Saumya Gupta, a final year law student from NUALS, Kochi reviews the implications of recent amendment in the Essential Commodities Act on the agricultural economy of India.

To make agriculture sustainable, the grower has got to be able to make a profit. – Sam Farr

The recent amendment to the Essential Commodities Act (ECA) via an ordinance is a welcome step owing to the crisis in the agricultural economy. It seems to be a transformative move as it is considered to be farmer-friendly. The amendment is grounded on the narrative of ‘One nation, one market’ and hogging all the spotlight right now. In light of current panorama, it becomes important to evaluate this law to highlight its possible impact on the agri-business and farmers.

What led to the amendment?

This law was enacted against the backdrop of food scarcity that was persisting in the country back in time, with the aim to put a check on hoarding and black-marketing of essential food items. However, the situation has changed since then as the statistics substantiate the fact that production has increased exponentially over the past six decades.[1] 

The economic survey 2019-2020, found ECA to be distortive of the agricultural market. Several reasons cited were ineffectiveness of stock limits in controlling price volatility, the low conviction rate in contrast to numerous raids, futile administrative efforts, etc. Survey also called upon the government to assess the relevance of ECA in the present times, asking for much-needed amendments in the obsolete law. NITI Aayog has also called this act as a hindrance to the farm exports.[2] The amendment came out after a protracted delay shown by the government in realising the need to further liberate the Agri-economy.

Finally, in the wake of the crisis created by COVID-19 in agriculture and Agri-market, by the closure of mandis and supply-chain disruptions, the government has introduced the much-awaited reforms.

Amendment and its Positive Impacts-

The amendment has added a sub-section 1(A) to Section 3 of the Act; it restricts the power of government by formulating a mechanism for regulation of foodstuffs like grains, oils, pulses, potatoes, etc. These foodstuffs can only be regulated under extraordinary circumstances, i.e., war, famine, extraordinary price rise natural calamity of grave nature, to protect the interest of consumers. Also, stock limits can be imposed on the criteria of price rise of certain commodities. It specifies that limits can be invoked only in two circumstances, i.e., in case of horticultural produce, a 100% increase in the retail price, and for non-perishable agricultural foodstuffs, set-off will be a 50% increase in the retail price. 

Interestingly, the amendment provides that the value chain participants shall be absolved from the imposition of stock limits. Therefore, in the absence of stock limits, the value chain participants such as processors, millers, importers, exporters, traders can hold as much stock of these commodities as they want to. However, the aforementioned provision is only applicable when participants are in compliance with the rider to the provision, i.e., stock held shall be less than (i) overall ceiling of installed capacity of processing, or (ii) demand for export in case of an exporter.[3] Further, orders relating to the Public Distribution System and Targeted Public Distribution System are exempted from the application of the ordinance.

The positive impacts of the amendment are multi-fold, which are both farmer-friendly as well as business-friendly. Now, it seems the power wand has been handed over to the farmers, for good. They can now store and export commodities as per their wish because the stock limits can be imposed on certain situations of excessive price rise only.

One of the major reasons behind introducing this amendment was to attract private investments into the farm sector, especially in cold storage, warehouses, processing, and export.[4] There was almost no private investment in the aforesaid facilities as many commodities fall under the purview of the act, and sudden imposition of stock limits created unnecessary ruckus and fear. Amended law will also attract foreign investments by removing excessive regulatory interference and pave the way for entrepreneurial advances.

Further, the amendment sets to herald the positive changes by increasing cold-storage and processing facilities. The lack of adequate cold-storage facilities and processing avenues often leads to wastage of perishable commodities and leaves a dent in the farmers’ pockets.[5] The move is also expected to control inflation in the lean season.

Moreover, it may lessen the instances of harassment faced by innocent exporters, producers, etc.at the hands of bureaucracy in the form of hollow raids and others. Dilution of power of imposing stock limits and exclusion of value chains may cut down such practices and reduce red-tapism.  

