Survey suggests scrapping of 'anachronistic' Essential Commodity Act 1955

The Economic Survey on Friday pitched for scrapping of the Essential Commodities Act (ECA), saying the law is "anachronistic" that leads to harassment and is of no help in checking price volatility.

The Survey also favoured "dynamic" foodgrain policy that allows switching from procurement and distribution of grains to cash transfers, but disfavoured loan waiver to farmers that disrupts the credit culture.

"The consumer affairs ministry and its related arms must examine whether the anachronistic ECA, which was passed in 1955 in an India worried about famines and shortages, is relevant in today's India," it observed.

Stating that around 76,000 raids under the ECA were conducted last year, the Survey said that considerable administrative effort goes into enforcement of this law assuming a minimum of 5 persons involved in a raid.

"As the conviction rate, however, is abysmally low and raids have no impact on prices, the ECA only seems to enable rent-seeking and harassment. The Survey provides clear evidence that the case for jettisoning this anachronistic legislation is strong," the document said.

The Survey noted that frequent and unpredictable imposition of blanket stock limits on commodities under this law "distorts the incentives for the creation of storage infrastructure by the private sector, movement up the agricultural value chain and development of national market for agricultural commodities".

Imposition of stock limits on dal in the third quarter of 2006, sugar in first quarter of 2009 and onions in September 2019 had no effect on the volatility of the retail and wholesale prices of onions, it said.

The ECA, 1955, was enacted to control the production, supply and distribution of, and trade and commerce in, certain goods considered as essential commodities. The Act itself does not lay out rules and regulations but allows the states to issue control orders related to dealer licensing, regulate stock limits, restrict movement of goods and requirements of compulsory purchases under a levy system.

On the huge buffer stock of foodgrains, the Survey said "the government policies in the foodgrains markets have led to the emergence of government as the largest procurer and hoarder of rice and wheat crowding out".

This has led to burgeoning food subsidy burden and inefficiencies in the markets, which is affecting the long-run growth of the agriculture sector, it added.

"The foodgrains policy needs to be dynamic and allow switching from physical handling and distribution of foodgrains to cash transfers/food coupons/smart cards," the Survey suggested.

On loan waiver, it said an analysis of debt waivers given by states/Centre shows that full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries.

"Debt waivers disrupt the credit culture and end up reducing the formal credit flow to the very same farmers, thereby defeating the very purpose of the debt waiver provided to farmers," it added.