Experts caution as govt intervenes in food markets
NEW DELHI: The Union government has virtually rolled back its policy of not intervening in food markets except under “extraordinary circumstances” as it invoked the Essential Commodities Act (ECA) 1955 on July 2 to cool prices of lentils (pulses aka dals). This lays bare the challenges of keeping food prices low and farm incomes high in a country where much of the agricultural trade is opaque, experts say.
The government, using a measure known as stock-holding limits, has set restrictions on the quantity of pulses, excluding moong (green gram) that sellers, including importers, wholesalers and retailers, can store. This goes against the provisions of one of the three farm laws passed by the government last year but put on hold on account of protests by farmers.
The stock-holding limits mean that grocers can stock no more five tonnes of pulses, while wholesalers can at any point have only 200 tonnes in their warehouses. The government hopes to get traders to release more stocks in the market to soften prices.
The government passed the Essential Commodities (Amendment) Act 2020 to minimize regulatory interventions in trading of food items, such as pulses, potato, onion and edible oil.
The Act is one of the three contentious agricultural laws that have been put on hold due to farmers’ protests. The amended ECA set fixed criteria on when to clamp stock limits. It states such measures are to be used “only under extraordinary circumstances”.
The amended law also stipulates that stock limits can be imposed only if there is a 100% increase in retail prices of perishable food commodities compared to the average retail price in the last one year or last five years. For non-perishable items, stock limits can be imposed if inflation in a commodity is more than 50%.
The recent rise in prices of pulses does not meet the criteria set out in the amended ECA. For instance, official data show that average chana or chickpea retail prices in June were ₹75 a kilo.
The average retail price in the year-ago period was about ₹74 and the average five-year retail price was about ₹84.
Thus, the increase in prices does not meet the more liberal criteria of a 50% inflation for imposing stock limits that the government wanted to pursue.
The government, however, said its decision to invoke the ECA now was driven by larger goals. “We can’t wait for prices to rise. We have to anticipate the price trend and take proactive action to protect consumers, especially the poor. The policy takes into account the entire ecosystem and not just one dimension,” said Leena Nandan, secretary of consumer affairs.
Some economists have argued that these measures imposed at the slightest uptick in prices ultimately hurt farm incomes.
They argue that if sellers aren’t allowed to freely import or store sufficient quantities of a commodity, investments to create modern storage capacities don’t take place.