The Standing Committee on Food, Consumer Affairs and Public Distribution (2020-21) studied ‘Price Rise of Essential Commodities – Causes & Effects’ recently and submitted a report. In the report, the committee called on the government among other things to mitigate the price rise & revise taxes on petrol & diesel.
The Standing Committee on Food, Consumer Affairs and Public Distribution (2020-21) selected the subject ‘Price Rise of Essential Commodities – Causes & Effects’ for examination and report. Accordingly, the Committee took briefing and oral evidence of the representatives of the Department of Consumer Affairs in December 2020.
Essential commodities are vital and very essential in a way that they must reach everybody at affordable prices. To ensure adequate availability of all the essential commodities to the economically weaker families/people of the country at a fair price, under Article 246, entry no. 33 of the Concurrent List of Seventh Schedule (of the Constitution of India), the Parliament passed the Essential Commodities Act, 1955. There is no specific definition of essential commodities in the Essential Commodities Act, 1955 (EC Act), but Section 2(A) of the Act states that an “essential commodity” means a commodity specified in the “Schedule” of this Act. The Act gives powers to the Central Government if it is satisfied that it is necessary to do so in the public interest, to notify an item as essential, in consultation with the State Governments.
The Government enacted The Essential Commodities (Amendment) Act, 2020 in September 2020, which allows the central government to regulate the supply of certain food items only under extraordinary circumstances (such as war and famine). Stock limits may be imposed on agricultural produce only if there is a steep price rise.
List of Essential Commodities
The list of commodities included in the Schedule of Essential Commodities under the Essential Commodities Act (EC Act), 1955, are;
- Fertilizers, whether organic, inorganic or mixed
- Foodstuffs, including edible oilseeds and oils
- Hank yarn made wholly from cotton
- Petroleum and Petroleum products
- Raw jute and jute textile
- (i) Seeds of food crops and seeds of fruits and vegetables; (ii) Seeds of cattle fodder; (iii) Jute seeds; and (iv) Cotton seeds.
With respect to new additions to the above list, the committee enquired whether there are plans to include more items including Fast Moving Consumer Goods (FMCGs) which directly impact the welfare or health of consumers, viz. packaged foods, beverages, toiletries, over-the-counter drugs, and other consumables. The Department of Consumer Affairs stated that no such plans are under consideration at present.
Price rise of Essential Commodities.
As per the Ministry of Consumer Affairs, the causes of price rise of essential commodities include factors such as:
Increase in cost of cultivation: Increase in cost of cultivation for inputs like fertilizers, wages, etc. influences the prices of food articles.
Lack of technological breakthrough: The technological breakthrough for enhancing the productivity of pulses, oilseeds, and cereals in India has not advanced sufficiently. These are not the favoured crops due to high risk and fluctuations in production, giving rise to supply-side constraints.
Infrastructure and logistics constraints as factors for price rise: There is wastage of crops due to lack of awareness about proper storage, improper handling during their transportation, lack of awareness about proper methods of storage, etc. These factors are significant in influencing the prices of highly perishable items like fruits and vegetables. Also, an increase in fuel prices directly impacts transportation costs which add to the wholesale and retail prices of food products.
The Department of Consumer Affairs stated in a written note that because of the inherently perishable nature of the produce and short shelf life, around 30% of vegetables in the country perish during harvest, storage, grading, transport, packing and distribution. Further, there is wastage of vegetables along the supply chain due to poor post-harvest management and lack of cold chain and seasonality of vegetable production creates fluctuations in prices.
Adverse weather conditions and dependence on Monsoon: The Ministry also stated that with a limited area under irrigation, crops have become susceptible to the vagaries of Monsoon and adverse weather conditions like drought. The Indian farmers are dependent on the four-month Monsoon season during which 80% of the year’s total rainfall is received.
Apart from these general factors, the Ministry stated that hoarding by the traders is also a factor contributing to the price rise of essential commodities like pulses and onion.
In other words, several factors like a demand-supply mismatch, including due to adverse weather/rainfall induces shortages in the food supply, rising international prices, multiple tiers in the value-chain, increase in the cost of production, structural changes in demand patterns, etc. are factors affecting food inflation.
The report notes that the food inflation rate (%) spiralled upwards from 2019-20 onwards. The all-India food Inflation rate (%) for the year from 2015-16 to 2020-21 shows the following trend:
The all-India average retail prices of some of the essential food commodities in India are given in the following table:
In view of the adverse effects of food inflation, especially for relatively economically vulnerable sections, steps are taken by the Government from time to time to mitigate the price rise. The report elaborates on these measures.
Observations/Recommendations of the Committee
While the committee report makes a host of recommendations, some of the major ones are as follows:
List of Essential Commodities
At present, there are 7 (seven) commodities included in the Schedule of essential commodities under the Essential Commodities Act. The Committee noted that a proper mechanism may be evolved to periodically review the inclusion/deletion of commodities under the Essential Commodities Act, 1955 after due consultations with the concerned Departments and State Governments. The Committee also recommends that the Government may consider the inclusion of more consumables in the list of essential commodities, particularly those which directly affect the health of all consumers, and which are useful for village and town dwellers, and subsidize these products. Such items may also be included in the list of commodities monitored by the Price Monitoring Division (PMD), which may go a long way in improving the health and welfare of needy consumers at large.
