Essential Commodities Act
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Baljit Dhaka

Essential Commodities Act

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Essential Commodities Act

Why in News?

Govt brings masks and hand sanitizers under the Essential Commodities Act.

Under the EC Act, powers of the Central Government have already been delegated to the States by way of orders from 1972 to 1978.  The States/UTs therefore may take action against the offenders.

Background:

The coronavirus pandemic has triggered panic buying of masks and hand sanitizers at many places around the world, including in India.

The government’s order has come in the wake of reports of a shortage of these commodities and a sudden and sharp spike in their prices, and the alleged hoarding of stocks by manufacturers.

What is the Essential Commodities Act?

The ECA was enacted way back in 1955.

It has since been used by the Government to regulate the production, supply, and distribution of a whole host of commodities it declares ‘essential’ to make them available to consumers at fair prices.

The list of items under the Act includes drugs, fertilizers, pulses, and edible oils, and petroleum and petroleum products.

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

Under the Act, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.

How does it work?

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 is prevented from stockpiling it beyond a certain quantity.

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.

But, why the recent Economic Survey said that this act is outdated and must go?

In September 2019, the Centre invoked the ECA Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the Kharif crop and led to a sustained spike in prices.

Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.

This is because the ECA act fails to differentiate between hoarding and Storage.

Thus in the long term, the Act disincentives development of storage infrastructure, thereby leading to increased volatility in prices following production/consumption shocks — the opposite of what it is intended for.

The report finds that the ECA has been enacted in the year 1955 when the economy was ravaged by famine and food shortages. The government should note that today’s scenario is much more different.

Why is it important?

The ECA gives consumers protection against irrational spikes in prices of essential commodities.

The Government has invoked the Act umpteen times to ensure adequate supplies.

It cracks down on hoarders and black-marketeers of such commodities.

State agencies conduct raids to get everyone to toe the line and the errant are punished.

Conclusion:

Without the ECA the common man would be at the mercy of opportunistic traders and shopkeepers. It empowers the government to control prices directly too.