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AN ANALYSIS OF THE ESSENTIAL COMMODITIES (AMENDMENT) ACT 2020

Introduction
The Essential Commodities (Amendment) Ordinance[1], enacted on June 5, 2020, as an amendment to the Essential Commodities Act 1955[2], clarifies the specifications under which the Government is authorised to regulate the production and trade of certain commodities deemed essential under the Act, the purpose being to ensure fair prices for consumers as well as the prevention of short supplies and high prices. The ordinance, however, deregulates certain commodities in order to restrict government empowerment to regulate supplies and prices. Although the purpose of the Act is to ensure fair prices which benefit both agricultural workers and consumers, the statistics show that the farmers’ livelihoods have not seen the projected increase.
History and Background
The Essential Commodities Act (ECA) 1955 was established in order to ensure the supply of certain commodities which were deemed essential by the Central Government, with the availability of supply at fair prices for consumers and with the minimum support prices (MSP) set to ensure the stable wellbeing of the primary sector. This Act was the successor of various regulations passed by the British[3], which were enacted to control the supply of goods necessary for the war efforts. In replacement of these regulations, the ECA was developed; however, it retained a majority of the substance, leading to outdated provisions remaining in effect until the amendment sixty-five years later, in 2020. Whilst there have been various changes to the list over the years, such as the repealing of various control orders (reinstated in 2015) or revision in March 13, 2020, to include masks and hand sanitiser for a limited period during COVID-19, there have been no substantial changes to its provisions. The fact that the provisions themselves, including the taxation imposed on agricultural products – intended to benefit the farmers – above the minimum support prices of the products, have remained unchanged leads to the deficiency in some parts of the Act. Whilst historically, this was likely intentional in order to maximise profits for governors, this currently leads to the unfair deficit in income for the more impoverished farmers and suppliers. The need for change was seen starkly in the Economic Survey 2019-20[4]; it was stated that neither goal – namely reducing prices and stabilising them – had been reached. Instead, loopholes for rent-seeking and harassment are enabled. As mentioned in the report, the price volatility of essential goods in 2019 was in fact more erratic than usual, with meagre conviction rates and high raid rates. Due to this, the archaic nature of the Act was highlighted with the need for revision of its policies.
An Analysis of the Amendment Act 2020
The Amendment Act is the smallest and most crucial law of 2020 for the farmers of India. The Act of 1955 had eight categories of articles on which the Centre had control through the state governments. These included drugs, fertilisers food, oils, hank yarn, petroleum and its products, raw jute and its textiles, seeds of food-crops and fruits and vegetables, grains of cattle fodder and cotton and jute seeds. The Government, predicting the demand of COVID-19, on March 13, 2020, declared the addition of masks, surgical masks and hand sanitisers[5] in this schedule of the Act, in order to ensure smooth and stable availability and sale. The Government also announced that any offender of the Act would be liable for an imprisonment of up to 7 years or fine or both. The ECA empowers the Government to control the storage and sale price of any good[6], which is included in this list. The Centre, through its powers under the Act, allows the state governments to issue ‘control orders’ which then inter-alia, monitor the movement of goods within and across states and fix stock limits. It can also make licensing compulsory and impose a custom on the production of goods.
The 2020 Amendment endeavours to add the suggestions of the 2019 Economic Survey. It brought four significant changes, which are:
  1. It grants regulation only under exceptional situations which include war, famine, extraordinary price rise and critical natural calamity. During these situations, the governments can impose stock limits, through some specific conditions prescribed under clause 2 (1A).
  2. It authorises the Centre to regulate stock of an essential commodity that a person can hold by imposing limits based on a price system. The conditions are either a 100% increase in the retail price of horticultural produce or a 50% increase in the retail price of non-perishable agricultural food items. This increment will be calculated over the price prevailing immediately preceding twelve months, or the average retail price of the last five years, whichever is lower.
  3. The stock limit mentioned above is also declared through the amendment act, to not to be applied to a processor or value chain participant of agricultural produce if stock held by such person is less than either the overall ceiling of installed capacity of processing or the demand for export in case of an exporter. A value chain participant means a person engaged in production, or value-added at any stage of processing, packaging, storage, transport, and distribution of agricultural produce.
  4. The terms of the Act concerning the regulation of food items and the imposition of stock limits are said to not apply to any government order relating to the Public Distribution System or the Targeted Public Distribution System, wherein food grains are distributed by the Government to eligible persons at subsidised prices.
Loopholes in the Act
 The following are the Loopholes in the taxation policy of the ECA 2020:
  1. Agriculture is a seasonal economic sector, during harvest season supply is maximum, and prices are lowest. However, an endeavour of keeping the supply smooth and reducing price volatility is conveniently criminalised by this Act, as it prevents any store produce by farmers or traders. This makes it feasible for a farmer to earn a profit.
  2. This legislation acts as a means to protect consumers from unethical intermediaries and traders; however, the mere suggestion of unethical practices regarding the abusing of excessive supplies for profit should not be sufficient for the Government to issue a Control Order. Unlike modern competition law, requiring the Government to prove the person is abusing their dominant position and monopolising the market, the ECA does not lay requirements for the Government to analyse the actions before issuing an Order.
  3. The incentives which the ECA reinforces include deterrence from investing or engaging with warehousing or long-term storage facilities unless it is undertaken by stakeholders who are unconcerned with the likely raids. Thus, third-party actors or others unconcerned with the risks of a raid due to connections or other unfair advantages can control the long-term food stock not under Government control.
  4. The 2019 survey on the effectiveness of this Act revealed that, in the year of 2019 alone, around seventy-six thousand raids were undertaken under this Act and only around twenty-nine hundred were convicted. This reveals that the Act is both prone to misapplication and inefficient.
  5. The process of identifying actual hoarders and convicting them is complicated and inefficient. Neither small brokers nor corporatised, they have numerous roads to spirit away and hoard supplies. They often disappear without paying the penalty, thrusting the burden on the authentic players.
  6. 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.
  7. 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.
  8. The exemption conditions – namely the ceiling limit of installed capacity of processing and the export demand, are progressive and are 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.
Reforms Suggested
 The following are suggestions to address deficiencies in the Act:
  1. Our nation is heavily dependent on monsoon for sufficient food grain production. Moreover, the landholdings are small and marginal. The Act must provide for periodic climate and natural issues, such as locust attacks, which may not be ‘extraordinary circumstances’, yet render massive loss to farmers.
  2. The timing of this amendment ordinance is likely to benefit big traders, corporations and Multinational Corporations, not the farmers directly. The Government must ensure that sustainable farm growth takes into consideration factors like climate change, land holdings, consumer capacity and farmers’ interests.
  3. The Government must change the existing Act by rendering the responsibility of confiscation proceedings under Section 6A to designated full-time officers under the Collectors.
  4. While removing restrictions on trading, the Government must be informed of private trade and the demand of a commodity[7], stocks held by the private sector, and the estimated production and availability of crops. Subsequently, the Government may establish meaningful policies to ensure a fair price to farmers and to keep hoarding and undue price raising by unscrupulous elements in check.
Conclusion
This ordinance act of 2020 has established a crucial milestone in providing relief to the consumers as well as the farmers of India. Though the Act has neglected several legal and administrative measures required for its efficient implementation; it did acknowledge the Economic Survey and the Court’s Opinions. It also incorporated the views of stakeholders, media and the general public.
Maldistribution consequent to the ECA has been a result of improper implementation of the law and the excess issuance of Control Orders controlling supply and distribution. This calls for the objective and effective execution of delegated powers under the Act to prevent encroaching upon the rights of the farmers. Besides curbing the issue of budgetary subsidies not reaching the proper beneficiaries and need for methods other than blanket bans to implement anti-hoarding policies (allowing farmers to maintain off-season supplies)[8], the lack of strict penal liability also creates the buildup of offences booked under the Act; however, with updated provisions and stringent implementation, these concerns can be addressed.

