Essential Commodities Act, 1955

Essential Commodities Act, 1955

Background

The Essential Commodities Act (ECA) of 1955 was enacted in a period when India was grappling with severe food scarcity. During the early years post-independence, India faced chronic low levels of foodgrain production, which necessitated reliance on food imports and international assistance. One notable example was the import of wheat from the United States under the PL-480 (Public Law 480) program. To combat the issues of hoarding and black marketing of essential foodstuffs, the ECA was introduced to regulate the production, supply, and distribution of essential commodities, ensuring their availability at fair prices.

Essential Commodity

The ECA does not explicitly define “essential commodities.” Instead, Section 2(A) of the Act specifies that an “essential commodity” refers to items listed in the Schedule of the Act. This Schedule can be modified by the central government to include or exclude commodities as per the nation’s requirements.

Legal Jurisdiction

The ECA grants the central government the authority to amend the Schedule by adding or removing commodities. This decision is made in consultation with state governments and is based on considerations of public interest. The ability to designate items as essential enables the government to regulate their production, supply, distribution, and trade.

Objective

The primary aim of the ECA, 1955, is to control inflation and ensure the availability of essential commodities by allowing state governments to regulate trade. This is achieved by implementing measures such as fixing prices, capping stock limits, and regulating the movement of goods.

Impact

By declaring a commodity as essential, the government gains the power to control its production, supply, and distribution. This includes the authority to impose stock limits and take other regulatory actions to prevent hoarding and ensure fair distribution.

Issues Related to the Essential Commodities Act, 1955

1. Economic Distortion:

• The Economic Survey 2019-20 highlighted that government intervention under the ECA often distorted agricultural trade without effectively controlling inflation.
• The act’s frequent imposition of stock limits and movement restrictions disrupted the normal functioning of the market.

2. Rent-Seeking and Harassment:

• The act enabled opportunities for rent-seeking and harassment by creating a regulatory environment that could be exploited by corrupt officials.
• Rent-seeking refers to unproductive income obtained through manipulation of the economic environment, often involving corruption.

3. Market Disincentives:

• Traders often bought less than their capacity due to fear of regulatory crackdowns, leading to market inefficiencies.
• Farmers suffered huge losses, particularly during surplus harvests of perishable goods, as the act discouraged investment in necessary infrastructure such as cold storage, warehouses, processing, and export facilities.

The Essential Commodities (Amendment) Bill, 2020

In response to these issues, the Parliament passed the Essential Commodities (Amendment) Bill, 2020. The amendment aimed to deregulate the production, storage, movement, and distribution of certain agricultural commodities to encourage private investment and modernize the agricultural sector. However, the bill faced massive protests from farmers who feared it would lead to the deregulation of the MSP (Minimum Support Price) system and exploitation by large corporations. Consequently, the government repealed the amendment.

Way Forward

The ECA, 1955 was a product of its time when India was not self-sufficient in food production. Today, with India achieving surplus production in most agricultural commodities, there is a pressing need to amend the act to reflect current realities. Modernizing the ECA can help achieve the government’s target of doubling farmers’ income and improve the ease of doing business. This includes:

• Encouraging investment in agricultural infrastructure like cold storage and warehouses.
• Reducing unnecessary regulatory burdens that hinder market efficiency.
• Ensuring that reforms are inclusive and address farmers’ concerns to gain their trust and support.

Amending the ECA is crucial for creating a more resilient and efficient agricultural sector that can better serve the needs of both farmers and consumers in a modern economy.