Dilution of Essential Commodities Act may result in lawlessness

India facing wholesale inflation trouble
High wholesale inflation will reflect in consumer prices in coming months, prompting RBI to revise its policy rates and monetary stance.

By Nebu John Abraham

The new coronavirus pandemic and the subsequent lockdown has affected the livelihoods of most Indians. The country hasn’t witnessed a crisis of this scale since independence. The Union government was adopting a wait and watch approach towards the crisis till the second week of May. Finally, it responded with a Rs 20 lakh crore package that comprises mostly of loans to revive the economy under the grip of a recession induced by Covid-19 outbreak. As part of a larger package, the government announced certain reforms in different sectors of the economy to help them cope with the economic and humanitarian crisis created by the new coronavirus outbreak.

Finance minister Nirmala Sitharaman announced a slew of measures for the agriculture sector as part of the initiatives contained in the economic package of the Union government. These include changes in agricultural marketing rules, steps to encourage contract farming as well as amendments of the Essential Commodities Act 1955. The initial response to these measures was one of jubilation. Several respected agriculture economists and community leaders welcomed the changes, saying they will help farmers derive better prices for their produce. While some of these measures may have the intended effect, there is a need to take a close look at the decision to amend the Essential Commodities Act.

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The changes in the Essential Commodities Act 1955 will enable private players to assume a larger role in the marketing and distribution of agricultural commodities. True that the government should respond to this extraordinary crisis with the vast powers vested on it, in the best interest of the people. But as these steps were not directly linked to the crisis, the government could have followed a consultative process before announcing these decisions. In the current context, this is a question crying for an answer. Is the government putting in place any kind of protection in the absence of the Essential Commodities Act (ECA)?

Out of 833 million rural population, 480 million are agricultural workers (Agriculture statistics at a glance, 2018). Many are casual labourers. Around half of farm income comes from wages and salaries (NAIFS 2015-16). Poor farmers and peasants were having a tough time when Covid-19 struck. To mitigate the pain of the peasants, Prime Minister Narendra Modi announced Rs 6,000 income support to farmers under PM-KISAN scheme. Direct transfer of this amount was not enough to mitigate the financial woes of farmers. The new coronavirus disease and the lockdown happened against the backdrop of a major farm distress.

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Farmers across the country are facing problems to find labourers in the harvest season. The extent of losses they suffered is quantifiable. The losses in terms of working hours, perishable goods, and goods beyond storage capacity can be measured. Pending repayment of loans is a big problem for small farmers. The RBI has announced a three-month moratorium and deferment of repayment. There was nothing in last week’s package to compensate farmers. Considering the magnitude of the crisis, a package without direct cash transfers to agricultural labourers is unthinkable.

When the Essential Commodities Act, I955 was passed, it was intended to protect the interests of both farmers and consumers. Highly skewed land distribution, ineffective land use, regional concentration of irrigated area, unpredictable monsoons, and unscrupulous middlemen who engaged in black marketing and hoarding necessitated a monitoring scheme. An Agriculture price commission (APC) was constituted to study the issues and to suggest methods for fixing fair prices. The commission was asked to take into account the conflicting interests of producers and consumers, and strengthen the public distribution system to stabilise income and price. Input parity price was offered as a method for fixing fair prices for the produce during lean periods and a price below the hypothetical market price at the time of peak periods with abundant supply. This activity made way to a guaranteed price over time without paying attention to the learned advice of APC. Similarly, the mandi system / marketing committee (APMC) also had limitations in offering a fair price through auctions. All these resulted in regional disparities between markets.

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After 1991, several new reforms were introduced to open up and liberalise agriculture sector. In one such attempt, the government removed many commodities from the purview of the Essential Commodities Act and allowed limitless stocks in 2002. In 2003, ban on futures trading also was lifted. However, in 2006-08, the stock limits were brought back. How did all these changes impact the agriculture sector? The situation was not encouraging. The growth rate of agriculture sector deteriorated in the post-reform era. There are also concerns about inadequate attention given to capital formation in agriculture sector and expansion of rural network of banks and credit growth (RBI handbook of statistics). The growth rate in agriculture was nowhere close to the GDP growth rate since 1991. The Narendra Modi government too announced amendments of ECA similar to those announced in 2002 and removed pulses, oilseeds, food grains, potato and onion from its purview. Despite the failed attempt in 2002, the government went ahead with further liberalisation. The blind faith in market’s ability to attract investment and boost productivity must be behind this decision. It could impact producers and consumers the following ways.

  1. The systems that regulate market will cease to exist. There will be no regulatory body to oversee market activities.
  2. The responsibility of government to control prices of essential commodities will end.
  3. No regulation or inspection will be applicable for limitless stocking by any party who may attempt to cash in through opportunistic speculative route. This may give rise to hoarding and black marketing.
  4. Monopolies and cartels could easily kill competition, thereby denying fair price to farmers.
  5. The situation may result in general price rise that could adversely affect the subsidies for public distribution system in the country. How could a country that has made food security a right dilute this constitutional provision in the name of liberalisation?
  6. The increase in general price level will have a negative impact on industrial sectors that need agricultural inputs for finished products.

The deregulation was announced at a time when there are no safeguards to protect farmers. The e-Nam (National Agriculture Market) is not effective and, therefore, not accepted by stakeholders. What measures did the finance minister offer to make eNam a practically viable alternative to APMC? Did she allocate money to constitute a local body to pass quality assessment valid all over the country? Also, one cannot see any plan to improve transportation.

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The failure of Fasal Bhima Yojana scheme compounds the issue. At least, the government could have absorbed the premium for the scheme to make it absolutely free to the farmer. The increase in exports could also help farmers keep their incomes intact. Sadly, the trade treaty signed with ASEAN that facilitates cheap imports has affected local farmers. How can we become ‘Atmanirbhar’ when imports aided by various treaties crowd out local produce?

A policy must be evaluated in terms of its urgency and importance. The most urgent issue at present is to remove hunger among farmers and to pull them out of the debt trap, rather than showcasing various plans that may be attractive to new investors. The Union government seems to have abdicated its responsibilities and is encroaching on the state governments’ responsibilities. Agriculture is a state subject and the Union government has forgotten its role as facilitator. Skirting the problems will not make them disappear. The earlier they are recognised, the faster they can be solved to help the stakeholders.

(Dr Nebu John Abraham is an economist based in Kottayam, Kerala. The views are personal)