Fineprint on scrapping ECA makes a mockery of it.
When the Finance minister talked of freeing the farm sector of the Essential Commodities Act (ECA), which empowers the government to control supply and pricing by imposing stocking limits, there was much cheer. Given the other agri-reform measures also announced, some experts even believed it to be agriculture’s 1991 (liberalisation) moment. The cheer reflected just how shackled the sector’s growth and its stakeholders had been by the ECA and other such regressive laws. Farm exports, for instance, were affected by this since, the moment the ECA was invoked, exporters who invariably had stock in excess of the limits were in trouble; so were those keeping large stocks for processing or trading.
While the government talked of freeing the farm sector from the yoke of the ECA, it didn’t actually scrap it; instead it laid down conditions under which it could be imposed. But, these were portrayed in such a way, the impression was given, that stocking limits would be invoked very rarely, in times of war or famine, for instance. And, even in such cases, optimists felt, it was not necessary that stocking limits would be imposed; after all, the government has lots of stock of cereals and this could, for instance, be used to dampen price shocks.
But, the devil is always in the details. The ordinance that the government has eventually delivered does say that certain agricultural commodities—cereals, pulses, oilseeds, edible oils, onion and potatoes—can be declared as ‘essential commodities’ only under exceptional circumstances such as war, famine and ‘natural calamity of a grave nature’.
But, it also talks of ECA being invoked in case of extraordinary price rise, and it defines what is to be considered an extraordinary price rise—100% increase in retail prices of horticultural produce and 50% increase for non-perishable produce such as grains, pulses, seeds, etc. Given how low prices can fall post-harvest, a 50% price increase isn’t unusual for non-perishable products; nor a 100% one for perishables.
In which case, the threat of the ECA stocking limits being re-imposed is very real. That will, then, put a damper on India moving towards market-driven agriculture prices where both farmers and others in the supply chain take investment decisions on market signals; the ECA, at the end of the day, interferes in genuine market-pricing taking place.
Ironically, with the ECA preventing large-scale investment in warehousing, the very price fluctuations the government is worried about will also get amplified. It is not clear whether the political class led by prime minister Modi understands how its intention has been scuttled.