Context: Recently, the Parliament passed the Essential Commodities (Amendment) Bill, 2020. The Bill replaces an Ordinance promulgated in June 2020 and amends the Essential Commodities Act (ECA), 1955.

Background:

• 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.

Key features of the 2020 bill

• Removal of items from Essential Commodities list: It provides provisions to remove commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities.
• Elimination of fear of private investors: It aims to remove fears of private investors of excessive regulatory interference in their business operations.
• The freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/foreign direct investment into agriculture sector.
• It allows the central government to regulate the supply of certain food items only under extraordinary circumstances (such as war and famine).
• It requires that imposition of any stock limit on agricultural produce must be based on price rise.
• A stock limit may be imposed only if there is a 100% increase in retail price of horticultural produce and a 50% increase in the retail price of non-perishable agricultural food items. 

Significance of the Essential Commodities (Amendment) Bill, 2020

• It will create a positive environment not only for farmers but also for consumers and investors.
• It will strengthen the overall supply chain mechanism of the agriculture sector.
• It will also help to achieve the government’s promise to double the farmer’s income by promoting investment in this sector and promote ease of doing business.
• It will help drive up investment in cold storages and modernization of food supply chain.
• It will help both farmers and consumers while bringing in price stability.
• It will create competitive market environment and also prevent wastage of agri-produce that happens due to lack of storage facilities.
• 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.

Road Ahead

• The ECA 1955 was brought when India was not self sufficient in food grains production. But now India has become surplus in most agri-commodities, and the amendments in the ECA 1955 is an important step by the government to achieve its target of doubling farmers’ income and also for ease of doing business.