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AGRI REFORMS 3: THE ESSENTIAL COMMODITIES (AMENDMENT) ACT, 2020

Context:

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 allows intra-state and inter-state trade of farmers’ produce beyond the physical premises of APMC markets.  State governments are prohibited from levying any market fee, cess

Relevance:

GS Paper 3: storage, transport & marketing of agro-produce and related issues & constraints; Economics of animal-rearing

Mains Questions

  1. What are the impediments in marketing and supply chain management in industry in India? Can e-commerce help in overcoming these bottlenecks? 15 marks

Important Provisions of the Act

  • Regulation of food items: The Act provides that the central government may regulate the supply of certain food items including cereals, pulses, potatoes, onions, edible oilseeds, and oils, only under extraordinary circumstances. These include: (I) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave nature.
  • The Essential Commodities Act, 1955 empowered the central government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities. The central government may regulate or prohibit the production, supply, distribution, trade, and commerce of such essential commodities.
  • Stock limit: The Act requires that imposition of any stock limit on agricultural produce must be based on price rise. A stock limit may be imposed only if there is:
    • a 100% increase in retail price of horticultural produce;
    • a 50% increase in the retail price of non-perishable agricultural food items.
  • The increase in price will be calculated over the price prevailing immediately preceding 12 months, or the average retail price of the last five years, whichever is lower.

Advantages of the Act

  • Ends harassment of Businessmen and traders: Governments had restrictions on hoarding on food commodities and could seize any excess stocks maintained by the traders. This resulted in widespread harassment of traders and rent-seeking behavior. Now with the new Act, inventories can be managed without such interference.
  • Helps reduce wastage as storage facilities improve: Despite India losing a third of the agri. produce postharvest, businesses found it difficult to devise solutions to decrease that loss, mainly due to the regulation.
  • Likely to attract private investment in Cold Storage, warehouses and processing: These reforms may accelerate growth in the sector through private sector investment in building infrastructure and supply chains for farm produce.
  • Will bring price stability and raise farm incomes: Exempting selected commodities from ECA will improve the marketability of the crop for growers. Processors, exporters and traders will now be able to build inventory without fear of penal action.

Issues related to the Act

  • Some experts fear that the Act would effectively legalize hoarding, as licenses will no longer be required to trade in these commodities.
  • Such a situation can lead to anti-competitive behavior by particular buyers in the food chains.
  • Complete deregulation of these commodities could lead to dangerous situation of food supply problems during extraordinary circumstances as the Government will have no information on who the players are, and the levels of stocks are not clear.

Way Forward:

  • The existing policy framework with excessive focus on inflation management and obsession with fiscal deficit will likely lead to lower support from the government either in price stabilisation or reduction in cost of cultivation through fiscal spending.
  • The agricultural sector needs comprehensive policy overhaul to recognise the new challenges of agriculture which is diversifying and getting integrated with the non-agricultural sector.
  •  Above all, it requires fiscal support and institutional structures to support the agricultural sector and protect it. In the absence of these, any rhetoric of doubling farmers’ income is only wishful thinking.
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October 2022
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