Food Procurement and Distribution – PDS & NFSA, Shanta Kumar Committee, FCI restructuring, Buffer stock, etc.

Redefining essential items: why it was needed, and who it will impact


From UPSC perspective, the following things are important :

Prelims level: Essential Commodities

Mains level: Essential Commodities (Amendment) Bill, 2020

Recently, the Rajya Sabha passed the Essential Commodities (Amendment) Bill, 2020 which is aimed at deregulating commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes.

Try this question:

What are the salient features of Essential Commodities (Amendment) Bill, 2020?

Essential Commodities (Amendment) Bill, 2020

  • It amends the Essential Commodities Act, 1955, by introducing a new Subsection 1(A) in Section 3.
  • After the amendment, the supply of certain foodstuffs — including cereals, pulses, oilseeds, edible oils, potato — can be regulated only under extraordinary circumstances, which include an extraordinary price rise, war, famine, and natural calamity of a severe nature.
  • In effect, the amendment takes these items out from the purview of Section 3(1), which gives powers to the central government to “control production, supply, distribution, etc, of essential commodities”.
  • Earlier, these commodities were not mentioned under Section 3(1) and reasons for invoking the section were not specified.

How is an ‘essential commodity’ defined?

  • There is no specific definition of essential commodities in the Essential Commodities Act, 1955. Section 2(A) states that an “essential commodity” means a commodity specified in the Schedule of the Act.
  • The Act gives powers to the central government to add or remove a commodity in the Schedule.
  • The Centre, if it is satisfied that it is necessary to do so in the public interest, can notify an item as essential, in consultation with state governments.

Which are those commodities?

  • According to the Ministry of Consumer Affairs, Food and Public Distribution, which implements the Act, the Schedule at present contain seven commodities.
  • They are drugs; fertilizers, whether inorganic, organic or mixed; foodstuffs including edible oils; hank yarn made wholly from cotton; petroleum and petroleum products; raw jute and jute textiles; seeds of food-crops and seeds of fruits and vegetables, seeds of cattle fodder, jute seed, cottonseed.
  • By declaring a commodity as essential, the government can control the production, supply, and distribution of that commodity, and impose a stock limit.

Under what circumstances can the government impose stock limits?

  • While the 1955 Act did not provide a clear framework to impose stock limits, the amended Act provides for a price trigger.
  • It says that agricultural foodstuffs can only be regulated under extraordinary circumstances such as war, famine, extraordinary price rise, and natural calamity.
  • However, any action on imposing stock limits will be based on the price trigger.
  • Thus, in case of horticultural produce, a 100% increase in the retail price of a commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower, will be the trigger for invoking the stock limit.
  • For non-perishable agricultural foodstuffs, the price trigger will be a 50% increase in the retail price of the commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower.

Why was the need for this felt?

  • The 1955 Act was legislated at a time when the country was facing a scarcity of foodstuffs due to persistently low levels of foodgrains production.
  • The country was dependent on imports and assistance (such as wheat import from the US under PL-480) to feed the population.
  • To prevent hoarding and black marketing of foodstuffs, the Essential Commodities Act was enacted in 1955. But now the situation has changed.
  • The production of wheat has increased 10 times while the production of rice has increased more than four times since five decades.
  • The production of pulses has increased 2.5 times, from 10 million tonnes to 25 million tonnes. In fact, India has now become an exporter of several agricultural products.

What will be the impact of the amendments?

  • The key changes seek to free agricultural markets from the limitations imposed by permits and mandis that were originally designed for an era of scarcity.
  • The move is expected to attract private investment in the value chain of commodities removed from the list of essentials, such as cereals, pulses, oilseeds, edible oils, onions and potatoes.
  • While the purpose of the Act was originally to check illegal trade practices such as hoarding, it has now become a hurdle for investment in the agriculture sector in general, and in post-harvesting activities in particular.
  • The private sector had so far hesitated about investing in cold chains and storage facilities for perishable items as most of these commodities were under the ambit of the EC Act.
  • The amendment seeks to address such concerns.

Why is it being opposed?

  • This was one of the three ordinances/Bills that have seen protests from farmers in parts of the country.
  • The Opposition says the amendment will hurt farmers and consumers, and will only benefit hoarders.
  • They say the price triggers envisioned in the Bill are unrealistic — so high that they will hardly ever be invoked.

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