Govt must spell out criteria for invoking Essential Commodities Act

G Chandrashekhar | Updated on May 20, 2020

Such predictability will not only bring discipline among traders but also prevent disruption of smooth trading activity

As part of the third tranche of the stimulus package the Finance Minister announced on May 15, she talked about three significant governance and administrative reforms — amendment to the Essential Commodities Act (ECA), agricultural marketing reforms, and agriculture produce price and quality assurance.

At the outset, these reforms ought to have been carried out long ago, and there was no need or justification for the government to wait till the coronavirus pandemic hit the country. Be that as it may, it is a welcome initiative, although certainly not for the first time. Governments earlier have tried but failed to implement similar agri reform measures.

One must of course hope this time around, there will be concrete action on the ground and the proposed reforms will benefit the nation’s agriculture in general and beleaguered farmers in particular.

Enacted in 1955, the Essential Commodities Act is now a 65-year-old central legislation that gives the government sweeping powers to regulate the market for essential commodities, including imposition of stock limits on various market participants, seizure of stocks, and penal action for breach of the law.

To be sure, ECA is a Central legislation but implemented by the State governments; and history tells us that different State governments implement the law with different degrees of seriousness. In other words, implementation of the law has seldom been uniform across the country.

According to the Finance Minister, the Central government now desires to exempt some essential commodities from the purview of the ECA. The commodities mentioned include cereals, pulses, oilseeds, edible oil, sugar and so on.

But if you heard the FM carefully, she said in no uncertain terms that the government will have the power to invoke the ECA under exceptional circumstances. Given the role of essential commodities in our daily lives and political sensitivity over prices of these items, it is not unfair that the government reserves the right to invoke the law under certain conditions.

Fear of raids

When notified, it is important for the government to specify contours of the exceptional circumstances under which the law may be invoked. This is critical because traders are mortally afraid of this law. No one can forget what happened to the pulses trade in 2016 when prices skyrocketed because of back-to-back droughts and fall in domestic output.

Although distributive trade actively imported large quantities from abroad and augmented domestic supplies, raids were carried out recklessly and stocks seized overnight. The scars of the nightmare are still visible among the pulses trade. No wonder, for more than two years now, pulses prices are languishing well below the minimum support price and hurting growers.

Government’s procurement efforts and price support operations have fallen well short of the magnitude needed. There are lessons for policymakers.

Need to stock up

By their very nature crops are seasonal but consumption is round the year. Processors and traders of various agricultural crops (rice, wheat, oilseeds, pulses, cotton and others) have to purchase and build inventory during the harvest season for distribution during the rest of the year throughout the country. Role of processors and distributive trade is critical to ensure food security for the nation, crop marketability for growers and consumption demand of people.

One significant reason why prices of most pulses and oilseeds — essential commodities — are languishing below MSP is not surplus production, but weak marketability and weak demand. Motivation is lacking palpably among processors and traders to buy during harvest and build inventory. There is fear of punitive action in the event of a price rise.

To regain the confidence of processors and traders, the government must announce conditions or criteria under which ECA may be invoked in future. It may be price-related, it may be production-related or any other criterion. But it is important that there is predictability about the application of the law. Such predictability will not only bring discipline among traders but also prevent disruption of smooth trading activity.

The writer is a policy commentator and agribusiness specialist. Views are personal

Published on May 20, 2020

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