Of the three farm law Ordinances issued by the Union government on June 5, 2020, the Essential Commodities (Amendment) Ordinance was the most critical one. The government thought this Ordinance would spur investment in the agricultural marketing chain by providing relief from stringent and unpredictable laws on foodstuffs.
Why the EC Act was amended and how it is used
The idea was to encourage private trade and investment in food items by removing the threat of imposing stock limits on stockists, wholesale and retail traders and even importers.
The government said that this amendment would bring certainty to the stocking policy and ultimately cause market prices to stabilise. Usually, these prices witness a dip when market arrivals peak immediately after harvest.
For some years prior to when the Ordinance was passed, farmers of several crops were facing low prices, and it was felt in informed circles that India now deals with a surplus production of agricultural produce and not shortages.
The Lok Sabha and Rajya Sabha passed the EC (Amendment) Bill on September 15 and 20, 2020 respectively. It was notified in the gazette on September 27. The Act limited the government’s powers and mandated that it can resort to regulating the supply of foodstuffs, including cereals, pulses, potato, onions, edible oilseeds and oils, only under extraordinary circumstances like war, famine, extraordinary price rises and grave natural calamities.
Additionally, the government could now impose stock limits only if there was a 100% increase in the retail price of perishable food items, either compared to the average price over the previous year or the average price over the last five years.
For non-perishable items classified as essential commodities, the Act provided that stock limits could only be imposed if there was a 50% increase in the retail price given the same two comparisons.
However, due to the unrelenting agitation of farmers, the government repealed the three contentious farm laws, including the EC (Amendment) Act in November 2021.
The EC Act has been found useful by successive governments whenever there is high food inflation. It must be noted that in addition to the EC Act, the government uses import and export policies and tariffs to augment or restrict the domestic supply of essential foodstuffs.
In fact, even before the EC Amendment Ordinance became an Act, the government was faced with the trend of rising onion prices. In August 2020, the inflation in onion prices over the preceding one-year period (from August 2019 to July 2020) was negative 45%. It was negative 14% as compared to the average price in the last five years (August 2015 to July 2020). Even though there was no inflation in onion prices, because it expected them to rise, the government banned onion exports on September 14.
So, the inherent idea behind amending the EC Act was not pursued in a coherent manner.
Since the Supreme Court stayed the amendment on January 12, 2021, the government continued to use the same to impose stock limits on foodstuffs. For instance, stock limits were imposed on all pulses (except moong) on July 2, 2021 and were lifted in November 2021.
For improving the domestic availability of pulses, the government on May 15, 2021 allowed the duty-free import of tur, urad and moong till October 31, 2021. This has been further extended till March 31, 2024 for tur and urad.
Food inflation this year
In April 2023, the inflation in pulses and products was 5.28%. The monthly retail price of urad in April 2023 was Rs 108 per kg, which was barely higher than the last year’s average price of Rs 107 per kg (April 2022 to March 2023). The average retail price in the last five years was Rs 94.4 per kg.
The all-India retail price of tur dal at the end of April 2023 was Rs 116 per kg, while the last year’s average was Rs 109 per kg. Thus, tur dal prices were 7% higher than the last year’s average price and 24% higher than the last five years’ average.
It is clear that the level of price rise in these two major pulses is nowhere close to the 50% mark envisaged under the now repealed EC (Amendment) Act, 2020. If the underlying logic behind the EC (Amendment) Act was correct, there is no case for any intervention for tur and urad.
Wheat and rice situation
Due to the heat wave in March 2022, the wheat crop in 2021-22 was lower than estimated. In order to keep domestic prices under check, the government banned wheat exports on May 13, 2022 and released 35.72 lakh tonnes in the open market through an open market sale scheme. As a result, the retail prices of wheat in April 2023 are only about 1% higher than the last year’s average retail price and 13% higher than the last five years’ average.
However, going forward, it is possible that wheat prices will rise, as the crop size of 2022-23 is also estimated to be lower due to high temperatures in February and untimely rains in March and early April. At present, there is no case for any stock limits on wheat.
Similarly, due to lower rainfall in UP, Bihar and some other states in the 2022 monsoon, the government expected lower rice crops. On September 8, 2022, it banned the export of broken rice and a 20% duty was imposed on the export of non-basmati rice.
As a result, the all-India retail price of rice in April 2023 is only 4.2% higher than the last year’s average and 14.3% higher as compared to the average of the last five years.
So, the management of essential food items has so far been quite successful even without using the EC Act.
But the duty structure on agricultural produce for imported items like pulses and edible oils needs a more agile policy – as there is wide fluctuation in global prices – and the tariffs need to be adjusted to protect the minimum support price of crops.
Siraj Hussain is a former Union agriculture secretary. Kriti Khurana is a PhD scholar of economics at BITS Pilani, Hyderabad. Views are personal.