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Economic Survey recommends repeal of Essential Commodities Act, abolishment of FCI

Economic Survey 2019-20 blames the 1955 EC Act and the Food Corporation as govt interventions that have undermined markets and held back agricultural growth.

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New Delhi: The 2019-20 Economic survey has recommended that the Essential Commodities Act, 1955, be repealed, because of its ineffectiveness. It has also suggested doing away with the Food Corporation of India to enable wealth creation in the marketplace.

Chief among the reasons why the survey has made the recommendation is that raids conducted under the Essential Commodities Act (ECA) have achieved a conviction rate of just 3.8 per cent (2,941 convicted persons in 76,033 raids), as on 16 December 2019. “Raids under ECA lead only to harassment of traders, thereby adversely affecting the role of trade in the marketing of the given commodity,” the survey states.

It also points out that interventions under this Act have only led to an increase in volatility of the wholesale and retail prices of commodities, rather than deflating them. It cites three instances to prove this — the imposition of stock limits on dal in 2006, sugar in 2009, and the recent one on onions in September 2019.

On 29 September, stock limits were imposed on onions across the country under the EC Act — retail traders could only hold 100 quintals, while wholesalers could hold 500 quintals. These limits were subsequently reduced to 20 and 250 quintals respectively. However, after the imposition of the limit, onion prices skyrocketed — from Rs 60-80 per kg in October to Rs 100-150 per kg in December.

The Economic Survey calls the EC Act “anachronistic”, as it was passed in 1955 when the country was preoccupied with famines and food shortage. As reported by ThePrint, a high-level government panel constituted to review the Act had recommended the dilution of several provisions, including doing away with clauses of imprisonment.

Also read: Draconian Essential Commodities Act needs to go if India wants to raise farm incomes

Put FCI on the chopping block 

Citing the need for markets to “enable wealth creation”, the Economic Survey has also advocated doing away with the Food Corporation of India (FCI), and especially its Minimum Support Price (MSP)-driven procurement system driven.

The survey says the FCI has made the government the largest hoarder as well as producer of foodgrains in the country, driving competition out of the market. It terms the FCI’s procurement of foodgrains at MSP as a factor behind market prices not offering remunerative options for the farmers.

It even says “MSP has become maximum prices rather than the floor price — the opposite of the aim it is intended for”.

The survey also holds the FCI accountable for disincentivising crop diversification and increasing food subsidy, the expenditure on which has increased four-fold over the past 10 years — from Rs 43,751 crore in 2008-09 to Rs 1,69,323 crore in 2018-19.

It says the overflowing buffer stock godowns of the FCI are responsible for the government acting as a monopsonist (a single buyer of labour) in the domestic market, which drives out private players. The lack of the private sector’s presence in the agro-commodity market leads to abysmally low long-term investments in making procurement, storage and processing of these commodities in the sector, it says.

The section dealing with government intervention in markets concludes by stating that subsidies hamper the growth of the agriculture sector in the long run, and this needs to be corrected urgently for sustainable and inclusive growth.

Also read: In 5 years of Modi rule, Food Corporation of India’s debt tripled to Rs 2.65 lakh crore


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  1. I don’t think so. Because the procurement upto 90 to 95 percent of paddy and wheat is undertaken by state Govt. agencies in respective state and not by FCI. The so called subsidy is being regulated on the name of FCI as because as per the govt. Policy, these procured stock ( wheat and paddy (rice) )is being taken over by FCI to spread all over the country to meet the requirement at different stages at very low price. FCI’s role is also regulated to stabilize the cost by spreading stock in market on the so called floor price i.e, very less to economic price(MSP + statutory taxes etc), which is also being decided by ministry of Consumer affairs, govt. of India. It is relevant to mention that MSP is decided independently by CACP (govt of India). Moreover from the last 20 years govt. has introduced private players to procure stocks , but are fail to minimise the cost infact distress sale were promoted by these players as stocks were purchased not directly from the farmers. Govt. if ,really wants to minimise the cost of procurement, or to minimise the subsidy, eradication of Arhatia system (middle man) in procurement operations, stabilize/minimise the statutory taxes in the procuring state, uplift the NFSA rate ( RS. 2 for wheat and 3 for rice), eradicate the milling charges for raw rice, stop fake procurement by state agencies etc.

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