Essential Commodities Act 1955

Essential Commodities Act 1955

Why in News? 

In response to West Asian supply disruptions from the US-Israel-Iran conflict, India has invoked the Essential Commodities Act, 1955, ordering domestic refiners to maximize Liquefied Petroleum Gas (LPG) production. 

• The Ministry of Petroleum and Natural Gas (MoPNG) invoked the Act due to risks in the Strait of Hormuz, through which over 80% of India’s LPG imports pass.
• Refiners are directed to prioritize LPG output and stop diverting propane and butane feedstock to petrochemical manufacturing.

What is the Essential Commodities Act, 1955?

• About: The Essential Commodities Act is a key economic regulatory law enacted by the Parliament of India in 1955 to ensure the availability, fair distribution, and price stability of essential goods. 
  • It empowers the government to control production, supply, and trade of critical commodities in the public interest.
• Objectives: Its core objectives include preventing hoarding, ensuring equitable distribution, maintaining reasonable prices, and protecting consumers from artificial scarcity.
• Background: After Independence (1947), India faced food shortages, hoarding, black marketing, and inflation in essential goods. To prevent exploitation during scarcity, the government introduced this Act as part of the broader state-led food security.
• Constitutional Basis: The Act derives authority from Entry 33 of the Concurrent List (Seventh Schedule) of the Constitution of India, enabling both Central and State Governments to legislate on trade and supply of essential commodities.
• Authority: The Ministry of Consumer Affairs, Food and Public Distribution implements the Act.
• Essential Commodities: The Act allows the Central Government to declare certain goods as “essential commodities.” These have included food grains, pulses, edible oils, sugar, petroleum products, fertilizers, and drugs, depending on national needs and market conditions.
• Food Security System: The Act supports India’s food security architecture, especially programs like the Public Distribution System (PDS) and buffer stock management by agencies such as the Food Corporation of India.

Provisions and Powers under the Essential Commodities Act, 1955

• Essential Commodity: Under Section 2, the Act empowers the Central Government to declare certain goods as “essential commodities” depending on national requirements.
  • Section 2A authorizes the Central Government to add or remove items from the list of essential commodities through official notifications.
• Production and Supply: Section 3(1) authorizes the Central Government to regulate or prohibit the production, supply, distribution, storage, transport, and trade of essential commodities to maintain equitable distribution. 
• Regulatory Measures: Under Section 3(2), the government may issue Control Orders such as licensing of traders, stock limits, regulation of storage, movement restrictions, compulsory sale to government agencies, and control over imports or exports to prevent market manipulation and shortages.
• Price Fixation and Procurement: The government may fix procurement prices or maximum prices for essential commodities under Section 3(3). When commodities are acquired by the government, compensation is determined through controlled price, market rate, or agreement.
• Delegation of Powers: The Central Government may delegate powers under Section 3 to State Governments, subordinate authorities, or administrative officers, allowing decentralized enforcement and regional regulation of essential commodities.
• Confiscation of Commodities: If authorities detect illegal hoarding or violation of control orders, District Collectors may seize and confiscate the commodity, packaging, storage containers, vehicles, or transport equipment used in the offence under Section 6A.
  • Before confiscation, Section 6B mandates issuing a show-cause notice to the concerned person and providing an opportunity of hearing.
• Penalties for Violations: Contravention of orders issued under the Act (Section 7) may result in imprisonment ranging from three months to seven years along with fines, and confiscation of the involved commodities or transport vehicles. 
  • The Act also penalizes abetment of offences, holds company officials responsible for violations, and permits summary trials in special courts.

Policy Reforms in the Essential Commodities Act

• • New Act: The Essential Commodities (Amendment) Act, 2020, which received Presidential assent on September 27, 2020 (effective from June 5, 2020), brought landmark reforms to the 65-year-old Essential Commodities Act, 1955, aiming to foster a free-market environment for agriculture. 
  • Deregulation of Essential Foodstuffs: The amendment removes key agricultural items—cereals, pulses, oilseeds, edible oils, onions, and potatoes—from the regulatory list. These items are now only subject to state control under extraordinary circumstances such as war, famine, or grave natural calamities.
  • Price-Based Triggers for Stock Limits: The Act introduces strict, objective criteria for imposing stock limits. A limit can only be imposed if there is a 100% increase in the retail price of horticultural produce or a 50% increase in the retail price of non-perishable food items, calculated over the last 12 months or the average price of the last five years, whichever is lower.
  • Exemptions for Value Chain Participants: To encourage investment in infrastructure, the stock limit restrictions do not apply to processors, value chain participants, or exporters of agricultural produce. This allows them to stock goods based on their installed capacity or export demand, promoting modernization.

• Protection of Public Distribution System: Despite deregulation, the amendment clearly states that these changes do not affect government orders related to the Public Distribution System (PDS) or targeted food security programmes, ensuring continued food support for vulnerable populations.