Explained: What the law removing onions, rice from essential commodities means for you

The Bill allows the Union government to regulate the supply of cereals, pulses, onions, potatoes, edible oil and oilseeds, and remove the stock limit on such farm produce.
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The Essential Commodities (Amendment) Bill, 2020 was passed in the Rajya Sabha by voice vote on Tuesday in the absence of Opposition in the House. This was one of the three Farm Bills that were passed despite vehement remonstration from farmers across India, especially in Haryana and Punjab. The Bill, which amended the Essential Commodities Act, 1955, empowers the Union government to regulate the supply of food items such as cereals, pulses, onions, potatoes, edible oil and oilseeds, and remove the stock limit on such farm produce.

This, essentially, means that these food items will no longer be qualified as essential commodities, and that the government can regulate its supply — or include these items in the list — only under “extraordinary circumstances”, such as extraordinary price rise, a natural calamity of grave nature, famine or war.

Additionally, there will be no stock limit on agricultural produce, unless there is a price rise, that is, 100% increase in the retail price of horticultural produce (fruits and vegetables); and 50% increase in the retail price of non-perishable agricultural food items (edible oil, grains).

What the 1955 Act says

The Essential Commodities Act, which came into effect in 1955, empowers the Union government to designate certain commodities — food items and important drugs — as essential items. This was enacted “to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders”.

So, when an item is declared as essential, the Union government can control its production, supply and distribution, and even impose a stock limit, that is, how much stock can be held by a trader. This also means that retailers and wholesalers cannot create an artificial price rise (for example, selling products at a price higher than the Maximum Retail Price) or hoard that item during a shortage, among other regulations.

The Act lists out seven categories of essential commodities:

> Drugs (medicines)
> Fertiliser (inorganic, organic or mixed)
> Foodstuffs (including edible oilseeds and oils)
> Hank yarn made wholly from cotton
> Petroleum and petroleum products
> Raw jute HI jute textiles
> Seeds of food-crops and seeds of fruits and vegetables, cattle fodder and jute seeds.

How the 2020 Amendment affects the 1955 Act

With the Amendment, the Union government can regulate the supply of certain foodstuffs, including pulses, cereals, onions, potatoes, edible oil and oilseeds, but only during dire circumstances, like an extraordinary price rise (for example, stockpiling, weather or environmental conditions). 

Further, the government cannot impose a stock limit. Stock holding limit refers to the amount of commodity a trader can buy and stock up to prevent hoarding and arrest inflation.

No imposition of stock limits, as stated in the Amendment, means that traders and others can hoard food items, unless there is a 100% or 50% increase in the price of perishable and non-perishable goods respectively, over a period of 12 months or if there is a rise in the average retail price in the last five years, whichever is lower.

This, however, does not apply to a value chain participant of any agricultural produce, including wholesalers, processors, importers and exporters, among others.

How this Bill puts many at a disadvantage

When the COVID-19 cases were slowly increasing in India and there was an urgent need to wear masks and sanitise hands regularly, the Union Consumer Affairs Ministry declared face masks and hand sanitisers as essential commodities, on March 13. This was announced for a period of 100 days, to increase the supply, prevent hoarding and keep a check on pricing irregularities. On July 7, both face masks and hand sanitisers were removed from the list in view of adequate supply in the country.

However, unlike the periodic or circumstantial need for items such as face masks and hand sanitisers, foodstuffs like onions, pulses, rice and oil are part of a common man’s daily essential commodities. For the poor, these are sometimes the only food items they can afford on a daily basis.

Hence, by not regulating the supply of such essential day-to-day food commodities, the Amendment paves the way for hoarding and artificial price rise.

Hoarding is an easy way to increase the price of a commodity, as the supply is being artificially curtailed. However, this denies lower-income families, among others, these basic commodities.

For example, a local store, which has 100 kilograms of onions for 50 families, can supply 2 kg to each family. The supply and demand are balanced in this case. However, if the store has only 70 kg of onions for 50 families who require 2 kg each, the store owner will increase the price. In this case, there is an uptick in demand, which is hoarding. As a result, only those who can afford to buy onions will purchase it.

Prices of onions routinely see an increase in price. However, if there is no government intervention to cap the price at such a time, it is disadvantageous to people who cannot afford high prices. Besides, although the Bill says that the Amendments will not be applicable to the Public Distribution System (PDS), there are more than 20 lakh people who do not have ration cards. A vast section of the population will thus be at the mercy of market forces for access to their daily food needs.

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