ECA Amendment Bill Cleared – Farm Economy Likely to Accelerate

The Government has finally passed the Essential Commodities (Amendment) Bill, 2020 during the Lok Sabha session. The ECA has been amended in order to transform the farm sector and enhance farmers’ income, and also strengthen agriculture infrastructure in the country. This decision (Amendment) is taken also for enabling private investment in the Agricultural sector. Earlier in the month of June the Union Cabinet had approved the amendment in the Essential Commodities Act of 1955 to “deregulate” agricultural commodities like cereals, pulses, oilseeds, onions and potatoes. The Government had also circulated an ordinance to allow farmers to engage with processors, aggregators, large retailers, exporters.  

The amendment allows the government to take the control back if there are extreme situations like extraordinary price rise, war, famine, or natural calamities of severe nature. This implies that the food items will be deregulated and stock limits may be imposed only during emergencies like natural calamities and famines. It will step immediately in case of a 100 percent rise in price for perishable agricultural commodities, stuff from its immediately preceding 12 months period or an average of the five-year retail price, whichever is lower. For non-perishable items, the mark is set as 50 percent increase in price.  

Background of the Essential Commodity Act  

Before independence, government concentrated on rebuilding the country’s agricultural and industrial capacity, so as to place it in on lines of self-sustenance. The Essential Commodity Act was introduced in 1955, keeping this aspect in consideration. The Act prohibited hoarding or black marketing of certain commodities, marked as essential for the living of the common people. The Act identified hoarders, holding supply of essential commodities as a criminal offence and production, price, and distribution of these products were regulated by the government. Foodstuff, fertilizers, pulses, drugs, and fuel are some of the commodities, featuring in the list.  This act empowered the central government to exercise rights to limit stock-holding and distribution in case of a short supply of such items, resulting in a price rise. Therefore with Government clearing the bill for Essential Commodity Act amendment, it will put an end to a six and a half decade long period of regulation and enable the market to act freely on the demand-supply dynamics.  

Indian agricultural sector and economy likely to boost up 

This amendment shall be beneficial in making farmers fee from the regulation of Agriculture Produce Marketing Committee (APMC). Decreasing regulation would enable farmers in harness economies of scale directly. It will also encourage Private sector investment in cold storages and pave ways for modernizing the supply chain.  The Government announced freedom to stock more – without the fear of frequent impositions of stock limits, ban on exports or imposing price control on agri commodities.  

Removal of stock limits, ensuring larger markets for farmers, investments in infrastructure and transportation will not only reduce costs for farmers but also ensure higher price for their produce. The agri markets have seen less investment due to its highly controlled system by the Government. Removing these restrictions (like stock limits) can attract investments by making it competitive. Again, better infrastructure and transportation are critical areas which will make investments lucrative in the country. 

It is worth noting that the act was moved decades back when India’s consumption used to surpass production thus our nation was more dependent on import of food items. But now the situation has changed drastically as India in the global market has turned out to be an exporter in most of the agricultural products rather than being an importer.  

Presently India is a leading producer of items such as wheat, spices, pulses, fruits, milk, and vegetables etc. The ECA was in fact hampering the consumer interest since it the previous guidelines were not in favor of private investments in the agricultural sector. This act allows farmers to sell their produce directly without going through the intermediary hassles and has will be able to sell with fewer expenses since he will not have to pay any mandi tax. Also, selling in his own state also won’t be a barrier since the farmer will be now free to sell across any part of the country. The amendment also increases the involvement of NCDEX the National level exchange for Agriculture commodities, as farmers will be able to sell his produce to the Commodity exchanges as well. Therefore with the amendment bill being cleared now, economic situation of farmers and the country should improve in near future, subject to proper implementations by the government.