Essential Commodities Act for food commodities should be invoked only in exceptional cases

G Chandrashekhar | Updated on May 28, 2020

The govt, on its part, must strengthen its commercial intelligence and research capability to have a clear forward view of the domestic food market

It is heartening that the government has proposed changes to the draconian Essential Commodities Act, 1955. Food commodities of mass consumption such as cereals, pulses, oilseeds, edible oil and sugar are expected to be kept outside the normal purview of ECA.

In other words, for the specified food commodities, there will be no storage limit, no movement restriction or similar controls. While the proposed exemption from ECA will operate under normal circumstances, New Delhi has reserved the right to invoke the law under exceptional circumstances (‘Government must spell out criteria for invoking ECA’, BusinessLine, May 20).

The exceptional circumstances are yet to be specified. But it is reasonable to assume that the law may be applied under emergency conditions such as when production collapses (for any reason including climatic factors) or prices move to unconscionably high levels for ordinary consumers to be able to afford.

So, the law would continue to dangle like Damocles’ sword with traders least knowing when it would fall. Importantly, there is a more fundamental question here. What if conditions for invoking ECA emerge as a result of government’s own incompetence or indifference?

This is a perfectly valid question. We have seen in the past how the government remains a mute witness to developments in the market, wakes up late and reacts in a knee-jerk fashion when damage is already done. One possible reason is that there is too much bureaucracy and far too many ministries involved — Food and Consumer Affairs, Agriculture, Commerce and Finance. Coordination among them leaves much to be desired. Precious time is lost to contain the adverse fallout.

This is where commercial intelligence and research capability — or the lack of it — within the government comes into play. Does the government have an effective mechanism — institutional mechanism — to constantly monitor global and Indian commodity markets and have an outlook on the domestic food market? Sadly, the answer is in the negative.

Over the years we have seen any number of instances of policymakers failing to read advance signals from the market and then indulging in fire-fighting operations, akin to closing the stable door after the horses have bolted.

It is unclear, if anyone within the government circles has a clear idea about various drivers of the global and domestic food markets, what their dynamics are and how they are likely to impact food prices. Price forecasting involves both fundamental and technical approaches.

In other words, it is necessary the government first recognises the lack of commodity market intelligence and then starts to take action to remedy it. Enlisting the services of and engaging with domain experts who understand the market well may be imperative.

Forward guidance

Without doubt, the policymakers are concerned about production, processing, distribution, trade and consumption of essential food commodities such as cereals, pulses, sugar and edible oil. Therefore, they must have a clear forward view of where the market is likely to go.

Forward guidance available through global and domestic market commercial intelligence is sure to facilitate not only proactive policy responses (rather than reactive steps as at present) but also make for sensible and sensitive policymaking. Forward guidance will allow policymakers to be alert and alive to the situation.

Given the very nature of commodity markets as well as operation of several drivers including speculative capital, rare situations may arise when all forecasts and forward guidance fail and food market prices spike to hurt consumers, especially the poor, necessitating the application of ECA.

Even under such conditions, the government is duty bound to explain the rationale for its action including its attempts, if any, to contain the adverse developments in the marketplace. In other words, having granted exemption to essential food commodities, invoking ECA should not be done frivolously, but must be justified.

The writer is a policy commentator and commodities market specialist

Published on May 28, 2020

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