Discussed: Essential Commodities Act Amendment

In the third tranche of the economic package under Atmanirbhar Bharat Abhiyan, Finance minister Nirmala Sitharaman announced an amendment to the Essential Commodities Act (ECA) by deregulating (i.e. removing) commodities such as onion, potato, pulses, oilseeds, cereals, and edible oils. But what is the Essential Commodities Act? Why were these commodities removed from the schedule and why is this part of the COVID reforms? Let’s find out.

Essential Commodities

The first question is, what are essential commodities? They are agricultural products that are mentioned in the “schedule” of ECA. The government has the right to control the production, supply, and distribution of these commodities, and impose stock limits. At present, there are 9 essential commodities: seeds (of food-crops, fruits and vegetables, cattle fodder, jute, and cottonseed), drugs, fertilizers, foodstuffs, cotton hank yarn, petroleum and petroleum products, raw jute and jute textiles, face masks and hand sanitizers. The last two were added because of the COVID outbreak.

History of ECA

The ECA act was legislated in 1955 when our country was not self-sufficient and lacked food security. There was an acute shortage of foodstuffs because of famine, deteriorated soil quality and political tensions in the aftermath of independence and partition. India had to resort to imports and aids, to feed a majority of the population. Due to this extreme uncertainty of food, and mass hunger lurking in the background, there were several instances of traders illegally hoarding foodstuffs and back marketing it, leading to inflation. ECA was implemented to avoid such a situation. Simply put, ECA was the center’s way of protecting consumer interests in the face of irrational food inflation. If the government found that a certain essential commodity’s supply was short due to which its price was increasing, it could enforce stock-holding limits for a certain time and everybody – wholesalers, retailers, exporters - had to adhere to the limit. This would ensure that prices wouldn’t inflate unfairly because somebody was hoarding supply.

Current Scenario

India has come a long way from food insecurity. The production of cereals, pulses and horticulture produce has increased significantly due to phases of green revolution and agricultural research. So much so that, we have become key exporters of some of the agriculture products. Thus, the reason why ECA was enacted, no longer holds true in today’s scenario as we have surplus food produce. We also know that crops are seasonal and unless there is proper storage mechanism, they aren’t going to be available the entire year. If prices are controlled, it’s a fact that farmers and in turn the private players are not incentivized to invest in cold storage chains for perishable items, other storage facilities and processing technologies. It also restricts exports. Despite surplus produce, our farmers had not been able to get better prices. One of the reasons was that since stocking for extended periods wasn’t permitted, farmers were not able to store surplus produce during bumper harvests and consequently suffered heavy wastage and loss. Price volatility in the market also added to farmers’ woes.

Amendments to ECA

The amendments in the ECA act aims to solve the above pain-points by removing several agricultural products from the list of “essential commodities”. According to the central government, this move was made to help farmers get a better value for their produce and get private investments in the farming sector. In the wake of COVID outbreak, thousands of migrant labor went back to their villages and have started resorting to working in their fields. Amending ECA was an agrarian reform to boost farmers’ income and also uplift the migrants. The amendment gives farmers the freedom to produce, hold, move, distribute, and supply their produce and attract foreign and private direct investment in the sector. It is important to note here that agricultural commodities can still be regulated in situations of war, famine, or extraordinary price rise. However, stakeholders in the supply chain and exports will not be affected.

Do we finally have a good solution?

ECA in a lot of ways was saving farmers and consumers from monopolies. I’d like to share an example of the situation of pulses in 2015, to drive home this point. Retail prices of tur dal and arhar dal (a staple in the majority of households) rose to over Rs. 200 per kilogram (a 42% increase from the then average retail price). Traders illegally colluded to bring about an artificial scarcity by exporting bulk quantities to Myanmar and Africa, where their agents hoarded them. They brought them back in only small quantities at a time, to keep supply down and prices up. Once the income tax department found out about the situation, they used ECA to seize over 70,000 metric tonnes of pulses – let that sink in 70,000 metric tonnes. Similar scams took place in cottonseed oil too.

Removing these commodities from ECA makes these scams legal. And think about it, there is a very real possibility that consumers are going to bear the burden. Till now, India has managed to control food prices, but once ECA is deregulated, there is every chance that we’d be experiencing food inflation. It is also a fact that agriculture surplus, while it surely exists, is still only marginal and there are several regional imbalances. The whole point of deregulating certain commodities from the ECA was to empower farmers, transform the farming sector, improve farmers’ income and reduce exploitation. But looks like all is not rosy – the amended ECA still leaves plenty of scope for exploitation of farmers.

Food for thought

What if the corporates benefit more than small farmers from such direct marketing measures?

Do write your thoughts in the comment box J .


  1. In india only 6%farmer are selling their crop in MSP mechanism.94% farmer selling their crop in open market. Despite of that they are not getting fair price.

    So how this act will change the farmer position?

  2. "It is important to note here that agricultural commodities can still be regulated in situations of war, famine, or extraordinary price rise. However, stakeholders in the supply chain and exports will not be affected."

    Hi ,I wanted to understand better, how in the above mentioned quote from your article, the stakeholders in the supply chain not be affected

  3. I was thinking about the problem you mentioned that may arise post removal of these commodities from ECA, and thought if some dynamic monitoring and regulatory system (instead of a fixed Act/law) could be in place for these commodities to keep in check the inflation caused by creating artificial scarcity, such as limiting the quantities permissible for export for these products especially at times when prices are rising beyond an acceptable threshold locally. Is that possible? what do you say


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