About ECA

• The Essential Commodities Act (ECA) was enacted by the Central Government in 1955 to control and regulate trade and prices of commodities declared essential under the Act. 
• Though there is no specific definition for ‘essential commodities’, Section 2(A) of this Act states that an essential commodity means a commodity specified in the “Schedule” of this Act.
• The Act empowers the Central and state governments concurrently to control production, supply and distribution of certain commodities in view of rising prices and to prevent Black marketing.
• The measures that can be taken under the provisions of the Act include licensing, distribution and imposing stock limits. The governments also have the power to fix price limits, and selling the particular commodities above the limit will attract penalties. 
• Most of the powers under the Act have been delegated by the Central Government to the State Governments with the direction that they shall exercise these powers.
• Some of the major commodities that are covered under the act:
  • Petroleum and its products
  • Food stuff, including seeds, vanaspati
  • Drugs- prices of essential drugs 
  • Fertilisers
  • Raw jute and jute textiles
  • Cattle fodder
  • Face masks and sanitisers. 

Background

• Recently, the central government deregulated the sale of six types of agricultural produce, including cereals, edible oils, oilseeds, pulses, onions and potatoes, by amending the Essential Commodities Act, 1955.
• Stock limits on these commodities may be regulated only under extraordinary circumstances which may include (i) war, (ii) famine, (iii) extraordinary price rise and (iv) natural calamity of grave nature.
• The amendment 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: (i) a 100% increase in retail price of horticultural produce; and (ii) a 50% increase in the retail price of non-perishable agricultural food items. 
• However, such limits will not be imposed at all on food processors or value chain participants, which/who will be allowed to store as much as allowed by their installed capacity. Exporters will also be exempted.  

Were the amendments necessary?

• The government claims that while India has become surplus in most agri-commodities, farmers have been unable to get better prices due to lack of investment in cold storage, warehouses, processing and export. It says the Essential Commodities Act was handy in the 1960s and 1970s when India was still a net importer of food.
• According to the Economic Survey 2019-20, frequent and unpredictable imposition of blanket stock limits on commodities under Essential Commodities Act neither brings down prices nor reduces price volatility. However, such intervention does enable opportunities for rent-seeking (unproductive income) and harassment.
• The reduction in government regulation by the amendment is expected to encourage traders and investors to build warehousing and supply chain infrastructure without worrying about being raided on suspicions of hoarding. The Centre had also promised that farmers’ income would rise through the move. 

Why in News?

• With onion prices crossing ₹100 per kg in several cities, the Centre imposed stock limits on wholesalers and retailers until the end of the year to prevent hoarding. 
• This is the first time stock limits have been imposed on any commodity after the Essential Commodities Act was amended last month to reduce such interventions.

Why have onion prices been rising?

• Prices are always high at this time of year as stocks from the last rabi crop dwindle before the fresh kharif crop begins to arrive. 
• However, excess rainfall and flooding in the key producer States of Maharashtra, Karnataka, Andhra Pradesh and Madhya Pradesh this year has resulted in significant damage to the standing kharif crop, and the expectation of short supplies has led to soaring prices.