This blog is inscribed by Muskan Jain.
India has a market economy where prices are determined primarily by demand and supply. Interference by the Centre in the market to protect the consumers’ interests is allowed by certain laws. One such important piece of legislation is the Essential Commodities Act (EC Act). The Essential Commodities Act was legislated at a time when the country was facing scarcity of foodstuffs and was dependent on imports to feed the population. In this scenario, the EC Act was enacted in 1955 to stop the hoarding and black marketing of foodstuff.
What is it?
By declaring commodity as an essential item, the government can regulate the commodity’s output, supply, and distribution and enforce a stock-limit.
Defining an ‘essential commodity’
The Essential Commodities Act contains no specific definition of essential commodities. Section 2(A) of the Act provides that an “essential commodity” means a commodity falling under Entry 33 in List III (Concurrent List) in the Seventh Schedule to the Constitution of India.
Also, this Section authorises the Central government the right to add or delete a product from the Schedule. If it is satisfied that this is in the public interest, in consultation with the state governments, notify an item as essential.
Under this Act, the government can also fix the Maximum Retail Price (MRP) of any packaged product that it declares an “essential commodity”.
Under the proposed amendments, essentials like cereals, pulses, oilseeds, edible oils, onion and potatoes have been excluded from the EC Act.
The Schedule under the Act includes –
- Drugs as defined under the Drugs and Cosmetics Act, 1940
- Hank yarn wholly made from cotton
- Petroleum and petroleum products
- Raw jute
- Types of seeds
The latest items added to this schedule are Face masks and Hand sanitizers
The Union Cabinet has approved an ordinance to amend The ECA. Sources at the Ministry of Consumer Affairs, Food and Public distribution said that the ordinance haw introduced a new subsection (1A) under Section 3 of the ECA, 1995. The amended law provides a mechanism for the ‘regulation’ of agricultural foodstuffs, namely, cereals, pulses, oilseeds, edible oils, potatoes, onions and supplies under extraordinary circumstances, that includes extraordinary price rise, war, famine, and natural calamity of a severe nature. Interestingly, removing onions from EC Act is seen as a brave decision as there is a long history of government interference every time onion price increases.
Hand sanitizers and Face masks were declared essential commodities due to the outbreak of Covid-19. Masks with ₹300 retail prices priced at ₹12000 and ₹40 hand sanitizers priced at ₹100. So, the government took a strict decision to curb corrupt practices in the trade. On 13 March, Central government issued an order under the EC Act to approve 2 ply and 3 ply surgical masks, N95 masks and hand sanitizers as essential commodities until 30 June 2020. It has also released an advisory under the Legal Metrology Act to ensure that such products are not priced at more than the MRP. Drugs Controller General of India (DGCI) regulates the manufacturing and selling of sanitizers and surgical masks by the powers granted under the Drugs and Cosmetics Act, 1945.
- Protection of consumers against irrational price spikes for essential commodities.
- The Government has repeatedly activated the Act with a view to ensuring adequate supplies.
- It cracks down on the hoarders and black marketers of such commodities.
- State agencies are conducting raids in order to get everyone to obey the rules, and the errant are punished.
How this Act works?
When the Central government determines that a certain product is in short supply and its price is jacking up, it may, for a prescribed time, alert stock holding limits on it. On this notice, States act to define limits and take measures to ensure that they are applied to. Anyone who sells or deals in a product, whether it be wholesalers, manufacturers or even importers, is prohibited from holding it in excess of a certain volume.
However, a State may opt not to enforce any restrictions but if it does, traders must sell any stocks held above the required quantity immediately into the market that improves supplies and lowers prices. Because not all shopkeepers and traders cooperate, State agencies are carrying out raids in order to get everybody to the line and punish the errant. The surplus stocks are either sold at auction or distributed through fair price shops. Government tackles with hoarders and black marketeers of such commodities. Therefore, Inflation remains in check.
Offences under the Essentials Commodities Act are criminal offences and may result in imprisonment of seven years or fine or both. The State and union territory government may also consider detention of offenders under the Prevention of Black Marketing and Maintenance of Supplies of Essential Calamity Act, 1980. An accused may be punished with imprisonment up to 7 years or fine or both and under the PBMMSEC Act, he can also be detained for a maximum of 6months.
Hurdles : Every law has it’s own loopholes
The Act has been considered a big obstacle to the growth of the agriculture sector as dealers are afraid to buy more at any time because of the fear of enforcing stock holding limits. Investment in infrastructure in warehouses has been slow and low as authorities could raid them for holding excess stock. Participants in the Agri -Commodity industry has been outspoken about the authorities’ abuse under the Act.
In the past, NITI Aayog called the Essential Commodity Act an obstacle to agricultural exports. The 2019-20 Economic Survey named the Essential Commodity Act as one of the outdated legislation.
Through subsidy programs, loan waivers, direct benefit transfers, various governments in India have tried to help farmers but an act like the Essential Commodity Act hindrances the investment in warehouses and storage facilities.
Demerits of this law
- Differentiating between genuine stock build-up and irrational hoarding may not always be possible.
- Weather-related disruptions can trigger genuine shortages in which case prices will move up. And if prices are always tracked, farmers may not be willing to farm.
- There could be no need for traders to invest in better storage facilities too.
- Food processing companies need to hold large stocks for smooth running of their operations. Operations are curtailed by stock caps.
In such a scenario, Private investment on a wide scale is unlikely to flow into food processing and cold storage facilities.
Essential commodity Act provides powers to the government to pass orders in connection with making available essential commodities in-country and for defence purposes at reasonable prices.
Then why measures were taken to amend the EC Act? India has now become an exporter of agricultural products. With these developments, the Act has become outdated. Despite nationwide lockdown, there have been reports of production loss due to various factors, especially reduction in labour supply. In this situation, there is a possibility of inventory building/ hoarding and black marketing, profiteering, and speculative trading, resulting in price rise of essential goods. The states have been asked to take urgent step to ensure availability of these commodities at fair prices for the public at large. Interestingly, removing onions from EC Act is seen as a brave decision as there is a long history of government interference every time onion price increases. The proposed law suggests a framework under exceptional circumstances and unforeseen events such as rise in prices, war, drought, and extreme natural calamity.