Essential Commodities (Amendment) Act, 2020
The Committee noted that although the country has become surplus in most agricultural commodities, farmers have been unable to get better prices due to lack of investment in cold storage, warehouses, processing, and export as entrepreneurs stated to be get discouraged by the regulatory mechanisms in the Essential Commodities Act, 1955. The Committee also noted that, as recommended by the High-Powered Committee for Transformation of Indian Agriculture comprising the Department of Agriculture and Farmers’ Welfare, NITI Aayog, and the Chief Ministers there is a need to create an environment based on ease of doing business and for removing the fear of frequent statutory controls under the Essential Commodities Act in order to boost immediate investment in the agriculture sector, increase competition and enhance farmers’ income. The Committee expects that the recently enacted ‘The Essential Commodities (Amendment) Act, 2020’ which was aimed at addressing these issues would resolve some of the issues. They, therefore, recommend the Government to implement the Essential Commodities (Amendment) Act, 2020 in letter and spirit, and without let or hindrances.
Noting further that foodstuffs such as potato, onions, and pulses are part of a common man’s daily diet and that lakhs of people who do not get the benefits of Public Distribution System (PDS) may suffer adversely in the aftermath of the implementation of the new Act, the Committee also desired the Government to continue to keep a constant watchful eye on the prices of all essential commodities and to resort to the remedial provisions provided in the Essential Commodities (Amendment) Act, 2020 when needed.
Safety standards of food items
The data provided by the government, however, revealed that while between the years 2016-17 and 2019-20, there was an increase in the number of food samples analysed from 78,340 to 1,18,775, the number of samples found non-conforming from 18325 to 29589, and the number of civil/criminal cases launched from 13080 to 27412, but the number of convictions actually fell from 1605 to 821 during the same period. The report argues that these trends undoubtedly indicate a slackening of efforts by FSSAI regarding enforcement work on food safety standards in the country. The committee, therefore, urged the Government to add vigour to existing efforts on testing and analysis of food items and ensure that there is no slackening of enforcement of food safety standards against the defaulting food business operators and stringent action is taken against them. Side by side, vigorous efforts should be made to ensure that all food business operators comply with the quality parameters of food items that are stored in godowns.
Increase in cost of cultivation as a factor for price rise
The Committee noted that an increase in the cost of cultivation for inputs, especially fertilizers, wages, etc., influences the prices of food articles. With the limited area under irrigation, crops have become susceptible to the vagaries of Monsoon and weather conditions like drought. The Committee recommends that the Government should make a comprehensive study of the impact thereof on the cost of farm produce through a panel of experts, professionals, academicians, etc. and then devise an effective action plan to address the problems associated with it.
Fluctuations in prices due to crop losses because of poor management
The Committee noted that around 30% of vegetables in the country perish during harvest, storage, grading, transport, packing and distribution. Further, there is wastage of vegetables along the supply chain due to poor post-harvest management and lack of cold chain and seasonality production creates fluctuations in prices. In this context, Committee noted that the Government has taken various steps to spread awareness about the proper use of storage and transportation techniques, and is organizing various training programmes and awareness campaigns under schemes like Mission for Integrated Development of Horticulture (MIDH), National Food Security Mission (NFSM), etc. Other measures taken by the Government include awareness campaigns, advertisements, etc. in print and electronic media to raise awareness among the farmers, ‘Kisan Suvidha’ mobile application developed by the Department of Agriculture, Cooperation and Farmers Welfare to facilitate dissemination of information to farmers on critical parameters. The committee recommended that the Government should monitor the progress and success of these schemes through annual appraisal and also by calling evaluations from the concerned State Governments so that the present unsustainable level of vegetable wastages is brought down to the minimum.
Price rise in Oil and Gas sectors
The Committee suggested that the taxes levied on petroleum products, especially on petrol and diesel are on the higher side and need a revision after making an evaluation of the prevailing oil pricing regime existing in the country and also making a comparative assessment of the same with the systems prevailing in this regard in other countries.
Measures to stabilize food inflation
The Committee recommended that the Government should make concerted efforts to keep the food inflation rate in the country to the minimum by adopting policies and measures to tackle the supply-side constraints which have been causing an inflationary spurt in food items from time to time. They also recommend that the Government should take concrete steps to monitor all existing schemes and programmes aimed at augmenting the production of food crops. The Government should make efforts to popularize the use and application of proper and updated agro-management techniques through the provision of credit at concessional terms from financial institutions, banks, etc. to enable the farmers to achieve higher yields from their investment, thereby resulting in increased output of essential food items in the country in the long-run.
Featured Image: Price and Taxes on Petrol & Diesel