Essential Commodities Act

Essential Commodities Act

Part of: GS-II- Governance and recent act (PT-MAINS-PERSONALITY TEST)

In news recently: Government puts masks and hand sanitisers under Essential Commodities Act.

ECA enacted by Parliament in 1955 provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential.

Aim: Maintaining/increasing supplies/securing equitable distribution and availability of these commodities at fair prices. The Centre can include new commodities as and when the need arises, and can take them off the list once the situation improves (in view of public interest).

States are the implementing agencies to EC Act, 1955

What is Essential Commodities Act?

The ECA was enacted way back in 1955.

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.

The list of items under the Act include drugs, fertilisers, pulses and edible oils, and petroleum and petroleum products.

The Centre can include new commodities as and when the need arises, and take them off the list once the situation improves.

Under the Act, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.

How it works?

1. 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.
2. The States act on this notification to specify limits and take steps to ensure that these are adhered to.
3. Anybody trading or dealing in a commodity , be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
4. 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.

But, why the recent Economic Survey said that this act is outdated and must go?

1. In September 2019, the Centre invoked the ECA Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the kharif crop and led to a sustained spike in prices.
2. Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
3. This is due to the fact that ECA act fails to differentiate between hoarding and Storage.
4. Thus in the long term, the Act disincentivises development of storage infrastructure, thereby leading to increased volatility in prices following production/ consumption shocks — the opposite of what it is intended for.
5. The report finds that the ECA has been enacted in the year 1955, when the economy was ravaged by famine and food shortages. The government should note that today’s scenario is much more different.

Why is it important?

The ECA gives consumers protection against irrational spikes in prices of essential commodities.

The Government has invoked the Act umpteen times to ensure adequate supplies.

It cracks down on hoarders and black-marketeers of such commodities.

State agencies conduct raids to get everyone to toe the line and the errant are punished.

Way Forward

• Farmers should be given ample rights to sell any quantity of their produce to anybody, both domestic and international and at any time.
• The Essential Commodities Act, which has proven a disincentive to large investment in agricultural technology and infrastructure, should be replaced with a modern statute that balances the interests of farmers and consumers.
• A law should be formulated that restricts the powers of the Department Of Consumer Affairs or Director-General of Foreign Trade to impose curbs on any agricultural commodity at the slightest instance of price rise.
• Only the Parliament should have the right to impose curbs on agricultural commodities that too under exceptional circumstances of war or nationwide calamity as opposed to executive orders issued in "public interest".
• It is important to understand that the gains to individual producers who sell in tonnes/quintals far outweigh any losses to consumers buying in kilos and therefore there is a need to create balance between consumers and farmers.
• Therefore, if the nation wants to uplift farmer’s condition, it is important to give them the economic independence they deserve.

Without the ECA the common man would be at the mercy of opportunistic traders and shopkeepers. It empowers the government to control prices directly too.