india

Updated: Sep 25, 2019 08:43 IST

The government may abolish the Essential Commodities Act, 1955, or whittle down its provisions considerably, part of options being weighed by the government to stimulate an economy fast losing steam, people with knowledge of the matter have said.

“We will be recommending abolishing the Act or rewriting it completely so that it does not discourage agricultural trade,” an official overseeing agricultural reforms said, requesting anonymity said.

Separately, the consumer affairs ministry too has sought inputs from all states on rationalizing the Essential Commodities Act to boost investments in the agricultural sector.

The Act imposes restrictions on the food economy by limiting food quantities traders can buy from farmers and hold as stocks. There are no permanent storage ceilings or commodities under Act but the law empowers the government to include or exclude items when “deemed necessary”.

In the commodities market, the law is mainly used to target black-marketeers, who may hoard commodities. It is also used to rein in prices of items deemed essential under the Act by forcing traders to release stocks.

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Traders analysts say if a trader cannot buy or hold sufficient quantities of grains for a certain profit margins, he or she would not buy out surpluses from that farmers may have to sell. This has been identified as one of the reasons why farm incomes have taken a hit.

The consumer affairs ministry has sought states’ suggestions on revising criminal provisions in the Act to make it “more attuned to government’s policy regarding ease of doing business”, a second official said.

The law came in handy during the 1980s when hoarding, or the unscrupulous trade practice of holding on to food stocks to artificially raise prices, used to be rampant. The law is still used to crack down on inflationary spells in food items, mainly by disallowing wholesalers and retailers from storing food items beyond stipulated quantities.

Fine-tuned inflation control by the central bank has more less snuffed out inflation from the economy. “The problem now is that we want some inflation back, especially in food items. The Essential Commodities Act therefore must be only sparingly used,” the first official said.

Read: What makes your onions so expensive at this time of the year | Analysis

According to the latest official data, wholesale inflation in July fell to its lowest in several years at 1.08%, mainly on account of cheaper fuel and food. Retail food inflation inched up slightly to 2.36% in July, compared to a 2.25% rise in June. Low inflation may mean cheaper goods, but it also a sign of weak demand in the economy.

Cheap food may benefit consumers, but hurts producers of food. It is a key reason for depressed farm incomes, which have impacted rural demand for manufactured goods. This is a key reason for the current economic slowdown.

“The government appears still confused on what should be done. It should make up its mind. It talks of liberalizing the Essential Commodities Act but also actively uses it whenever it feels the need to,” said Rahul Kanojia of Comtrade, a trading firm.

For instance, the government had brought onions and potatoes under the purview of the Essential Commodities Act for a year to curb hoarding in July 2014. It then removed them after prices cooled.

That decision had come after six states, Delhi, Chhattisgarh, Madhya Pradesh, Mizoram, Tripura and West Bengal urged the Centre to enforce such a measure.

Similarly, through 2015, controls under the Essential Commodities Act continued to be applied to pulses, edible oil and oilseeds and these measures were in force till September 2016. At the level of states, state governments use it according to prevailing local market conditions. Sugar is a prime example of a widely consumed commodity that is regulated by the Act.