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203068 Radha-Khut EconomicsCIA1

In 1955, The Essential Commodities Act was enacted. It ensured access to essential
commodities easily to consumers and prevented shopkeepers from hoarding such goods. The
Essential Commodity Act, 1955 was used to limit inflation by allowing the Centre to control
trade in a huge variety of commodities. The state-imposed stock limits to limit the movement
of commodities that were deemed essential. It led to discouraging the hoarding of several items
such as food commodities like pulses, edible oils and vegetables. According to the Economic
Survey of 2019-10, however, the government intervention under the ECA 1955 often distorted
agricultural trade and was totally ineffective in suppressing inflation. These interventions
enable opportunities for rent-seeking and harassment. The Essential Commodities
(Amendment) Ordinance was issued on 5th June 2020 to amend this Act.
On 22nd September 2020, The Essential Commodities (Amendment) Bill was passed in the
Rajya Sabha. This bill replaced the Essential Commodities (Amendment) Ordinance which
was promulgated in June, 2020. The Bill was introduced in Lok Sabha by the Minister of State
for Consumer Affairs, Food and Public Distribution, Shri Danve Raosaheb Dadarao on 14th
September, 2020.
The Bill includes provision to remove commodities like cereals, pulses, oilseeds, edible
oils, onion and potatoes from the list of essential commodities. The storage limit of these items
has been removed. It has been provided in the bill that such foodstuff can be only regulated in
situations of war, famine, extraordinary price rise and natural calamity. This bill amends the
Essential Commodities Act to provide that stock limits for agricultural produce can be imposed
only when retail prices increase sharply and exempts value chain participants and exporters
from any stock limit. Along with liberalizing the regulatory environment, interests of
consumers have been safeguarded by the government. This ensures investments in the field of
agriculture to not be discouraged. This amendment will strengthen the overall supply chain
mechanism of the agricultural sector, according to the Minister of State for Consumer Affairs,
Food & Public Distribution.
In short, the essential commodities Bill takes away pulses, oilseeds, cereals, edible oils,
onion and potatoes from the list of essential commodities. Consequently, these
commodities are now free of the restrictions of the Essential Commodities Act and will not
be regulated.
1. Regulation of food items: This Act empowers the central government t0
designate certain commodities (such as food items, fertilizers, and petroleum
products) as essential commodities. The central government may regulate or
prohibit the production, supply, distribution, trade, and commerce of such
essential commodities. It provides that the central government may regulate
the supply of certain food items including cereals, pulses, potatoes, onions,
edible oilseeds, and oils, only under extraordinary circumstances such as war,
famine, extraordinary price rise and natural calamity.
2. Stock limit: Imposition of any stock limit on agricultural produce must be based
on price rise. A stock limit may be imposed only if there is: (i) a 100% increase
in retail price of horticultural produce; and (ii) a 50% increase in the retail price
of non-perishable agricultural food items. The increase will be calculated over
the price prevailing immediately preceding twelve months, or the average retail
price of the last five years, whichever is lower. (By PRS)
3. The Ordinance provides that any stock limit will not apply to a processor or
value chain participant of agricultural produce if stock held by such person is
less than the: (i) overall ceiling of installed capacity of processing, or (ii)
demand for export in case of an exporter. A value chain participant means a
person engaged in production, or in value addition at any stage of processing,
packaging, storage, transport, and distribution of agricultural produce.
4. Applicability to Public Distribution System: The provisions of the Ordinance
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 subsidised prices.
The following are the advantages of the Essential Commodities bill:
It will remove investors’ fear of excessive regulatory interference in business
The bill is expected to increases investment in cold storages.
It will lead to modernisation food supply chain.
Farmers will have the freedom to hold, produce, distribute and move their goods.
It will encourage foreign direct investment into the agriculture sector.
This bill is expected to solve the problem of middlemen and APMCs.
The disadvantages are:
Economists fear this bill may increase rural poverty.
Changes due to the Essential Commodities Bill may adversely affect the public
distribution system.
Private companies and firms might dictate price, thus, exploiting farmers.
Prices of commodities may lower may go unexpectedly lower.
Analysis of Current conditions & why farmers are
Agriculture Produce Marketing Committee (APMC) laws regulate agriculture markets in
India. To ensure fair trade between buyers and sellers for effective price discovery of farmers’
produce was the main objective of setting up APMC. It can regulate trade of produce by issuing
licenses to commission agents, buyers and private markets as well as levy market fees on such
trade. It also provides infrastructure in the market for trade. In short, APMC markets are
government regulated areas for price discovery of farmers’ goods.
The Standing Committee on Agriculture identifies certain issues with the APMC laws.
Limited number operate at most APMCs, this reduces competition and leads to cartelization.
In the form of commission charges and market fees, there is undue deductions. Easy entry is
not allowed into the market as commission agents, traders and others organise associations.
Thus, stifling competition. In promotion of multiple channels of marketing, such as, more
private markets, direct sale to retail consumers, more buyers, etc, the APMC Acts are strongly
restrictive. The committee also found that the model APMC and contract framing Acts have
not been implemented by the states. The committee’s observation was that the APMC laws are
not implemented effectively and reforms were necessary. The leader of grassroots farmers’
movement, Yogendra Yadav, has noted that the wholesale prices at several mandis for a
number of crops has been lower than the MSP rates the government has announced.
Minimum Support Price (MSP) is the minimum price guaranteed to farmers as a safety net
when they sell crops. Particular crops are acquired at a promised price by the government
agencies. In situations where crop prices fall drastically, MSP safeguards the farmers. It
encourages production even during a bumper crop, as it leads to fall in prices. Farmers are also
saved from having to make distress sales. Among the crops procured by the government at
MSP are wheat and rice. About 30 percent of the wheat and rice produced and 6-7 percent of
other crops are procured by the Centre at MSP. During the Green Revolution, the MSP system
ensured that the state had reserves of essential corps which could be sold at subsidised prices
to the poor.
