Decoding the Amendment in the Essential Commodities Act
– Aditya Kishore
The Essential Commodities Act, 1955 (hereinafter “the Act”) was enacted to ensure the availability of “essential” commodities to the consumers and protect them from exploitation. Under this Act, the government has the power to declare certain commodities as essential and regulate and control the production, distribution, and pricing of such commodities.
The Act protects the consumers against irrational pricing by the producers and has been brought into use by the government multiple times. When there is a shortage of a particular commodity, the central government can notify the stock-holding limits of such a commodity. The individual states take care of the enforcement of such limits. Stocking of the commodity beyond a specific limit gets prohibited, and traders who have goods stocked beyond a specific limit have to dispose of the goods.
Recently, there was an increase in the demand for face-masks and hand-sanitizers due to the outbreak of Covid-19, and the production in the country at that point in time was deficient and not sufficient to meet the increased demand. There was a shortage in the market, and there were also cases of exploitative pricing of such products. In order to counter this, the government declared certain types of masks and sanitizers as essential and set a maximum retail price.
The Essential Commodities (Amendment) Ordinance, 2020
In May 2020, the government amended the Act by way of the Essential Commodities (Amendment) Ordinance, 2020 (hereinafter “Amendment”). According to the Amendment, the government can now regulate the supply of foodstuffs such as cereals, pulses, potato, onions, edible oilseeds, and oils, only under extraordinary circumstances. Such circumstances may include war, famine, natural calamity, or an extraordinary increase in price. An increase in prices has become the factor that will lead to regulation even if there is war, famine, etc. An order for regulation will only be issued if there is a hundred percent increase in price horticultural produce or a fifty percent increase in the price of non-perishable agricultural foodstuffs. The Amendment was brought in order to increase competitiveness and enhance the income in the agricultural sector. The government has liberalized the regulatory scheme while continuing to protect the interests of the consumers.
Why is the Amendment Beneficial?
The Act had faced objections on the ground that it is suitable when there is a scarcity and not a surplus in the produce. According to the Economic Survey 2019-2020, the Act has its origins in the time of shortages and the inefficient linking of the market. In current times with better production capabilities and more efficient markets, an Act like this works to inhibit the free functioning of the market. The Act was relevant when market failures were common, and in the present time, the costs of government intervention outweigh the benefits[1]. An Act like this has lost its relevance in the present times where market failures have become uncommon. What the Amendment has done is that it has restricted the power of the government to impose a limit at any point in time. The government can now only interfere when there is an extraordinary increase in price due to any cause.
The Act gave the power to the government to bring in drastic changes in the storage limit. For example, the government-imposed restrictions on Onions in September 2019 and reduced the limit for wholesale to 250 quintals from 500 quintals and for retail from 100 quintals to 20 quintals. Now in such cases, the seller has to dispose of the goods generally at meager prices. Such changes disincentivize investment in modern storage facilities. There was a constant fear of the government bringing in a new limit, in which case investing in modern storage facilities was not a viable option. Crops are seasonal, but there is a demand for crops throughout the year. While discouraging hoarding, it also discouraged the genuine storage of goods.
Excessive uncalculated government interference in the price limits also increases the risk of price volatility in the country. This can be seen in the Economic Survey of 2019-2020. The government imposed restrictions on Onions in September 2019 and reduced the limit for wholesale to 250 quintals from 500 quintals and for retail from 100 quintals to 20 quintals. This led to traders offloading their Kharif produce in October itself, which led to large scale price volatility from November onwards. It further disincentivized the development of storage infrastructure and increased the price volatility, which is in contrast to the intention of the Act. It also widened the wedge between wholesale and retail prices.
Conclusion
Removing the Essential Commodities Act, 1955 as a whole, is not an option. Situations may arise when there is a need to control production and distribution. In the current scenario, it can be seen that the Act cannot wholly be done away with. Unnecessary and uncalculated government intervention is what needs to be gone (as done by the Amendment) and not the Act as a whole. Circumstances arise when the government has to step in to regulate the production, distribution, and pricing of a particular commodity. The most recent example being the shortage of sanitizers and masks due to COVID, the government issued quota and price restrictions and also facilitated the supply of ethanol to the sanitizer industry. The government interference by invoking the Act prevents the consumers from draconian pricing and shortages when such circumstances arise. By way of the Amendment, the government does away with excessive regulatory interference but keeps an option handy to use when the need arises.
This article is authored by Aditya Kishore. The author is a student of law at The National University of Juridical Sciences, Kolkata.