Chuck Essential Commodities Act Pvt placements edge out public issues

The Economic Survey has argued for doing away with Essential Commod-ities Act (ECA) and such other government interventions that hurt more than they help.

The case has been argued in the backdrop of soaring onion prices that have caused much heartburn to the common man.

Interventions that were apt in a different economic setting may have lost their relevance in a transformed economy.

Eliminating such instances of needless government intervention will enable competitive markets and thereby spur investments and economic growth, the survey said. Each department and ministry in the government must systematically examine areas where the government needlessly intervenes and undermines markets.

“Frequent and unpredictable imposition of blanket stock limits on commodities under Essential Commodities Act (ECA) neither brings down prices nor reduces price volatility. However, such intervention does enable opportunities for rentseeking and harassment,” said the survey. “For instance, imposition of stock limits on dal in 2006Q3, sugar in 2009-Q1 and onions in September 2019 spiked up the volatility of the wholesale and retail prices instead of smoothening them —in contrast to its objective of easing pressure on prices.”

As implementing ECA also involved significant administrative effort and did not bring results, it had become irrelevant. “Around 76,000 raids under ECA were conducted during 2019. Assuming a minimum of five persons involved in a raid, considerable administrative effort goes into enforcement of ECA. As the conviction rate, however, is abysmally low and raids have no impact on prices, the ECA only seems to enable rent-seeking and harassment. The Act is anachronistic as it was passed in 1955 in an India worried about famines and shortages; it is irrelevant in today's India and must be jettisoned.”

Similarly the regulation of prices of drugs in 2013 though drug prices control order has led to increase in the price of a regulated pharmaceutical drug vis-àvis that of a similar drug whose price, it said.

Indian companies raised more money through private placements than through public issues in equity and debt market in FY19-20 , a year when benchmark indices Sensex and Nifty-50 gained close to 8 per cent and touched record highs, according to the Economic Survey.

Corporates preferred private placement to raise capital and Rs 6.29 lakh crore was raised through 1,520 issues in AprilDecember 2019 through this route, compared to Rs 5.3 lakh crore through 2,006 issues in the same period in 2018.

As many as 225 issues raised Rs 1.79 lakh crore through private placement of equity securities up to December 2019. Out of this nine were qualified institutional placement allotments and 216, preferential allotments, which raised Rs 34,029 crore and Rs 1.45 lakh crore, each.

Resource mobilisation through issuance of debt securities to public declined significantly, with Rs 11,746 crore was raised through 27 issues during Apr.-Dec. 2019 compared to Rs 28,565 crore raised through 15 issues in the year-ago period.

The total money raised by public and rights issues rose to Rs 73,896 crore during the peiord from Rs 44,355 crore.

The resource mobilisation through public issue of equity decreased in 2019, with 47 companies mobilising Rs 10,895 crore compared with 103 companies raising Rs 13,947 crore in Apr.-Dec. 2018, a dip of 21.9 per cent. However, mobilisation through rights issues (equity) increased sharply with Rs 51,255 crore raised against Rs 1,843 crore.