According to the National Sample Survey’s data (2012-13), 16.2 percent of all paddy farmers
availed of the MSP system and only 13.5 percent benefited from it. NITI Aayog evaluation
report (2016) on MSP states that 79 % of farmers’ response was negative regarding the
satisfaction provided by the MSP regime. Delay in payments, distance to procurement centres,
inadequate infrastructure at procurement centres and delayed announcement of MSP rates were
the reasons for dissatisfaction.
The APMC Act passed in 1964, made it compulsory for farmers to sell at mandis or
government regulated markets. Here, middlemen helped selling the produce to either private
players or state-run companies. The Essential Commodities Bill will end the monopoly of
APMC mandis, however they will not shut down. MSP will also not be scrapped.
However, on the other hand, in Bihar, 2006, APMC Act was repealed with the objective of
attracting private investors in the agricultural sector; and to give reins of the mandis or markets
to sub-divisional officers of the concerned area. As a result, it led to a lack of necessary
marketing infrastructure because the already existing infrastructure failed over due to improper
upkeep over time. It was observed that in such unregulated markets, farmers met with the issue
of high transaction charges as well as inadequate information on arrival of produce and prices
The end of MSP system will be facilitated by the changes brought in the bill; such is the
concern of the farmers. Protestors have also raised a main concern that the government is
hesitant in giving assurance that the MSP system will not be abolished. Their other worry with
the bill is that corporates might easily exploit the system for their own gain. They claim that
wholesale markets offer even lower prices than that of MSP system set up by the state. The bill
is likely to encourage corporatisation of the agricultural sector on a large scale such is the
reason for farmers protests. It will lead to reduction of bargaining power of farmers. These bills
will cripple the famers financially, too. Farmers are protesting because they fear that they could
potentially be exploited by private players who will buy the farmers’ produce at the cheapest
Punjab and Haryana produce wheat and rice in massive qualities. The government procures
more than 85 percent of paddy and wheat grown in Punjab and 75 percent of these crops from
Haryana, at MSP rates, according to data given by the Agriculture Ministry. Wheat and rice
are significant because it is an obligation for the state to provide these grains at subsidized rate
under the PDS system. The protests against the farm bills have been strong in the states of
Punjab and Haryana for this reason. The farmers fear that the major quantity of their produce
will not be sold at MSP rates and they might not be able to sell their produce.
Farmers protesting against the newly-passed Bills have also noted that they are only likely to
enhance the corporatisation of the agriculture sector, leading to reduction of farmers'
bargaining power and crippling them financially.
According to Rashpinder Singh, a farmer from Punjab, farmers have been left at the mercy
of big corporations due to the government’s decision. To believe that farmers with who have
small land-holdings will have any bargaining power over the private players, is simply
preposterous. The provision outlines that farmers can sell their goods to whoever they want
and whenever they want. However, Mr. Rashpinder argues that a small or marginal farmer
cannot store the farm produce for months on end. It is because they do not have access to
storage facilities. Consequently, it is highly probable that the farmer will sell his produce at
unsustainable rate.
Farmers can make an agreement with private companies or firms
according to the bill. In Rashpinder’s opinion, such deals or contracts are only financially
attractive. The numerous terms and conditions mentioned in the agreement are difficult for
the farmers to cope up with. Lastly, he states that these protests and this fight is not just
about economics. But, to him and many other farmers like him, it is about their self-respect
and their freedom to grow what they desire.
CNN News 18 interviewed farmers in Haryana and these were their opinions on the bill:
1. Amrendra Singh:
According to him, government agencies and markets already exploit farmers, thus,
he is unsure whether the new farm reforms will lead to any change in the current scenarios.
He clarified that they do not have any problem with what the government is doing. On the
other hand, he just wants the government to ensure that whatever trade takes place outsi de
the mandis in unregulated markets with private companies the rate should not be less than
the Minimum Support Price.
2. Manoj Sharma:
He fears that when big corporations are allowed in the unregulated markets small and
marginal farmers, which make up the majority of farmers in Uttar Pradesh, will not be
benefitted at all.
3. Ramsalven Sharma:
Mr. Sharma believes that for farmers’ betterment what is essential is suitable price
for their produce and that the reforms need to ensure that. Private companies have always
only taken advantage of farmers’ labour. He emphasis that the farmers should get the
proper credit that they deserve for their crops.
NDTV asked farmers in Haryana and this is what they had to say regarding the farm bills:
The question posed by the farmers is that if farmers do not get Minimum Support Price in
regulated markets, and are thereby exploited, at what scale will the private companies exploit
them? In their opinion, whatever bills have been passed are solely in the favour of the
capitalists. The farmers want the government officials to know what Minimum Support Price
is and the significance it holds before passing any farm bills. They regard APMCs as the ATM,
as it fulfils the needs of poor farmers. It gives them the assurance that they will get paid for
their crop regardless of the circumstances.
In short, farmers just want the guarantee that the prices they receive for their produce are
not less than the Minimum Support Price. Farmers are anxious about private players taking
advantage of them, too.
In my opinion, the Essential Commodities Bill does not inherently lack anything as such.
However, it fails to assure the farmer that they will not be at a loss due to these reforms. The
government must take into consideration the fear of corporate exploitation and ensure that
farmers do not have to suffer due to capital gain of private owners. I would suggest that the
farm bills include some provisions by taking into account farmers’ opinions, such as ensuring
that farmers receive not less than Minimum Support Price for selling their produce to the
unregulated markets.