New Delhi, Jan. 16: Loosening of the Essential Commodities Act by the NDA in 2002 along with the absence of liberalisation in farm marketing have played a big role in soaring food prices.

Top finance ministry officials said the farm marketing (mandi) act — or more formally the Agricultural Produce Marketing Committees Act — has placed the trading in most agricultural commodities, including onions and vegetables, in the hands of 4,000-5,000 licensed traders who control the market and can at will manipulate it.

Owing to the mandi act, Indians are paying Rs 60 per kg for onions from Karnataka — while the Karnataka farmers have got just Rs 15 per kg. The rest Rs 45 per kg have gone to licensed traders and an array of middlemen.

The law says farmers can only sell to licensed traders at mandis, and that holds back any reform which can bring down vegetable prices.

“Normally, this kind of arbitrage opportunity should attract anyone with common sense (in the absence of the marketing curbs) to buy onions from the Karnataka farmers and truck it to Delhi. That would have checked prices as the new entrant would sell cheaper in Delhi and still made a killing. But the problem is you and I can’t do that, the license raj in farm commodity trading precludes that possibility,” said Rajiv Kumar, former director of Icrier (Indian Council for Research on International Economic Relations) and currently director-general of Ficci.

Previously, the excesses of the mandi act could be checked by the Essential Commodities Act.

The act, which once covered some 70 products, could be used to crack the whip on traders.

An order passed by the NDA in 2002 removed licensing requirements, stock limits and movement restrictions on specified food items. Dealers, therefore, got the freedom to control the distribution of a large variety of food products.

This was a welcome move as it ended a draconian measure that could even stop people from taking a small bag of rice from one district to another. However, it did away with the mechanism to keep rogue food traders in check.

According to finance ministry officials, the way out is to scrap the marketing act’s clauses that force farmers to sell only to licensed traders. “The way out is for us to free farmers to bargain for better prices. On the other hand, allow organised retail which will cut out middlemen,” said top officials.

They argued that reforms, if any, should be total; for purposes of control, the government could always appoint regulators.

Partial liberalisation should be avoided always — it does not do away with the licence raj, leading to middlemen making a killing at the expense of the common man.

“The problem is that even the currently diluted Essential Commodities Act could have been used by chief ministers against the trader lobby. Vegetables are not on the EC (essential commodities) list but a simple administrative order can bring onions and garlic on the list. Nobody did that,” the officials said.

The work, which police used to do in the seventies, was finally done by the income tax department who led some raids and armtwisted rogue traders to bring down prices.