This is an old joke the generation that was born after 1970 may not know–An
Englishman, a Frenchman, a German and an Indian were asked to study the
Elephant and write an essay on it. The Englishman came up with one page write up titled "Elephant Hunting", the Frenchman came up with four
pages titled "The Love Life of Elephants", the German wrote ten pages for
his "An Introduction to a Complete Study of Elephants" and the Indian came
up with a forty pages long "The Elephant Act (Regulation and Control).
You can have a good laugh except for the fact that the joke was actually on
the people of India. "ROGUES", this is what they thought of us as they saw in every sphere of economic activity opportunity for 'Regulation and Control'. One such Elephant
Control Act went by the name of "The Essential Commodities Act, 1955", hereinafter called "The Act". The Act can be arguably held as a single piece of legislation anywhere in
the world that pushed millions to poverty and kept them bound hand and
foot for so long till the millions of its victims of the Act developed a
kind of Stockholm Syndrome rarely seen in an otherwise an open and democratic
polity.
Here I am giving a historical backdrop of the Nehru-Indira era to explain the agricultural policies epitomized by The Essential Commodities Act 1955. It was an era of warped economic thinking, baggage that we have carried too long to our detriment.
Indian post-1947 was hard-pressed to feed its population of about 400 million. The productivity of Indian agriculture was so low mainly because of the Zamindari and Jagirdari system then prevalent in much of India. Agricultural productivity was very low in Zamindari Areas of North India and Eastern India while it was only marginally better in the areas managed under the Ryotwari System by the British, especially in South India. Even where the Ryotwari system was in vogue, large landholdings managed by absentee-landlordism of share-croppers did not generate a large marketable surplus.
Indian post-1947 was hard-pressed to feed its population of about 400 million. The productivity of Indian agriculture was so low mainly because of the Zamindari and Jagirdari system then prevalent in much of India. Agricultural productivity was very low in Zamindari Areas of North India and Eastern India while it was only marginally better in the areas managed under the Ryotwari System by the British, especially in South India. Even where the Ryotwari system was in vogue, large landholdings managed by absentee-landlordism of share-croppers did not generate a large marketable surplus.
In the 1950s , the population was growing at a healthy clip and the situation was dire on the food availability front. Large imports of machinery for setting up those useless loss-making Steel Plants and Fertilizers Plants in eastern India brought with it Inflation, the inflation the world was experiencing in the aftermath of World War II. India was pushed to accept wheat under the PL 480 Act of 1954. Public Law 480 was a piece of American legislation basically meant to help the American farmers dispose of their surpluses. The Govt of the USA used it to pedal influence in poorer countries across the world. Under this arrangement, India got food grains and milk powder from the USA for which payment could be paid in rupees. The USA had no use for these rupees, it invested in RBI bonds whatever was left beyond paying for its expenses of running the embassy in India. Later these bonds were converted to long term loans at higher interest rates to finance projects in India. As an instrument of international financing, it was unique and path-breaking. But let us not digress.
Both the Gandhians and the aggressive socialists inside and outside the Congress fold understood the centrality of tenancy reforms in agriculture. It was the logical starting point for reforms in agriculture. Gandhians like Acharya Vinoba Bhave launched the Boodhan movement in 1951. Nehru passed the Land Reforms Act 1955. However, without the ability to exercise coercive power on the rural elite along with the absence of land records, devolution of land to the actual cultivator was tardy.
In fact, the only successful tenancy reforms were those of the Communists parties who ruled Bengal for 33 long years as a result of these land reform movements ( Operation Barga) after they came to power in 1977-78. Commies proved to be a one-trick ponies and they finally unraveled and decimated themselves–more on that some other time However it is a pointer to the kind of agriculture-related politics that occupied both Congress and its most vocal and active opposition, the Communists ( yes, in the 1950s the Communist Party of India was the major opposition party of the Congress!), in those days.
The AlCC in its session held at Ajmer in July 1954 while clarifying the objectives of the Congress as under:
"the present social structure, which still continued to be partly based on an acquisitive economy had to be progressively changed into a socialized economy .. where social ownership of basic industries was not possible in the near future, effective social control should be exercised."
About two months after the AICC's Ajmer Session, Nehru visited China in October 1954. He was much impressed with the economic progress achieved by China in a short time. What he liked most were the agricultural and industrial cooperatives which were rapidly coming up in China. At a meeting of the Congress Parliamentary Party, Nehru while explaining the government's economic policy stated that India's s goal should socialistic economy like that of China and Russia.
In his address to the National Development Council ( which later became the Planning Commission) in November 1954, Nehru emphasized that the means of production should be socially owned and controlled.
