from corruption.
  • Traders tend to buy far less than their usual capacity and farmers often suffer huge losses during surplus harvests of perishables, since large stocks held by traders can be outlawed under the ECA 1955 anytime.
  • This led to farmers being unable to get better prices due to lack of investment in cold storage, warehouses, processing and export.
  • Also with the Food Corporation of India (FCI) controlling stocks before, there were less investment and buyers.

Benefit:

  • The freedom to produce, hold, move, distribute and supply will lead to harnessing economies of scale and attract private sector/foreign direct investment into the agriculture sector.
  • Investment in cold storages and modernization of the food supply chain will increase.
  • It will create a competitive market environment and also prevent wastage of agri-produce that happens due to lack of storage facilities.
  • It will help both farmers and consumers while bringing in price stability.

Issues Involved:

  • It will be a highly centralized law and will infringe upon the States’ powers, as they will not be able to regulate let say the menace of hoarding, black marketing etc.
  • The stock limit relaxations under the ECA may lead to black marketing and hoarding rather than benefiting the producers. This will lead to increase in inflation and monopoly of few individuals over prices of certain goods.