essential commodities

The Center has invoked the Essential Commodities Act of 1955 to ask states to monitor and verify the stocks of Arhar/Tur Dal available with traders. Under the EC Act of 1955, if the central government thinks that it is necessary to maintain or increase supplies of any essential commodity or make it available at fair prices, it can regulate or prohibit the production, supply, distribution, and sale of that commodity.

Essential Commodities Act in India

  • The ECA, 1955 was established to ensure the delivery of certain commodities or products, the supply of which, if obstructed due to hoarding or black marketing, would affect the normal life of the people.
  • The list of items under the Act includes drugs, fertilizers, pulses, and edible oils, as well as petroleum and petroleum products.
  • The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.
  • Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.

Essential Commodities Act – Objectives

  • The ECA 1955 was used to control inflation by allowing the Centre to allow state governments to control trade in a wide range of commodities.
  • Stock limits were imposed by the states to restrict the movement of any commodity deemed essential.
  • It aided in discouraging the hoarding of commodities such as pulses, edible oils, and vegetables.
  • The Act empowers the central government to include or exclude a good from the Schedule.
  • The ECA was enacted in 1955 and has since been used by the government to regulate the production, supply, and distribution of a wide range of commodities that it deems “essential” in order to make them affordable to consumers.
  • The government makes these commodities available for consumption at reasonable prices in this manner.
  • The government may also set a minimum support price if it deems it necessary.

How does Essential Commodities Act work?

(1) Centre notifying stock limit holding

  • 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 the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.

(2) States can opt-out

  • 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.

What happens for non-compliance?

  • As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
  • The excess stocks are auctioned or sold through fair-price shops.
  • This improves supplies and brings down prices.

What about Food Items?

(1) Items covered:

Rice, wheat, atta, gram dal, arhar dal, moong dal, urad dal, masoor, dal, tea, sugar, salt, Vanaspati, groundnut oil, mustard oil, milk, soya oil, palm oil, sunflower oil, gur, potato, onion, and tomato.

(2) Price Stabilization Fund (PSF):

The government utilizes the buffer of agri-horticultural commodities like pulses, onions, etc. built under the Price Stabilization Fund (PSF) to help moderate the volatility in prices.

Recent amendments to the ECA

In 2020, the EC Act was amended to allow the stock limit to be imposed only under exceptional circumstances, such as famine or other calamities.

  • Exceptional circumstances: It allowed the center to delist certain commodities as essential, allowing the government to regulate their supply and prices only in cases of war, famine, extraordinary price rises, or natural calamities.
  • Commodities de-regulated: The commodities that have been deregulated are food items, including cereals, pulses, potatoes, onion, edible oilseeds, and oils.

Exceptions provided

  • The government regulation of stocks will be based on rising prices, and can only be imposed if there is
  1. A 100% increase in retail price in the case of horticultural produce and
  2. A 50% increase in retail price in the case of non-perishable agricultural food items
  • These restrictions will not apply to stocks of food held for public distribution in India.

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