Possible Drawbacks-

Though these amendments are receiving much critical acclaim, the possibility of them being the harbinger of a few hazardous effects is not unlikely. The confidence shown by the government in the market power to attract investment and uplift the farm sector might be myopic in nature.

The negative implications can be seen in the following ways- 

  • Opportunists may resolve to limitless stocking, encashing upon the vacuum created by a lack of governmental responsibility to regulate prices of commodities. This will eventually lead to hoarding and black-marketing. Further, the act doesn’t distinguish between genuine stock holding and speculative hoarding, which creates a dubious situation.[6]
  • The regulation and monitoring of the market will cease to exist, as there will be no regulatory body to oversee market activities.
  • In the long run, there is a likelihood of the creation of monopolies and cartels, which can adversely affect the competition and prove to be perilous for the farmers.
  • This situation may result in a general price level hike[7] and, thus, negatively affect the industries dependent on the agricultural sector.

Conclusion

The evaluation of the law brings forth the two sides of the coin, but the million-dollar question here is whether it meets the present demand of the issue, i.e., crop loss, plummeting agricultural wages, and repayment of crop loans by farmers. It will most likely have long-run positive impacts, but immediate concerns remain unaddressed. Looking into the bigger picture, one can only hope that these reforms turn out to be efficacious by proper implementation and monitoring.


Saumya Gupta is a final year law student from NUALS, Kochi.


References

[1]Undermining Markets: When Government Intervention Hurts More Than It Helps, Economic Survey, Vol. 1, (2019-2020),https://www.indiabudget.gov.in/economicsurvey/doc/vol1chapter/echap04_vol1.pdf

[2]Joe C Mathew, Essential Commodities Act is a hindrance to Agri exports, says Niti Aayog, Business Today, (July 7, 2020,6:16 PM) https://www.businesstoday.in/sectors/agriculture/essential-commodities-act-a-hindrance-to-agri-exports-says-niti-aayog-farm-

[3]The Essential Commodities (Amendment) Ordinance,2020 (https://consumeraffairs.nic.in/sites/default/files/file-uploads/essential-commodities-order/EC_Ordinance.pdf)

[4]Union Cabinet, PM chairs Cabinet Meeting to give historic boost to Rural India, Pib (June 03, 2020, 5:02PM)https://pib.gov.in/PressReleasePage.aspx?PRID=1629033

[5]Id.

[6]Supra note 1 

[7]Farm gate in focus: On amending Essential Commodities Act, The Hindu, (May 18, 2020, 01:22 AM)https://www.thehindu.com/opinion/editorial/farm-gate-in-focus-the-hindu-editorial-on-move-to-amend-essential-commodities-act/article31609782.ece

IMPORTANT – Opinions expressed in this article are the sole responsibility of the author and do not necessarily reflect the views of IJOSLCA.

One thought on “THE ESSENTIAL COMMODITIES (AMENDMENT) ORDINANCE, 2020 – DOES IT HIT THE RIGHT NOTE?

  1. Producer support estimate (PSE), which basically measures the impact of govt policies and the subsidies and MSP and all, for India in the period of three years ending 2016-17 was at minus 6% of the farm receipts. This indicates that the overall impact on the farmers was nothing but negative, they were the loser. For the comparison see the case of China for which PSE was measured to be almost 15% and for OECD countries at 18%. That means policies there had positive impact. The liberalisation and opening of the farm sector and farm produce marketing is a long overdue reform. The ECA (1955) has been one of the impediments in the way of private investment in the agri sector. So this ordinance was much needed but at the same time, as pointed out by Ashok Gulati of ICRIER, the cap of 100% price increase over the past year average in case of perishable goods for the purpose of triggering stocking limits is very low a threshold. For example, the increase in price of onions in the markets from Rs. 20 to Rs. 40 in lean season (not a lot by any measure), will lead to stocking limit restrictions. This limit could have been set higher, not suggesting to remove the limit altogether, keeping in view the best interests of producers and consumers. So, the whole gamut reforms underway, if implemented earnestly and effectively, including changes in ECA, APMC Act, Contract Farming and e-NAM will lead to better outcomes for farmers in the time to come.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s