Farmers and Essential commodities Act

Farmers and Essential commodities Act

Context: Farmers of Marathwada growing pulses are not even able to get the minimum support price ₹6,300 per quintal this season, all due to the stock limit imposed on all pulses under the Essential Commodities Act, 1955 and the import by the government.

Background:

• The pulses inflation rate was 18.34 per cent in October 2020. This forced government to take pre-emptive and proactive measures. As a result, prices have started coming down. The government last week announced that the retail prices of pulses were substantially stabilized in the past five months, from June 2021. Prices of Gram, Tur, Urad, and Moong have either declined or remained stable in comparison with last year.
• The Consumer Price Index (CPI) inflation for pulses has also seen a consistent decline during the last five months, from 10.01 per cent in June to 5.42 per cent in October. Stability in the retail prices of pulses has been achieved on account of pre-emptive and proactive measures taken by the government such as taking import of Tur, Urad, and Moong.

Why farmers are upset?

• Import of pulses led to sudden collapse of prices, thus farmers had to bear the cost. Farmers alleged that every time there is the possibility of farmers getting a higher price for the produce, the government goes for imports, and prices in the market collapse. This is because farmers have any other option than to sell our produce at a lower price as we don’t have the capacity to store the produce.
• Even when we have a bumper harvest, we face a similar situation. We all bring produce to the market at the same time. Neither we nor traders have storage capacity beyond a limit and we sell the produce at a price where even production cost is not recovered.

Essential Commodities Act and Farmers

• It goes back to war-time shortages and Defence of India Act of 1939. When World War II was over, there was no possible justification for that particular Defence of India Act, and it was repealed. However, there was justification for government control over “essential” commodities, “essential” being defined as necessary and indispensable. Accordingly, there was first an Ordinance and then an Act in 1946, Essential Supplies (Temporary Powers) Act.
• The Preamble and title indicated this was meant to be temporary, for a limited period. Meanwhile, we had the Constitution, and under Article 269, the Union government had powers to enact laws for items on State List, as if they were on the Concurrent List. But only for five years “from the commencement of the Constitution”. That took us to 1955, and we can skip details of how Entry 33 in the Concurrent List was amended so that ECA permanently entered statute books.

What constitutes Essential Item?

• In 1973, a Planning Commission “Committee on Essential Commodities and Articles of Mass Consumption” concluded that the following were essential items—cereals; pulses; sugar, gur and khandsari; edible oils and vanaspati; milk, eggs and fish; common clothing; standard footwear; kerosene oil and domestic fuels; common drugs and medicines; bicycles, bicycle tyres and tubes; matches, dry cells and hurricane lanterns; soaps and detergents; textbooks and stationery.
• Over time, in addition to those listed by Planning Commission, the essential products list included aluminium, art silk textiles, cement, cinema carbon, coarse grains, coconut husks, coir retting, cold storages, collieries, copper, cotton, drugs, dry batteries, electrical appliances, electrical cables and wires, ethyl alcohol, fertilisers, food-grains, fruit, furnace oil, electric lamps, diesel oil, household electrical appliances, cars, maize, insecticides, iron and steel, jute and jute textiles, kerosene, linoleum, LPG, lubricating oils and grease, meat, molasses, mustard oil, newsprint, oil pressure stoves, paper, paraffin wax, petroleum products, plants, fruits and seeds, pulses and edible oils, groundnut oil, rice, salt, sugar and sugarcane, synthetic rubber, tea, textiles, tractors, two-wheelers, tyres and tubes, vegetable oil, wheat.
• ECA has a schedule (Section 2) of what is “essential”, and if an item is in that schedule, it is axiomatically “essential”. Before liberalisation, there were around 80 Union government-level orders and around 150 state government-level orders, decreeing various items as “essential”.
• The progressive tightening of ECA manifested itself through more and more items being added to the schedule. In addition, offences were made non-bailable, and there were special courts. Hoarding has a negative nuance attached to it, though hoarders often perform a useful function of reducing price volatility. In contrast, black marketing has a uniformly negative nuance. But black markets exist only when there is a shortage.
• The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people.
• The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc.

History of ECA

• It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
• Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
• The list of items under the Act includes drugs, fertilizers, Food items, pulses and edible oils, and petroleum and petroleum products.
• The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.

How ECA works?

• If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
• The States act on this notification to specify limits and take steps to ensure that these are adhered to.
• Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
• A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
• This improves supplies and brings down prices. As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
• The excess stocks are auctioned or sold through fair price shops.
• Ex: The Union Government has brought masks and hand-sanitisers under the ECA to make sure that these products, key for preventing the spread of Covid-19 infection, are available to people at the right price and in the right quality

For Food Items:

• Based on the deliberations, Government takes various measures from time to time to stabilize prices of essential food items which, inter-alia, include appropriately utilizing trade and fiscal policy instruments like import duty.
• The govt. can impose stock limits and advise State for effective action against hoarders & black marketers etc. to regulate domestic availability and moderate prices.
• The government utilizes the buffer of agri-horticultural commodities like pulses, onion, etc. built under Price Stabilization Fund (PSF) to help moderate the volatility in prices.

New Farms Laws:

• The new farm law on the Essential Commodities Act had proposed to remove cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. The move was aimed to remove fears of private investors of excessive regulatory interference in their business operations. The government reasoned that The freedom to produce, hold, move, distribute and supply will lead to the harnessing economies of scale and attract private sector/foreign direct investment into agriculture sector.
• According to the government, while India has become surplus in most agri-commodities, farmers have been unable to get better prices due to the lack of investment in cold storage, warehouses, processing, and export as the entrepreneurial spirit gets dampened due to the Essential Commodities Act