Relevance: Prelims: Polity
Why in news?
- Government has declared masks (2 ply and 3 ply surgical masks, N95 masks) and hand sanitizers as Essential Commodities up to 30th June, 2020 by amending the Schedule of the Essential Commodities Act, 1955. It has also issued an advisory under the Legal Metrology Act.
What is Essential Commodities Act?
The ECA was enacted in 1955.
It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
The list of items under the Act include drugs, fertilisers, pulses and edible oils, and petroleum and petroleum products.
The Centre can include new commodities as and when the need arises, and take them off the list once the situation improves.
Under the Act, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
The Utility of the Act
- If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
- The States act on this notification to specify limits and take steps to ensure that these are adhered to.
- Anybody trading or dealing in a commodity , be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
- A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
Economic Survey recent report:
- In September 2019, the Centre invoked the ECA Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the kharif crop and led to a sustained spike in prices.
- Although the restrictions on both retail and wholesale traders were meant to prevent hoarding and enhance supply in the market, the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
- This is due to the fact that ECA act fails to differentiate between hoarding and Storage.
- Thus in the long term, the Act disincentivises development of storage infrastructure, thereby leading to increased volatility in prices following production/ consumption shocks — the opposite of what it is intended for.
- The report finds that the ECA has been enacted in the year 1955, when the economy was ravaged by famine and food shortages. The government should note that today’s scenario is much more different.
Importance of the Act
The ECA gives consumers protection against irrational spikes in prices of essential commodities.
The Government has invoked the Act umpteen times to ensure adequate supplies.
It cracks down on hoarders and black-marketeers of such commodities.
State agencies conduct raids to get everyone to toe the line and the errant are punished.
Conclusion:
Without the ECA the common man would be at the mercy of opportunistic traders and shopkeepers. It empowers the government to control prices directly too.
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