Essential Commodities Act Invoked Amid Oil Crisis: LPG Supply Measures

In the wake of the oil crisis triggered by the Israel-U.S. strikes on Iran, the Centre has invoked the Essential Commodities Act, 1955. 

• By invoking the Essential Commodities Act, 1955,  all oil refining companies to maximise production of Liquified Petroleum Gas (LPG) and make it available to domestic consumers only.

About Essential Commodities Act 1955

• The Act was enacted in 1955 to regulate the production, supply and distribution of essential commodities.
• Objectives:
  • Ensure equitable distribution of essential commodities.
  • Prevent hoarding and black marketing.
  • Control price rise and inflation in essential goods.
  • Maintain supply of vital commodities during shortages or crises
• Background
  • Food Scarcity: The Essential Commodities Act, 1955 was enacted when India faced severe food shortages due to low foodgrain production.
  • Dependence on Imports: India relied on imports and food aid, including wheat under the Public Law 480 Program from the United States.
  • Prevent Hoarding: The Act aimed to ensure fair distribution and curb hoarding and black marketing of essential goods.
• Key Features: 
  • Definition of Essential Commodity: There is no specific definition of essential commodities in The EC Act. 
    • Section 2(A) of the act states that an “essential commodity” means a commodity specified in the “Schedule” of this Act.
  • Power of Centre: The Act gives powers to the central government to add or remove a commodity in the “Schedule.” 
    • The Centre, if it is satisfied that it is necessary to do so in public interest, can notify an item as essential, in consultation with state governments.
  • 2020 Amendment:
    • In 2020, Parliament amended the Act to limit the Centre’s powers to regulate cereals, pulses, potato, onions, edible oilseeds and oils only under extraordinary circumstances such as war, famine, extraordinary price rise and natural calamity of grave nature. 
    • It also stipulated regulating stock limit of any agricultural produce only in case of a 100% rise in retail price of horticultural produce or 50% increase in retail price of non-perishable agricultural foodstuffs. 

Issues with the Essential Commodities Act, 1955

• Market Distortions: The Economic Survey 2019-20 observed that frequent government intervention under the Essential Commodities Act, 1955 often distorts agricultural trade and has been largely ineffective in controlling inflation.
• Rent-Seeking and Harassment: Regulatory powers under the Act can create opportunities for rent-seeking and corruption, leading to harassment of traders and market participants.
• Reduced Procurement by Traders: Fear of stock limits causes traders to purchase less than their storage capacity, which adversely affects market efficiency.
• Farmer Losses During Surplus Production: During bumper harvests, especially of perishable commodities, farmers often face price crashes and heavy losses due to restricted market absorption.

Previous Instances of Invoking Essential Commodities Act 1955

• April 2020: In the wake of a national lockdown to contain the spread of COVID-19, the Centre invoked the ESA and urged States to do the same to ensure availability of essential goods to citizens at fair prices and avoid hoarding.
• May 2022: Capping sugar exports at 10 million tonnes till September that year, the Directorate of General of Foreign Trade (DGFT) issued an order to maintain the domestic availability and price stability. 
• September 2023: To curb artificial scarcity and rising prices, the Centre reduced wheat stock limits from 3,000 MT to 2,000 MT for traders, wholesalers, retailers, large chain retailers, and processors across all States and Union Territories. 
  • It also directed all wheat-stocking entities to register on the wheat stock limit portal, report weekly stock updates, and reduce stocks if they exceed the prescribed limit.

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