The Essential Commodities act lists seven broad categories of items as essential commodities. Data shared by the government indicates that the value of exports of these commodities from India has increased continuously between 2015-16 & 2018-19. However, there has been a decline since then. The value of exports in the first ten months of 2020-21 is 27% less than the exports during the same period in 2019-20.
The Essential Commodities Act, 1955 was enacted for controlling the production, supply, and distribution of, and trade and commerce of certain commodities which are considered basic needs for survival and pricing of which can have a major impact on the general public. The law currently being administered by the Department of Consumer Affairs prohibits hoarding and black marketing of essential commodities. In case the Central Government is of the opinion that the price of a certain commodity (inflation) is increasing due to short supply, it has the power to direct the state governments to fix the stock-holding limit of the commodity for a fixed period. Section 3 of the Act states that ‘if the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein.’
Seven commodities listed as Essential Commodities in the act
The Act defines an essential commodity as that which is specified in the Schedule. The commodities specified in the Schedule are drugs (medicines used for diagnosis, treatment, mitigation, or prevention of any disease or disorder in human beings or animals, as defined under Drugs and Cosmetics Act, 1940), fertilizers, foodstuffs such as potato, onions, cereals, edible oilseeds and oils, hank yarn made wholly from cotton, petroleum and petroleum products, raw jute, jute textiles, and seeds of food-crops and seeds of fruits and vegetables. Face masks and sanitizers were included in the list of essential commodities in the wake of the COVID-19 outbreak, to enhance their production, avoid over-pricing, and make them more accessible. It was later removed from the list once the purpose was served.
India exports 18 items which fall under the ‘essential commodities’ list
India has been a major exporter of petroleum products, drug formulations, jewellery, and diamonds. Besides these, India also exports agricultural products. The USA, UAE, and China are the top importers of such Indian products. Commodities classified as ‘essential’ in India and are exported are jute and jute products, fruits and vegetables, cereals, pulses, food grains, petroleum, and cotton yarns. Altogether, 18 products under ‘essential commodities’ are exported by India.
COVID-19 & other factors resulted in reduction of these exports
Multiple factors, both global and domestic, influence the export of essential commodities. Some of these are demand and supply in domestic and international markets, currency fluctuations, policy interventions, weather conditions, and international prices. In 2020, the COVID-19 pandemic induced trade restrictions in movement and lockdown have disrupted the exports of essential commodities also.
As per the data shared by the government in the Lok Sabha, the value of exports of essential commodities has grown continuously from 2015-16 until 2018-19. The exports were worth the US $45.7 Billion in 2015-16, which crossed $54 Billion in 2017-18, and was the highest in 2018-19 with exports worth $64.4 Billion. However, the value of exports dropped to $56.3 Billion in 2019-20, on account of multiple factors.
COVID-19 began taking a starting in the last quarter of 2019-20. As cases increased rapidly, many countries started imposing strict lockdowns. Global supply chains were disrupted due to the restrictions on international transport. By April 2020, (beginning of 2020-21), over 100 countries had introduced major or partial lockdown. A WTO note of April 2020 notes that 80 countries had introduced export prohibitions or restrictions as a result of the COVID-19 pandemic. All these factors meant that the downward trend in exports observed in 2019-20 continued and worsened in 2020-21.
In 2020-21, data is available for the ten months from April 2020 to January 2021. As per data shared in the Lok Sabha, the value of exports of these essential commodities was only $34.8 Billion. Compared to the same period in 2019-20, the value of exports is down almost 27%. If the trend continues, the overall fall could be in excess of 30% by the end of 2020-21. It doesn’t look likely that the exports will reach the 2018-19 levels even in the next 12 to 18 months.
Petroleum products constitute 2/3rd of the value of essential commodities exports
Petroleum products constituted more than two-thirds of the essential commodities exports between 2015-16 & 2020-21 by value. Export of petroleum products had increased from US$ 30.6 Billion in 2015-16 to US$ 46.6 Billion in 2018-19, an increase of over 52%. It dropped to US$ 41.3 Billion in 2019-20, though it constituted 74% of the value of all essential commodities exported that year. In 2020-21, from April 2020 to January 2021, petroleum products worth only US$ 19.8 Billion had been exported, accounting for only 57% of the net value of essential commodities exported. In 2019-20, the same ten months accounted for 86% of petroleum products exported that year. Going by the current trend, the total value of exports of petroleum products by the end of 2020-21 might be 40% less than the 2019-20 numbers.
Rice, Basmati, Drugs, and Cotton Yarns account for nearly 1/5th of the essential goods exports
Among the other commodities, basmati rice, other rice varieties, bulk drugs, and drug intermediates, and cotton yarns exports were worth more than USD 12 billion every year from 2015-16 to 2020-21. Together, these four products alone constitute more than 23% of the exports in 2018-19, and more than 36% in 2020-21, till January 2021.
The trend in the case of a majority of the commodities including Rice (Basmati & other varieties), Pulses, Fruits/Vegetable seeds, Jute products, and Fertilizers is similar. There has been a continuous increase in their export value between 2015-16 and 2018-19. However, the export value in 2019-20 reduced compared to 2018-19. However, in just the first ten months of 2020-21, the exports of rice, wheat, other cereals, raw jute, and jute floor coverings have already surpassed the 2019-20 levels, contrary to the overall decreasing trend of exports in 2020-21. Rice exports (of other than Basmati) in the first ten months of 2020-21 has increased by 73% compared to 2019-20. The value of wheat exports has increased by nearly 5.5 times during the same period.
Government amended the Essential Commodities Act recently
In September 2020, the parliament passed the three agriculture-related laws which have received mixed responses. One of these is the amendment to the Essential Commodities Act which has provisions for relaxation of the stringent stocking & other norms for foodstuff such as cereals, pulses, oilseeds, edible oils, onion, and potatoes.
As per the amendment, the supply of these food grains may be regulated only under extraordinary circumstances which may include war, famine, extraordinary price rise, and natural calamity of grave nature. The imposition of stock limit norms for these items can only be done in certain cases.
The government’s reasoning behind the amendment is that farmers are unable to realize better prices due to a lack of investment in cold storage, warehouses, processing. The lack of investment is linked to the restrictions imposed by the Essential Commodities Act even though India has become surplus in most of these Agri-commodities. As noted earlier, the amendment relaxed the norms of many food items in an effort to encourage investment & participation from private players in this sector. Furthermore, the amendment states that control orders related to the supply of certain foodstuffs may be issued only under extraordinary circumstances that may include war, famine, extraordinary price rise, and natural calamity of grave nature.
The amendment also exempts a processor or value chain participant of any agricultural produce from any stock limit regulations if the stock held by such person does not exceed the overall ceiling of installed capacity of processing or demand for export in case of an exporter. That is, the installed capacity of a value chain participant and the export demand of an exporter will remain exempted from such stock limit imposition.
However, there have been widespread protests opposing the new farm laws including the amendment to the essential commodities act. The Supreme Court has since stayed the implementation of these three laws until further notice.
Featured Image: Export of Essential Commodities