While he went on the path of nationalization of industries and strangulation of all industrial activity thru licensing and quota policies that were guaranteed to push any entrepreneur to desperation, these policies could not be extended to agriculture. The logical outcome of this mindset of Nehru and the majority of the ruling elite basking in the comforts of Lutyens Delhi was the "The Essential Commodities Act, 1955". Recently some commentators in our media were calling this Act a wartime measure. Was there a war in the 1950s that India was engaged in? So much for their knowledge of our own economic history post-1947.
The draconian nature of this bad law is better understood if one were to read the Bare Act section by section: For example, Section 10C of the Act;
10C. Presumption of culpable mental state. - (1) In any prosecution for any offense under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defense for the accused to prove the fact that he had no such mental state with respect to the act charged as an offense in that prosecution.
Take, for example, a bread manufacturer has bought wheat to convert to flour for his manufacturing process. Under this act, any Collector or Police Officer could arrest him arbitrarily for keeping wheat and put him in jail for six months. They can break open the locks of his godown and take away the "" Essential Commodity", in this case,, "Wheat". Besides, under this Act all offenses were to be treated as "Cognizable Offence", meaning they required no FIR, and the designated officer could proceed with arrests and confiscate goods according to his own judgment, by merely giving a show cause notice!
You may ask, if as a bread manufacturer, can it not be assumed or pleaded that wheat is kept only for the purpose of his business of manufacturing bread and not for black marketing in wheat. Those who wrote the law knew such an interpretation by courts was possible for they provided in the law that the courts were supposed to assume that "culpable mental state" pre-existed.
Under this Act, all Fertilizer either organic or inorganic, Foods Stuff, Oil Seeds, Sugar, Seeds have always been listed as Ëssential Commodities' with additions made to them from time to time. The fallacy of the entire premise on which such legislation is made can be seen clearly when Onion prices go up and come down. Farmers and trade will be forced to sell at lower prices and exports get banned suddenly throwing getting us a bad name in international markets. However, this ACt would come to the rescue of the poor farmer when the prices of the same Onions touch Rs. 3 or Rs.4 a kilo in the next few months pushing them to penury.
Again, this Act, by this provision in Section 3, is guaranteed to send down a chill down anybody who wants to deal in an agricultural commodity like grains, vegetables, edible oils, more so if the person is heading a corporate involved with the processing any of these commodities.
3. Powers to control production, supply, distribution, etc., of essential commodities. - (1) 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.(2) Without prejudice to the generality of the powers conferred by sub-section (1), an order made thereunder may provide,
(a) for regulating by licences, permits or otherwise the production or manufacture of any essential commodity;
(b) for bringing under cultivation any waste or arable land, whether appurtenant to a building or not, for the growing thereon of food-crops generally or of specified food-crops, and for otherwise maintaining or increasing the cultivation of food-crops generally, or of specified food-crops;
(c) for controlling the price at which essential commodity may be bought or sold;
(d) for regulating by licences, permits or otherwise the storage, transport, distribution, disposal, acquisition, use or consumption of, any essential commodity;
(e) for prohibiting the withholding from sale of any essential commodity ordinarily kept for sale;
(a) to sell the whole or a specified part of the quantity held in stock or produced or received by him, or
(b) in the case of any such commodity which is likely to be produced or received by him, to sell the whole or a specified part of such commodity when produced or received by him, to the Central Government or a State Government or to an officer or agent of such Government or to a Corporation owned or controlled by such Government or to such other person or class of persons and in such circumstances as may be specified in the order.
If a commodity is in short supply, and hence obtains a tag "E
essential Commodity", what would be the logical thing to do? You may say, I will facilitate its production, prevent wastage by enabling efficient storage and transportation and incentivize more production by ensuring price stability, etc. But only the Nehruvian genius would come up with "The Act" which will "regulate or prohibit" and eventually terrorize all those who have to make a living out of it and also deter anybody working to ameliorate the situation. ( please read the highlighted portions of Section 3 above) so that the supplies could be increased!
The Essential Commodities Act 1955 only made the food situation much worse. Foodgrains were stopped from being moved beyond district borders. Compulsory procurement from farmers at unremunerative prices and raids on traders killed all incentive to farm better and grow more. Black marketing and adulteration were rampant. As a kid in every middle-class household of those days will remember, it was necessary to engage labour to winnow and remove the fine granules of clay and stones if you bought any grain from anywhere, public distribution system or outside. Typically, old women who could not do farm labour, who otherwise had the knack of separating foreign particles in a sack of grain were engaged and they would sit with their two legs flat on the ground with a winnow delicately poised in their hands to do this job.
