Indian Government Introduces Amendment to Fix Retail Price of Essential Commodities

  • October 18, 2016

On October 10, India’s government modified its Legal Metrology (Packaged Commodities) Rules by including a provision to fix the retail price of any essential commodity. As per the notification, the changes will affect goods under the Essential Commodities Act and will apply to goods sold in both loose and packaged form in retail markets.

While some reports indicate that the government will fix retail prices of essential commodities on a daily basis, officials state that this will be implemented only in emergency situations when retail prices shoot up abnormally. At present, there are specific mechanisms to control wholesalers and importers, but not retailers. The amended law will therefore allow the government to be proactive towards protecting consumers and will help in curbing inflation.

In addition to the above goals on price intervention, the government also hopes to keep a tab on the price of pulses, which touched almost US$ 3 (Rs 200) per kg in retail markets in June due to a shortfall. During that time, the government was forced to import pulses and hike prices to boost domestic supply. The biggest crisis was in 1998, when onion prices dictated the electoral outcome of the Delhi government.

Officials highlight the fact that, at times, the difference between wholesale and retail prices has been 40 to 50 percent when it should be no more than 10 to 15 percent. Violation of the new amendment will now lead to a fine of US$ 75 (Rs 5,000) and the detention of the whole stock. Analysts, however, criticize the interventionist law, calling it regressive. While acknowledging that prices have risen this year, they state that market conditions should alone dictate prices. Conversely, while it is true that weather plays a role, the plantation of crops was up 37 percent, yielding a better output this year.

The Essential Commodities Act 1955 has a list of 22 items and allows the government to impose limits on retail prices, including those on pulses. In defense of the new strategy of fixing retail prices, government officials point to the fact that retail prices of some commodities were still high this year despite their low wholesale prices. Officials at the food ministry have attempted to find out the reasons behind such a gap. In addition, authorities are now making sure that they will be able to increase the stock of pulses to meet demand so that they can control prices with market interventions.

Observations

The new law is a short-term fix to control prices of commodities, particularly pulses. However, the underlying problem remains to be solved. A comprehensive solution requires a combination of factors, including investments in infrastructure like storage warehouses and logistics, dealing against corruption, removing the multiplicity of middlemen, and tackling waste. Studies have repetitively shown that India is capable of producing more food than its population, and yet shortages remain due to such systemic challenges. In the recent Global Hunger Index, India ranked only 97 out of 118 developing countries. The Indian government will need to structurally tackle these highly visible challenges as it strives for economic growth against other competitors.

This article was first published October 2016.
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