Essential Commodities (Amendment) Act, 2020: A Move from Scarcity to Food Security

Essential Commodities (Amendment) Act, 2020: A Move from Scarcity to Food Security

Executive Summary:

• The Essential Commodities Act has been amended during the last Parliament session, 65 years after it was first enacted. The government has promised it is a win-win reform for farmers, consumers and investors.
• Amendment deals with the control of the production, supply and distribution of certain commodities. It proposes to remove cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities and focusses on increasing competition in the agriculture sector and enhance farmers’ income. It also aims to remove fears of private investors of excessive regulatory interference in their business operations.
• There will be stock limit imposed under very exceptional circumstances like a famine with surge in prices.
• The reform is a part of Central Government’s ‘Atma Nirbhar Bharat Abhiyan’- better price realization for farmers, attract investments and make agricultural sector competitive. and thus, it’s a move from food scarcity to food security.

Understanding the need to amend Essential Commodities Act:

The Essential Commodities Act, 1955 was enacted to ensure the easy availability of essential commodities to consumers at fair prices and to protect them from exploitation by unscrupulous traders.

While India has become surplus in most agri-commodities, farmers have been unable to get better prices due to lack of investment in cold storage, warehouses, processing and export as the entrepreneurial spirit gets dampened due to the fear of The Essential Commodities Act. Farmers suffer huge losses when there are bumper harvests, especially of perishable commodities. With adequate processing facilities, much of this wastage can be reduced.

The Essential Commodities (Amendment) Bill, 2020 was introduced in the Lok Sabha by Shri Danve Raosaheb Dadarao, Minister of Consumer Affairs, Food and Public Distribution on 14th September, 2020. It was passed by the Lok Sabha on 15th September, 2020 and by the Rajya Sabha on 22th September, 2020. The Bill thereafter received the President’s assent on 27th September, 2020 thus making it a law.

The amendment removes the stringent restrictions on stock, movement and price control of agricultural foodstuffs and aims to prevent wastage of agri-produce due to lack of storage facilities and will help to achieve the government’s promise to double the farmer’s income by promoting investment in this sector and promote ease of doing business.

The benefits of the Amendments with regard to the Essential Commodities Act:

• Reduction of Regulatory Interference:  With the amendment to Essential Commodities Act, commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes will be removed from list of essential commodities. This will remove fears of private investors of excessive regulatory interference in their business operations.
• Attraction of FDI’s and Private Sectors: The freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/foreign direct investment into agriculture sector. It will help drive up investment in cold storages and modernization of food supply chain.
• Interest of Consumers will be Safeguarded: The Government, while liberalizing the regulatory environment, has also ensured that interests of consumers are safeguarded. It has been provided in the Amendment that in situations such as war, famine, extraordinary price rise and natural calamity, such agricultural foodstuff can be regulated.
• Encouragement in Investment: The installed capacity of a value chain participant and the export demand of an exporter will remain exempted from such stock limit imposition so as to ensure that investments in agriculture are not discouraged.
• Price Stability: The amendment will help both farmers and consumers while bringing in price stability. It will create competitive market environment and also prevent wastage of agri-produce that happens due to lack of storage facilities.

Salient Changes in the act:

• In Essential Commodities (Amendment) Act, 2020, there is a provision to deregulate commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes.
• The amended law provides a mechanism for the “regulation” of agricultural foodstuffs, namely cereals, pulses, oilseeds, edible oils, potato, and supplies under extraordinary circumstances, which include extraordinary price rise, war, famine, and natural calamity of a severe nature.
• It has been clarified that the provisions of the amendment Act, regarding the regulation of food items and the imposition of stock limits will not apply to any Government order relating to the Public Distribution System or the Targeted Public Distribution System. Under these systems, food grains are distributed by the Government to the eligible persons at subsidized prices.
• Farmers can directly market their products and cut the cost of intermediaries that will help them in realizing full payment and also engage directly with wholesalers, exporters and large retailers for conducting trade.
• This Act provides for the freedom from the barriers laid down by Agricultural Produce Market Committee (APMC) Act. Farmers can now sell their products where they get good price. This is a step initiated towards “One Nation One Market.”

Critical Analysis:

• The Amendment Act overlooks sectors such as Petrol and Petroleum, Jute, and Essential Drugs. These commodities were mentioned under the 1955 Act; however, no measures were taken to promote their supplies.
• The exemption conditions-namely the ceiling limit of installed capacity of processing and the export demand is progressive and is bound to increase. Therefore, if the processor/participant desires to increase the stocking limit, it must increase installed capacity or procure more export order. This foreseeable growth in the production was not included in the provision.
• The usage of the terms, such as ‘extraordinary circumstances’, ‘extraordinary price rise’ or ‘natural calamity of grave nature’ is highly subjective, thus prone to interpretational disputes.
• The process of identifying actual hoarders and convicting them is complicated and inefficient. Neither small brokers nor corporatized, they have numerous roads to spirit away and hoard supplies. They often disappear without paying the penalty, thrusting the burden on the authentic players.

Conclusion:

The Essential Commodities (Amendment) Act of 2020 has established a crucial milestone in providing relief to the consumers as well as the farmers of India. It will help to cut wastage of farm product due to improvement in storage facilities. Such measures will also help to bring about price stability of the foodstuff. Besides, farmer’s incomes will also increase which will boost agricultural productivity. It will also encourage competitive market environment.

It cannot be denied that the government not regulating the supply of such food items means the chances of hoarding are high which in turn may lead to superficial scarcity and in turn increase in prices. The key lies in proper implementation of the provisions as envisioned so that the consumer and farmer both are benefitted.

Regards,
Legal Team

Proind Business Solutions Private Limited
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