NEED TO CONTROL PRICES OF CERTAIN COMMODITIES IS HISTORICALLY CONTINGENT

Bibek Debroy writes: Before liberalisation, there were around 80 Union government-level orders and around 150 state government-level orders decreeing various items as “essential”.

Times change and economies evolve. If one hangs on to policies simply because of a historical legacy, that will be an inferior response. There was an Air Corporations Act of 1953, repealed in 1994. It is unlikely anyone will want the pre-1994 monopoly of Indian Airlines and Air India simply because this was perceived to be important in 1953.

The Essential Commodities Act (ECA), dated 1955, is roughly of the same vintage. That’s not quite correct — ECA’s antecedents are of an earlier vintage. It goes back to war-time shortages and the Defence of India Act, 1939. When World War II was over, there was no possible justification for that particular Defence of India Act and it was repealed. However, there was justification for government control over “essential” commodities, “essential” being defined as necessary and indispensable.

Accordingly, there was first an ordinance and then an Act in 1946, the Essential Supplies (Temporary Powers) Act. The preamble and title indicated this was meant to be temporary. Meanwhile, we had the Constitution and under Article 269, the Union government had powers to enact laws for items on the State List, as if they were on the Concurrent List. But only for five years “from the commencement of the Constitution”. That took us to 1955 and we can skip the details of how Entry 33 in the Concurrent List was amended so that the ECA permanently entered the statute books.

Footwear may be essential, in the sense of being indispensable. That doesn’t necessarily mean the government should “control the production, supply and distribution of, and trade and commerce” in footwear. At least that’s what most people will think now.

However, if we cast our minds back, in 1973, a Planning Commission “Committee on Essential Commodities and Articles of Mass Consumption” concluded that the following were essential items — cereals, pulses, sugar, gur and khandsari; edible oils and vanaspati; milk, eggs and fish; common clothing; standard footwear; kerosene oil and domestic fuels; common drugs and medicines; bicycles, bicycle tyres and tubes; matches, dry cells and hurricane lanterns; soaps and detergents; textbooks and stationery.

Hence, it felt, “In the urban sector the requirement would be to make available one or two common types of footwear — called “Janta” shoes or chappals – at reasonable prices.” The distribution of “common clothing, standard footwear and soaps and detergents may be entrusted to the National Cooperative Consumers Federation”.

Over time, in addition to those listed by Planning Commission, the essential products list included aluminium, art silk textiles, cement, cinema carbon, coarse grains, coconut husks, coir retting, cold storages, collieries, copper, cotton, drugs, dry batteries, electrical appliances, electrical cables and wires, ethyl alcohol, fertilisers, food grains, fruit, furnace oil, electric lamps, diesel oil, household electrical appliances, cars, maize, insecticides, iron and steel, jute and jute textiles, kerosene, linoleum, LPG, lubricating oils and grease, meat, molasses, mustard oil, newsprint, oil pressure stoves, paper, paraffin wax, petroleum products, plants, fruits and seeds, pulses and edible oils, groundnut oil, rice, salt, sugar and sugarcane, synthetic rubber, tea, textiles, tractors, two-wheelers, tyres and tubes, vegetable oil, wheat.

The ECA has a schedule (Section 2) of what is “essential” and if an item is in that schedule, it is axiomatically “essential”. Before liberalisation, there were around 80 Union government-level orders and around 150 state government-level orders decreeing various items as “essential”. Note that if an item is not in the schedule, under that same Section 2, when circumstances warrant, it can be put back on the schedule, sometimes for a limited period of six months.

The progressive tightening of the ECA manifested itself through more and more items being added to the schedule. In addition, offences were made non-bailable and there were special courts. For example, in 1974, an amendment noted, “The hoarders, black-marketeers are playing hell with the lives of millions of people in the country.” Hence, offences were made non-bailable. We shouldn’t forget the Essential Commodities (Special Provisions) Act of 1981 or the 1980 Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act either.

Hoarding has a negative nuance attached to it, though hoarders often perform a useful function of reducing price volatility. In contrast, black marketing has a uniformly negative nuance. But black markets exist only when there is a shortage.

Just because an item like footwear is indispensable, there is no call for the government to intervene in the market. The antecedents were because of war-related shortages. The subsequent shortage was created through industrial licencing. Licencing led to entry barriers and shortages. Shortages led to price controls and government intervention.

In 1973, the Planning Commission also recognised this: “Assured supply of specific essential commodities and articles of mass consumption at reasonably stable prices will not be a practical proposition if domestic availability of these items does not expand in line with the growing demand.” But, in that day and age, it didn’t recommend an end to licencing.

When delicencing occurred, there was no longer any shortage of manufactured products and several items have progressively been removed from the essential items schedule. Why are people upset that cereals, pulses, oilseeds, edible oils, onions and potatoes have been removed from the schedule? If necessary, they can always be put back, hopefully temporarily.

More importantly, there is an issue of de-seasonalising prices of agricultural commodities, often subject to cycles. But the ECA doesn’t solve that problem. It is solved by ensuring storage and processing, allowing markets to function, not through limiting them.

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