What is ECA ?

Just after the outbreak of the coronavirus, the Central Government (Ministry of Consumer Affairs, Food and Public Distribution) issued notifications in accordance with the Essential Commodities Act – 1955, i.e the Central Government has declared the sanitizer and hand masks as essential items until June 30, 2020. Through this notification, GOI prohibited the hoarding and overcharging of these two essentials.

Some of the names on the essential products list are as follows

Petroleum and its products, including petrol, diesel, kerosene, solvents, Naphtha, etc.
Food items, edible oils and seeds, vegetables, pulses, paddy, sugarcane and its products such as khandasari and sugar, etc.
Jute and Textiles
Fertilizer (Restrictions on transfer and stock of fertilizers apart from prices)
Hand Sanitizer and Mask.

The center can add new items whenever needed and remove them from the list if the situation improves. Therefore, the commodities mentioned above can also be deleted.

On 3^rd June 2020 Union Cabinet amended this list through the ordinance route, commodities such as cereals, edible oils, oilseeds, pulses, onions and potato are expected to be deregulated, as FM Sitharaman said last month that an inventory limit would not be applied to processors or participants in the value chain after the change in the commodity law. Such limits will only be imposed in exceptional circumstances, such as national calamities or famine.

What is it?

While India is a market economy where prices are apparently determined by demand and supply, these laws allow the Center to intervene in the market to protect the interests of consumers.

One of these key laws is the Essential Products Act. The ECA was enacted in 1955. Since then, the government has used it to regulate the production, supply, and distribution of a variety of commodities it declares “essential” to make them available to consumers at fair prices.

Aims and Objectives of the Essential Commodities Act, 1955

It maintains an uninterrupted supply of essential commodities in the country.
The government (Ministry of Consumer Affairs, Food & Public Distribution) tries to keep the price of essential commodities stable. The central government also fixes the maximum retail price for such goods.As in the recent case of masks, the maximum retail price of 2 ply masks has been fixed at Rs 16.
It Prevents unnecessary storage of essential commodities
It stops black marketing of essential commodities

How it works

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 are 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. This improves supplies and brings down prices. 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.

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.

Other side to the story

Given that almost all crops are seasonal, ensuring round-the-clock supply requires adequate build-up of stocks during the season. So, it may not always be possible to differentiate between genuine stock build-up and speculative hoarding.

Also, there can be genuine shortages triggered by weather-related disruptions in which case prices will move up. So, if prices are always monitored, farmers may have no incentive to farm. With too-frequent stock limits, traders also may have no reason to invest in better storage infrastructure.

Also, food processing industries need to maintain large stocks to run their operations smoothly. Stock limits curtail their operations. In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities.

Summary

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. The Government can fix the retail price of any packaged commodity that falls under the ECA.