Govt must spell out criteria for invoking Essential Commodities Act

G Chandrashekhar | Updated on May 20, 2020 Published 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

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.