Economic Survey: Time to scrap Essential Commodities Act?

‘Government intervention in agriculture market doing more harm than good’

The government does more bad than good through its interventions in the agriculture market, says Economic Survey 2019-20. The stock limits on commodities under the Essential Commodities Act (ECA) ‘neither bring down prices nor reduce price volatility’, it says.

It further explains: ‘The imposition of stock limits on dal in 2006-Q3, sugar in 2009- Q1 and onions in September 2019 spiked up the volatility of the wholesale and retail prices instead of smoothening them — in contrast to its objective of easing pressure on prices’.

The ECA has stopped being relevant for the current times, adds the report. “The Act is anachronistic as it was passed in 1955 in an India worried about famines and shortages; it is irrelevant in today's India and must be jettisoned,” it says.

In 2019 alone, there were 76,033 raids under ECA, according to the report. However, the conviction rate was very low — just 2,941, or .8 per cent of the total raids conducted.

For some time now, there has been increasing noise in the country against the ECA. The Act doesn’t distinguish between food processors and wholesale/retail food chains that stock food, and hampers the creation of what’s needed the most – storage and warehouse infrastructure in the agriculture space.

Powers of the Act

The Essential Commodities Act, 1955 controls the production, supply and distribution of, and trade and commerce in, certain goods. Among the major commodities included in the ECA are: food stuff, including edible oil and seeds, vanaspati, pulses, sugarcane and sugar, rice and paddy; onion and potato; seeds of food crops; fruits and vegetables; cattle fodder; jute seeds and cotton seeds besides petroleum and essential drugs.

When the price of any of these commodities rises, the regulator can impose stockholding limits on the commodity and restrict its movement. The ECA allows States to issue control orders related to dealer licensing, regulate stock limits and restrict movement of goods. It also gives them power to confiscate the stock seized and impose punishments like imprisonment on the trader/dealer.

Why it should go

Experts believe that the ECA disincentivises investments in warehouses and storage for crops. It makes useless any effort of the government to improve the income of farmers, they add.

The supply-demand mismatches in agri commodities can be rectified only if investment is made in supply chain and storage infrastructure. Till the time the ECA is not scrapped, the private sector will not come forward to invest in agri warehouses, say food processors.

The risk of raids and confiscation of stock any time, prevents businesses from investing and those that come forward to do it charge a large premium and it adds to cost of consumers.