Changes to Essential Commodities Act: Can govt make a departure from past?

Aims to ensure Act kicks in only under exceptional circumstances and unforeseen events such as droughts, floods or when food prices fluctuate beyond a point

Last month, Finance Minister Nirmala Sitharaman said the government intends to amend the Essential Commodities Act (EC Act) and bring out foodstuff such as pulses, edible oils, onion and potatoes from its purview.

It will also ensure that the Act’s provisions are imposed only under exceptional circumstances and unforeseen events such as droughts, floods or when food prices fluctuate beyond a point.

According to the ordinance cleared today by the Cabinet, the provisions of the EC Act, which includes imposing stock holding limits, will kick in only when prices fluctuate by, say, 50 per cent or 100 per cent beyond or below the average of the past three years.

Otherwise, in the normal course, the Act will not be applicable on most foodstuffs barring the above exceptional conditions.

Interestingly, this move to amend the EC Act of 1955 is old and has been attempted several times in the past.

Used multiple times in the past 

Numerous governments, on several occasions in the past, have recommended unshackling the EC Act and bringing out items from its purview.

Not only that, governments have in the past delisted items from the EC Act, only to bring them back whenever there is slight increase in prices, in order to protect the consumers.

In fact, a high-powered committee of Chief Ministers constituted by the previous UPA government, which had present Prime Minister Narendra Modi as its chairman, had also recommended amending the draconian provisions of the Act.

That’s not all. Reports show that way back in 2001, or almost two decades ago, a conference of Chief Ministers called by the Central Government had recommended that all restrictions under the Act be abolished and movement of agricultural goods and their storage should be freed, as the EC Act benefits neither the producer nor the consumers in times of crisis.

Thereafter, reports show that between 2002 and 2006, the number of commodities listed under the Act, which once touched 70, was brought down to seven.

Then in 2006, the Act was amended to bring in more items, but only for six months at a time. Between 2006 and 2007, as inflation started to soar in some commodities, items such as wheat, rice, sugar, edible oil and pulses were brought back under the Act.

Once again in April-May 2010, there were amendmenys as supplies improved. While sugar and edible oils were included in the list of items that can be governed (until March), rice and pulses replaced wheat until September 2011.

What's more, after the NDA government came to power in 2014, it removed the licensing requirement, stock limits and movements restrictions on certain food items under ECA. This happened in 2016.

These included items like wheat and wheat products, edible oils, hydrogenated vegetable oils, onions and potatoes.

For pulses, the restrictions were removed until September 2017, while it was for different periods for other commodities.

Exporters and retailers with multiple outlets or large departmental stores, and food processors and importers were also kept outside the licensing requirement, stock limits and movement restrictions under ECA as per the 2016 amendments.

But the NDA too periodically brought items within, or removed them from the ambit of the Act, depending upon the prevailing circumstances.

In fact, as late as 2019 and even in 2020, the Act was imposed on several occasions on items like onions to control prices and check hoarding.

And in 2019, the Centre imposed stock holding limits for onions by directly exercising its powers under the Act without even authorising the states to do so, in what was perhaps the first move of its kind.

So much so, that at one time, it had imposed a stock holding limit of 10 tonnes on retailers and 50 tonnes on wholesalers and later brought it down to a mere 5 tonnes for retailers and 25 tonnes for wholesalers.

Clearly, when it comes to the Act and its impositions, all governments have been using its provisions to control prices and clamp down on traders, mostly at the expense of farmers.

Good kept in Warehouse Development and Refulatory Authority (WDRA)-registered warehouses are usually exempted from the provisions of the EC Act, but their number is so small that it hardly makes any difference.

Sources said out of the total 170 million tonnes of recognised warehousing capacity in the country, just around 10 million tonnes (a little less than six per cent) is WDRA-registered.

How different the latest initiative by the Narendra Modi government will be from earlier moves remains to seen. But the larger issue is whether or not the government can withstand the allure of not falling back on the Act when prices of essentials—mainly highly volatile ones such as onions, potatoes and pulses—rise or fall sharply.

History of the EC Act:

Its roots can be traced back to 1939 when, the Government of India made rules regarding control, production, supply, and distribution of certain specific commodities under the Defence of India Act, 1939 during World War-II.

The Act ceased to exist in 1946. However, it was felt that certain regulations are needed urgently for the protection of some essential commodities in the interest of the public.

Therefore, The Essential Supplies (Temporary Powers) Ordinance passed in 1946, which was subsequently replaced by the Essential Supplies (Temporary Powers) Act, 1946.

The provisions of this Act were further extended by two resolutions of the General Assembly in 1948 and 1949.

After independence, the first Essential Commodities Ordinance was passed by the third Constitutional Amendment. It was subsequently replaced by the present Act namely, The Essential Commodities Act, 1955.

It has since been used by the Government to regulate production, supply and distribution of a host of commodities it considers as essential, in order to make them available to consumers at fair prices.

The Act empowers the Centre to include new commodities as and when the need arises, and take them off the list once the situation improves.

The EC Act, along with the Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act of 1980, provides a potent weapon to the government to crack down on hoarding and black marketeering.

This black marketing Act empowers officers of the Central and State governments to pass detention orders against those who seek to control production, distribution, and supply, trade, and commerce of those essential commodities defined as such under Section 2 of the Essential Commodities Act, 1955.

The Act also contains the manner in which these detention orders are passed or executed.

How the Act functions

If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period. The latest usage was during the ongoing Covid-19 crisis when the government brought masks and hand sanitizers within its purview to control prices and check hoarding and black-marketing.

The States act on this notification to specify limits and take steps to ensure they are adhered to.

Anybody trading or dealing in a commodity--wholesaler, retailers or even importe--is prevented from stockpiling it beyond a certain level.

A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity. 

This improves supplies and brings down prices. If some shop keepers and traders don’t comply with the guidelines, the states can conduct raids and imply other measures to release its stocks.

The penal powers are provided by the Black marketing and hoarding Act of 1980 mentioned above. 

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