Veering around to the view expressed by many experts and industry leaders that the Essential Commodities Act, 1955, was doing more harm than good, the government has said time has come to jettison the Act which was originally designed to deal with famines and shortages.
The Economic Survey said frequent and unpredictable imposition of blanket stock limits on commodities neither brings down prices nor reduces price volatility. Though about 76,000 raids were carried out in 2019, these raids had no impact on prices and the number of convictions was abysmally low. This “anachronistic” Act served no purpose but enabled rent-seeking and harassment.
Many experts in the past called for abolition of this archaic Act, it doesn’t serve any purpose as the country now deals with surpluses rather than shortages. It is said that the Act which invariably favours consumers has been a reason why farmers often failed to get good price for their produce.
The Act is said to affect the efficient development of agricultural markets by creating market distortions. As agriculture is a seasonal activity, it is essential to store the produce for off-season to ensure the availability of a product at stable prices throughout the year. Enterprising farmers and genuine traders generally build an inventory which can be disposed of in off-season so that they can get better market prices. But, sudden and frequent imposition of stock limits comes in the way of their operations. The Survey identified that it was one of the reasons why private parties are not coming forward to invest in cold storages which are important for prolonged storage of vegetables and fruits.
Besides, it hampers the movement up the agricultural value chain and development of national market for agricultural commodities.
The Survey asked the Ministry of Consumer Affairs to examine whether this Act should continue in the current form or it should be scrapped.
Similarly, it pointed out that government policies in the foodgrain markets has led to the emergence of government as the largest procurer and hoarder of foodgrains – adversely affecting competition in these markets. This has led to overflowing of buffer stocks with Food Corporation of India, burgeoning food subsidy burden and inefficiencies in the markets, which is affecting the long-term growth of agricultural sector. The foodgrains policy needs to be dynamic and allow switching from physical handling and distribution of foodgrains, the Survey said.
The Survey also found fault with debt waivers given by the States or the Centre. It said full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver as compared to the partial beneficiaries. The share of formal credit decreases for full beneficiaries when compared to partial beneficiaries, thereby defeating the very purpose of the debt waiver provided to farmers.