23rd May 2022

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Essential commodities revised

On Tuesday, Rajya Sabha passed the Essentials Commodities (Amendment) Bill 2020 which aims to deregulate products such as grains, legumes, oilseeds, edible oils, onions and potatoes. The bill was presented and approved at Lok Sabha last week.

  • It replaces an ordinance that the government enacted on June 5, as well as two other ordinances on the agricultural sector.
  • As with the other two ordinances (also passed as bills) that sparked protests from farmers in Punjab and Haryana, the provisions of this bill have also raised concerns.

What is the invoice about?

  • This is a four-page bill that amends the Essential Products Act of 1955 by introducing a new subsection (1A) in section 3.
  • After the amendment, the supply of certain food products, including cereals, legumes, oilseeds, edible oils, potatoes, can only be regulated in extraordinary circumstances, including an extraordinary increase in prices. , wars, famines and serious natural calamities.
  • In fact, the amendment removes these elements from the scope of Article 3 (1), which empowers the central government to “control the production, supply, distribution, of goods etc.”
  • Previously, these products were not mentioned in section 3 (1) and the reasons for invoking this section were not specified.
  • The amendments establish that “said order of regulation of the limit of stocks does not apply to a processor or participant in the value chain of an agricultural product, if the limit of stocks of said person does not exceed the general limit of the installed processing capacity or export demand in the case of an exporter … “

How do you define a “commodity”?

  • There is no specific definition of products in the Essential Products Act of 1955. Section 2 (A) states that a “product” means a product specified in the annex to the act.
  • The law empowers the central government to add or remove a product from the list.
  • The Center, if it is convinced that it is necessary to do so in the public interest, may mark an item as essential, in consultation with state governments.
  • According to the law enforcement Ministry of Consumer Affairs, Food and Public Distribution, the program currently contains seven commodities: drugs; inorganic, organic or mixed fertilizers; food products, including edible oils; wood yarn made entirely of cotton; petroleum and petroleum products; raw jute and jute textiles; food crop seeds and fruit and vegetable seeds, livestock fodder seeds, jute seeds, cotton seeds.
  • By declaring a commodity, the government can control the production, supply and distribution of that commodity and impose an inventory limit.

Under what circumstances can the government impose limits on stocks?

  • Although the 1955 law did not provide a clear framework for imposing limits on stocks, the amended law establishes a trigger price.
  • It says that agricultural food products can only be regulated in extraordinary circumstances such as wars, famines, extraordinary price increases and natural calamities.
  • However, any action on the imposition of stock limits will be based on the trigger price.
  • Therefore, in the case of horticultural products, a 100% increase in the retail price of a commodity in the preceding 12 months immediately or above the average retail price of the last five years, whichever is less two, it will be the trigger to call the stock limit.
  • For nonperishable agricultural food products, the trigger price will be a 50% increase in the retail price of the product in the immediately preceding 12 months or above the average retail price of the last five years, whichever is less.
  • However, exemptions from stock storage limits will be granted to processors and participants in the value chain of all agricultural products and orders related to the public distribution system.
  • Price triggers will also minimize the above uncertainties associated with ordering below inventory limits. This will now be more transparent and will contribute to better governance, ” said a source from the Consumer Ministry.

“The last 10 years have been marked by periods of prolonged application of Community law. Once imposed, they were for extended periods: legumes from 2006 to 2017, rice from 2008 to 2014, edible oil seeds from 2008 to 2018. Amendments to Community law aim to remove this uncertainty by defining criteria for the process of imposing limits on stocks and processing is more transparent and accountable, ”

said the source.

Why was this need felt?

  • The 1955 law was enacted at a time when the country was facing a food shortage due to persistently low levels of food grain production.
  • The country relied on imports and assistance (such as the import of wheat from the United States under PL-480) to feed the population.
  • To prevent the hoarding and black market marketing of food products, in 1955 the Essentials Act was passed.
  • But now the situation has changed. A note prepared by the Ministry of Consumption, Food and Public Distribution shows that wheat production has increased tenfold (from less than 10 million tonnes in 1955-56 to over 100 million tonnes in 2018-19), while rice production more than quadrupled (from around 25 million tonnes to 110 million tonnes in the same period). The production of pulses has increased by a factor of 2.5, from 10 million tonnes to 25 million tonnes.
  • In fact, India has now become an exporter of various agricultural products.

What will be the impact of the changes?

  • The main changes are aimed at liberating agricultural markets from the constraints imposed by permits and mandi originally designed for an era of scarcity.
  • The move is expected to attract private investment in the value chain of products removed from the list of essentials, such as grains, pulses, oilseeds, edible oils, onions and potatoes.
  • While the purpose of the law was originally to protect the interests of consumers by controlling illegal business practices such as hoarding, it has now become a barrier to investment in the agricultural sector in general and post-industrial activities harvest in particular.
  • Until now, the private sector was reluctant to invest in cold chains and storage facilities for perishable products, as most of these products fell within the scope of EU legislation and could lead to sudden stock limits. The amendment seeks to address these concerns.

Why is he opposed to it?

  • It was one of three ordinances / bills that sparked protests from farmers in parts of the country.
  • The opposition says the amendment will hurt farmers and consumers and only benefit storers. They say the price triggers envisioned in the bill are unrealistic, so high that they will hardly ever be invoked.
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