Parliament House of India.

Dr Seema Singh analyses “The Essential Commodities (Amendment) Act, 2020” passed in the recent parliament session in September 2020 as it would have an impact on every section of society

n the month of June, the Government of India introduced three crucial ordinances which were subsequently passed by both the Houses of Parliament and they are- “The Farmers’ Produce Trade and Commerce (Facilitation and Promotion) Bill 2020, The Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 and The Essential Commodities (Amendment) Bill, 2020” which were subsequently assented by the President of India.

An analysis of “The Essential Commodities (Amendment) Act, 2020”, herein after mentioned as ECA, is the core of discussion which is going to touch the interest of farmers, distributors, and of consumers. Before discussing the amendment, it is important to discuss the background of the ECA, 1955.

In independent India, after the commencement of the Constitution, the first crucial step taken by the government was the introduction of land reforms by abolishing the exploitative Zamindari system via The Constitutional (First Amendment) Act of 1951. This was the time when India was facing a scarcity of foodstuffs due to low productivity and we were largely dependent on the import of food items to feed the population.

During this time to fulfill the basic need of food and to control inflation, stop hoarding and black-marketing of food items, the “Essential Commodities Act, 1955” was enacted. However, the Economic Survey 2019-20 stated that ECA, 1955 failed to achieve its goals and distorted agro-trade as traders bought far less than their capacities since large stocks could be outlawed anytime under ECA 1955 and this caused losses to farmers holding surplus produce due to lack of storage facilities and perishable nature of the same.

The ECA does not define Essential Commodities but prescribes a schedule for the same. Once a commodity is declared as essential under the Act, the government gets right to control production, supply and distribution of the commodity and can also impose a stock limit for the same.

This Act gives power to the Central government to include or exclude any commodity from the schedule. In the case of price rise, the central government can order the State Governments and Union Territories to fix the stock holdings limit for a certain time period. It aims to ensure price control, uninterrupted supply of basic commodities, and to avoid black marketing of essential commodities. The Central Government can also fix the maximum retail price of such essential commodities i.e. MRP.

Earlier, on the violation of this legislation, the offender could be punished with up to 7 years of imprisonment or a fine or both under the Essential Commodities Act, 1955 and could be detained for up to 6 months for black-marketing of essential commodities under the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, (PBMMSEC Act), 1980.

Now through the Essential Commodities (Amendment) Act, 2020, these food items have been deregulated. Section 3(1A) that has been inserted through this amendment states that these agricultural foodstuffs can be regulated only under extraordinary circumstances like extraordinary price rise, war, famine, and natural calamity of a severe nature. However, any action on imposing stock limits will be based on the price trigger. Earlier no specific grounds were mentioned to regulate the price and it used to give immense power to the centre to regulate prices on any ground.

The amendment also provides exemptions from stock-holding limits to processors and value chain participants, exporters of any agricultural produce, and orders relating to the Public Distribution System.

In case of horticultural produce, a 100 percent increase in the retail price of the commodity over the immediately preceding 12 months or the average retail price of the last five years, whichever is lower, will be the trigger for invoking the stock limit for such commodities.

For non-perishable agricultural foodstuffs, the price trigger will be a 50 percent increase in the retail price of the commodity over the immediately preceding 12 months or the average retail price of the last five years, whichever is lower.


Need of amendment under the EC Act?

The EC Act, 1955 was legislated at a time when the country was facing a scarcity of foodstuffs due to persistent abysmal levels of food grain production. But now the situation has turned 180 degrees where we have a surplus of agricultural products and a great share of the government’s buffer stock is wasting due infrastructural problems.

As per the Ministry of Consumer Affairs, Food and Public Distribution, the production of wheat has increased by 10 times (from less than 10 million tonnes in 1955-56 to more than 100 million tonnes in 2018-19); during the same period, the production of rice has increased more than four times from around 25 million tonnes to 110 million tonnes. Now India has become an exporter of several foodstuffs.

It is a bitter truth that India is facing a severe problem of storage. According to the National Bank for Agriculture and Rural Development (NABARD), there is a gap of 35 million tons in storage capacity.

According to an estimation: India lost around 7% of its total food production (worth around 58,000 Crore in a year) during production, processing, retailing, and consumption. 25% to 35% of the total production of vegetables and fruits are wasted due to inadequate logistical support, lack of cold storage, poor supply chain model, poor transport, and underdeveloped marketing channels. According to The Food and Agriculture Organisation (FAO), in monetary terms the loss is around $8.3 billion.

The Food Corporation of India (FCI) was set up in 1964 but till now there is no adequate and well-equipped warehouse capacity or manpower to manage the piled-up stocks of food grains. Every year, the government is purchasing millions of tons of grains through MSP and providing subsidies to the agriculture sector but at the same time millions of tons are kept in open creating high rates of spoilage.

It proves that India needs a robust investment in agricultural infrastructure sector especially for cold storage, refrigerated transport, and other modern logistics, to modernize and optimize its food supply chain.

Government believes that the Essential Commodities Act is creating a hurdle in investment in agro-infrastructure and it can be pushed only by creating a positive ecosystem for the same.

As hoarding is a punishable offense, traders do not invest in warehouses and due to lack of storage capacity country, farmers and traders face huge economic losses.

Through this amendment the government wants to liberalize and make a free agriculture market. Changes seek to attract private investment in the value chain of commodities and in post-harvesting activities, in particular, to tap the potential of this sector. Another Act “The Farmers’ (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020”, which allows private parties to enter into an agreement with the farmers (contract farming) also cannot be implemented successfully without amending this ECA. Now the traders/companies can enhance their storage capacity and thus can enter into contract farming with farmers.

By removing this barrier not only more investment can be invited in this field but India can also register a substantial hike in the export of foodstuffs and food processing industries. It can be instrumental in making India a self-reliant country. It also has immense potential for job creation and to tap youth in rural areas. As per FAO, in the coming year, the world is going to face a huge food crisis. If these weaknesses of agro sector are taken care properly then India can be on track to be one of the largest exporters in raw, packaged, and processed food items, which can fulfill the food requirement of a substantial global population.

Implementing amendment successfully can be a big challenge for the government. This amendment has faced a lot of opposition from political leaders, farmer’s organizations, and middlemen. The government should frame the rules very carefully to protect the interest of consumers from excessive price rise after de-regulating the sector. Without proper and effective implementation, the stock limit relaxations can lead to black marketing and hoarding which may further lead to inflation and monopoly in the hands of a few.

With proper implementation, the amendment can pave way for various benefits like investment in cold storages, ware houses and modernizing the food supply chain model. It will create a competitive market and will also prevent the wastage of agro-produce causing due to lack of storage facilities. It will help both farmers and consumers while bringing in price stability.

( Dr.Seema Singh is Assistant Professor at Campus Law Center, Delhi University. The views expressed are personal. )