Essential Commodities Act

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.

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.

The ECA was enacted in 1955 and has since been used by the Government to regulate the production, supply, and distribution of a whole host of commodities that it declares ‘essential’ to make them available to consumers at fair prices.

On 14 March 2020, the Union Government brought masks and hand-sanitizers under the act to make sure that these products—key for preventing the spread of COVID-19—are available to people at the right price and in the right quality during the COVID-19 pandemic in India.[4] As of 1 July 2020, however, the Government has removed masks and hand-sanitizers from its Essential Commodity List.

In May 2020, Finance Minister Nirmala Sitharaman suggested that the Act will be amended and stock limit will be imposed only under exceptional circumstances such as famine or other calamities. There will be no stock limit for processors and supply chain owners based on their capacity and for exporters based on the export demand.[5][6] It would also end some punitive measures. It will also deregulate agricultural produce such as pulses, onion, potato and cereals, edible oils, and oilseeds, to realize better prices for farmers.[6]

The Essential Commodities (Amendment) Ordinance was promulgated on 5 June 2020.[7] The Lok Sabha passed the ordinance to amend Essential Commodities Act on 15 September 2020, and Rajya Sabha passed it on 22 September 2020.[8] On 27 September 2020, the bill became an act after receiving approval from President Ram Nath Kovind.The Act has been already gazetted .[9]

The ordinance amends the Essential Commodities Act to allow the Government of India 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. The commodities that have been deregulated are food items, including cereals, pulses, potatoes, onion, edible oilseeds, and oils.[10] These can only be regulated in the extraordinary circumstances previously mentioned, by imposing limits on the number of stocks of such items that can be held by persons. The Ordinance states that government regulation of stocks will be based on rising prices, and can only be imposed if there is a 100% increase in retail price (in the case of horticultural produce) and 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.[11]

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