Date: 24th January, 2021
by Rutuja Raghushe
The Essential Commodities (Amendment) Ordinance, 2020 an amendment to Essential Commodities Act,1955 was promulgated on 5 June 2020.This act empowered the Central government to control the production, distribution, supply, trade, and commerce in certain commodities which include major commodities like essential pharmaceutical drugs, fertilizers, potato, onion, raw jute, petroleum and petroleum products, etc.
The Ordinance aims to boost competition in the agricultural sector and improve farmers income. It aims to control the production, supply, distribution, and trade and commerce, in certain commodities through government intervention. Such commodities are declared as essential and State Government/Union territories enforce provisions of Act to control prices of such essential commodities.
It ensures that interests of consumers are safeguarded by regulating agricultural foodstuff in situations such as war, famine, extraordinary price rise and natural calamity.
However, the installed capacity of a value chain participant and the export demand of an exporter will remain exempted from such regulation to ensure that investments in agriculture are not discouraged.
The general idea behind this Act was to
(i) make sure that the poor people are able to afford essential commodities
(ii) curb hoarding and black marketing of essential commodities.
However, the downside of the ‘control part’ is that the goals achieved are exactly the opposite of what was comprehended.
Often these control orders used to spike volatility of the wholesale and retail price instead of flattening them.
The Act uniformly applied stockholding to the whole agricultural supply chain, which included wholesalers, retail food chain, etc. Therefore, the Act could not separate speculative hoarders from others, the organizations who genuinely had to hoard the stocks due to the nature of their work.
Due to the nature of their work the Act dis-incentivized investments in storage and warehousing infrastructure. In absence of such control orders, it is an industry view that traders would store part of the produce to ensure uninterrupted supply of essential commodities at stable prices.
The intervention by govt and Act disfigures entry of large corporate players into agricultural marketing.
Due to stock limits, growth and development of the commodity market are affected because traders are not able to supply the required quantity of a commodity on exchange platforms.
Government raids whose aims were to prevent hoardings of essential commodities have turned out to be ineffective controlling prices of essential commodities.
Many private sectors/foreign direct investment would be attracted into the agriculture sector due to the freedom to move, hold, distribute and supply. This will also lead to the harnessing of economies of scale.
There will be an increase in investment in cold storages and modernization of the food supply chain.
It will prevent waste of agri-foods due to storage facilities.
It will help to bring price stability for both farmers and consumers, hence benefitting both.
With this amendment, commodities like cereals, onion, potatoes, oilseeds, edible oil will be removed from the list of essential commodities. This will remove fears of private investors of excessive regulatory interference in their business operations
It will be a highly centralized law and will infringe upon the States’ powers, as they will not be able to regulate let say the menace of hoarding, black marketing etc.
As per the Act, the stock relaxations will lead to black marketing and hoarding instead of benefitting the producers. This will pave a path to increase in inflation and monopoly of certain individuals or organizations over the price of the goods.
With the enactment of this Ordinance, Government has approved an amendment to the 65-year old Essential Commodities Act, removing cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. With this, the government has also approved ordinances to remove restrictions on farmers selling their produce outside notified market yards, as well as to facilitate contract farming and allows engagement of farmers in direct marketing, according to an official statement.