The Parliament of India recently approved the Essential Commodities (Amendment) Bill, 2020. This freshly minted law supersedes the previously enforced Ordinance from June 2020, tweaking and modifying certain conditions of the original Essential Commodities Act (ECA), established in 1955.
Main Features of the Amendment
According to the current Amendment, several commodities such as cereals, pulses, oilseeds, edible oils, onions, and potatoes are no longer deemed ‘essential commodities’. This major change is geared towards eliminating the apprehension of private investors who fear excessive regulatory meddling in their operational undertakings.
The government has made it clear that whilst lessening restrictions for the corporate sector, they will continue to safeguard consumer interests by regulating agricultural foodstuff under special circumstances like natural disasters, wars, extraordinary price rise, and famine.
Interestingly though, these regulations will not apply to the installed capacity of a value chain participant and the export demand of an exporter. This crucial caveat ensures that investments in the agricultural sector are not hampered.
Understanding the Backdrop
The original ECA of 1955 granted the Central Government the power to regulate the trade of a diverse range of commodities. States were permitted to impose stock limits to control the movement and trade of any item considered essential.
These legislative provisions deterred hoarding of essential commodities, especially food items like pulses, edible oils, and vegetables. The Economic Survey of 2019-2020, however, revealed the downside of these regulations: the unintended distortion of agricultural trade and a lack of efficacy in controlling rising inflation.
Government intervention under the ECA 1955 also unintentionally paved the way for rent-seeking and harassment. When faced with surplus harvests of perishable items, farmers often incurred significant losses as large stocks maintained by traders could be outlawed anytime under the Act.
Ramifications of the Amendment
The recent amendment is expected to significantly transform the country’s agricultural landscape. By allowing the freedom to produce, hold, move, distribute, and supply, the law is expected to harness economies of scale and draw both domestic as well as foreign direct investment into the agriculture sector.
Investments are anticipated in areas like cold storages, leading to modernization of food supply chains. This shift will create a competitive market environment that prevents wastage of agricultural produce due to lack of storage facilities. Farmers and consumers are equally expected to reap the benefits of this streamlined system through price stability.
Controversial Aspects of the Amendment
However, the new law has also stirred controversy, with critics voicing apprehensions about it being too centralized. They argue this may infringe upon states’ powers, especially in regulating hoarding and black marketing of goods.
Another concern is that relaxing stock limits under the ECA may lead to black marketing rather than benefiting producers, resulting in increased inflation and monopolistic control over prices.
Stepping Forward
The original ECA 1955 was enacted at a time when India was struggling to attain self-sufficiency in food grain production. Now that India has achieved surplus production in most agricultural commodities, the criticism for the changes in the Act seems unfounded.
The amendments to the ECA 1955 are viewed by many as a promising step by the government towards achieving its objective of doubling farmers’ income and simplifying business operations. The government appears undeterred by the potential challenges, appearing poised to utilize this legislation as a vehicle for progressive change. Source: IE
