Scrapping the Essential Commodities Act may do little to increase investments
The Niti Aayog has been considering whether to keep the Essential Commodities Act 1955 in abeyance for 10 years, or to scrap it altogether. The Act enables the government to impose limits on stocks of goods considered essential, and to restrict their physical movement. The law was framed in times of economic scarcity to deter hoarding by black marketeers. The State can prescribe stock limits, and any inventory above that has to be sold in the open market or to State agencies immediately. Penalties for non-compliance are stiff: up to seven years of rigorous imprisonment. The commodities included under the legislation are food items, agricultural seeds, edible oils, drugs, fertilizers and petrol and petroleum products. The government may, under the Act, add or remove commodities from the list of essential items. Niti Aayog’s argument has been that the law permits governments to enforce strict controls in agriculture without serving notice. This apprehension, according to Niti Aayog, prevents much needed private investments in agriculture in areas like storage capacity and logistics for improved supply chains. Right now, the share of private corporate investment to total investment in agriculture is a paltry 2.4 per cent. Agriculture receives only 0.4 per cent of the total private investment; yet the sector contributes 15 per cent of the gross domestic product. Private investors have pointed out that unless there is a more enabling environment in the sector, investments will not increase. The possibility of increased doses of private capital infusion into the sector is undoubtedly important. Agriculture also needs other structural reforms pertaining to property rights, leasing, contract farming and improved management of resources. Hence, Niti Aayog has to look at agriculture in a comprehensive manner in terms of a package of reforms.
However, a sudden removal of the Essential Commodities Act might not necessarily increase investments. Capital formation depends on a long list of parameters where the possibility of government intervention is one out of many. The other concern would be that in case of acute droughts or prolonged floods, there may be a spike in prices that can trigger speculative hoarding. It would be difficult to control such extreme events without a conducive Act. Indian agriculture is not doing too well at the moment and these extreme situations are not entirely improbable given the widespread nature of farmers’ distress. It may be a wise move if provisions of the Act are diluted, reducing penalties, and making the restrictive provisions easier to anticipate.