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REFERENCES

[1] THE ESSENTIAL COMMODITIES ACT, 1955, ACT NO. 10 OF 1955, INDIA CODE.
[2] Mooij, Jos. The Political Economy of the ‘Essential Commodities Act. No. 2289-2019-4400. 1995.
[3] Patel, Maneklal D. “Essential Commodities Act, 1955.” Bhadra, India: Gujarat Law House (1965).
[4] ECONOMIC SURVEY 2019-2020, VOLUME I, CHAPTER IV, ‘Undermining Markets: When Government Intervention Hurts More Than It Helps’, Page 72- 93, https://www.indiabudget.gov.in/economicsurvey/doc/echapter.pdf. Accessed September 3, 2020.
[5] Patnaik I., Roy S., ‘Draconian Essential Commodities Act needs to go if India wants to raise farm incomes’, Opinion, The Print, 25 January 2019 10:41 IST, https://theprint.in/opinion/draconian-essential-commodities-act-needs-to-go-if-india-wants-to-raise-farm-incomes/183006/. >Accessed September 3, 2020.
[6] Special Correspondent, ‘Coronavirus lockdown: Invoke Essential Commodities Act to curb black marketing, Home Secretary tells States’, National, The Hindu, 08 April 2020 13:03 IST, https://www.thehindu.com/news/national/coronavirus-lockdown-invoke-essential-commodities-act-to-curb-black-marketing-home-secretary-tells-states/article31287034.ece. >Accessed September 3, 2020.
[7] Tushar K. Shah, Analysis of Essential Commodities (Amendment) Ordinance, 2020, Lexology, 11 June 2020, https://www.lexology.com/library/detail.aspx?g=23c8eb6d-279c-436b-afea-bab190d604a6. >Accessed September 3, 2020.
[8] Hussain S., The Fine Print of the Essential Commodities Act Ordinance Must be Carefully Parsed, Agriculture, The Wire, https://thewire.in/agriculture/the-fine-print-of-the-essential-commodities-act-ordinance-must-be-carefully-parsed. >Accessed September 3, 2020.
ABOUT THE AUTHOR(S)

 

Kavya Veerla is a 2nd-year law student at CHRIST (Deemed to be University), Bengaluru.

 

 

 

Tannvi is a 2nd-year law student at CHRIST (Deemed to be University), Bengaluru. 

In Content Picture Credit: The Wire

 

 

 

Kindly note that the views and opinions expressed are of the author(s) and not of the Indian Journal of Law and Public Policy.

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