Essential Commodities Act (ECA), 1955

 Essential Commodities Act (ECA), 1955

The ECA has been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential in order to make them available to consumers at fair prices. The ECA gives consumers protection against irrational spikes in prices of essential commodities. However, it has acted against the interest of the farmers. This has thwarted the creation of integrated value chains across the country. ECA has its roots in the Defence of India Rules of 1943, when India was ravaged by famine and was facing the effects of World War II. It was scarcity-era legislation.

By the mid-1960s, hit by back-to-back droughts, India had to depend upon wheat imports from the US and the country was labelled as a “ship to mouth” economy. However, today, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China. Due to these factors, the Economic Survey 2020, has recommended repealing this “anachronistic” Act.

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 States act on this notification to specify limits and take steps to ensure that these are adhered to. Anybody trading or dealing in a commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity. The traders have to immediately sell into the market any stocks held beyond the mandated quantity.

Thus, the Government has invoked the Act umpteen times to ensure adequate supplies and cracked down on hoarders and black-marketeers of such commodities. Given that almost all crops are seasonal, ensuring round-the-clock supply requires an adequate build-up of stocks during the season. As, it may not always be possible to differentiate between genuine stock build-up and speculative hoarding. Further, with too-frequent stock limits, traders also may have no reason to invest in better storage infrastructure. Also, food processing industries need to maintain large stocks to run their operations smoothly. Stock limits curtail their operations.

In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities. Due to lack of storage facilities, when farmers bring their produce to the market after the harvest, there is often a glut, and prices plummet.

All this hurts the farmer. In the lean season, prices start flaring up for the consumers. So, both farmer and consumer lose out because of the lack of storage facilities.