Unmindful of the havoc they wrought on the people of India, as the situation became worse, Nehru and Congress decided that the situation could be salvaged only through "Collective Farming", in the Soviet model.
A resolution to this effect was passed in the Nagpur Congress of 1960. It was when the naysayers to Nehru's economic policies in Congress, importantly Rajaji and his followers decided enough was enough. Rajaji who had coined the term "License & Permit Raj" to describe Nehru's industrial policies, left Congress to form the Swatantra Party, the only genuinely rightist but secular party India has ever seen. Of course, Nehru and his followers could dub them as the party of the rich etc.etc in the typical Indian leftist discourse. It is another story.
Historians say, agriculture through "Collective Farming" was the Achilles heel of the Soviet Union. The pathetic Super Power failed to produce enough wheat to feed its sparse population. It had to import wheat and the Americans from their satellite surveillance of the agricultural lands in the USSR all along could know when it had to come to them or to their western allies if their population were not to go hungry!
The Nehru mindset carried forward through the decades scorned at any idea that was not directly connected with "Production". Words like Marketing, Distribution, Supply Chain, Price Discovery, etc were imports from the lingo of a capitalistic, or in Nehru's own words acquisitive societies, and a "socialistic pattern of society" could do without them. As a result, though our agriculture saw reforms in technology through Green Revolution and extension of canal irrigation right through the first 4 decades since independence, it never made farming a profitable activity except where there existed a Govt procurement at a higher than the cost of production, like for wheat and rice in Punjab and Haryana. The high procurement price for Water led to these farmers going for it as a summer crop overexploiting the groundwater. Remember, before FCI procurement, rice crop was insignificant in North-Western India as it is not a natural crop for them. Moreover, huge stockpiles of millions of tonnes procured wheat and rice rot in FCI godowns every year as there is no matching of supply and demand in these grains. Even if they are given free, most states governments do not have the capacity or public distribution supply chain infrastructure to selling them thru ration shops. The irony of all ironies is that West Bengal under 33 years of Commi rule, never lifted the full quantity of food grains allotted to them from the central pool, though they and their well-wishers in the media and academia, will always be castigating all and sundry about the governments in the centre keen to kill the public distribution system and being so anti-poor! In fact, burning down ration shops happens frequently in Bengal, the latest one happened in May 2020, but the most widespread food riots and burning of the ration shops anywhere in India happened in West Bengal in the year 2007, after the commies had actually ruled West Bengal for 30 years! The ration shop owners came running to Kolkata to surrender their licenses as they could not face the crowds without supplies reaching them! The leftist's ecosystem takes hypocrisy to another level, not even reachable by the Islamists of the ISIS genre!
When I worked for an agri-input company in the 1980s and 90s, I could visit most agricultural regions of India. Though the problems differed from state to state and between regions, there was one crying need of farmers in all parts of India, that of good roads to move their produce to markets and urban consumption centers! It was unfortunate that roads were never a focus for our planners, politicians,, and bureaucrats till Vajpyee Govt started the ball rolling with the National High Development Project in 2000–if only they had asked those who mattered! In the absence of motorable all-weather roads in villages, any surplus from harvests, even if meager, could not be brought to market in time and sold. The losses in transit were more than 50%. (Currently, post-harvest losses are put at 35-40%, and in terms of volume, equal to the entire production of UK!). Uttar Pradesh is seeing rural roads being built only now, almost 70 years after independence.
As a result, we saw all these 65 years, no significant investment being made in any form in post-harvest infrastructure required for agriculture. As for warehouses set up by the Government, the less said the better. Nobody in the corporate world dreamed of setting up a cold storage facility or oxygen-free storage for onions or ripening chambers for pineapples or tomatoes to help the farmers stabilize supplies. Lending money to agriculture is a terror for any financier as it may be just written off. Farmer is the only player in our economic system who never could discover the right price for his produce and was forced to sell at prevailing prices notwithstanding the fact that in another month or two he knew prices would look up and he could get better value for his produce.
Rural indebtedness, low profitability in farming ( in fact, most of the rural incomes comes not from farming but from livestock and labour that the farmer provides to farms other than his own) , high migration to already overcrowded cities ( I think of it when I see UP/Bihar labour living in slums of Mumbai) are the direct outcomes of The Act.
The response of the political class has been to give sops like free and unmetered electricity, fertilizer, and other subsidies and periodically writing off loans owned by them, the last being most detrimental to the ecosystem of credit to agriculture.
When I was growing up in Tamil Nadu, I noticed farmers in the most fertile cauvery basin in Tanjore districts not being as rich and well to do like the farmers in the west, namely in the Coimbatore region. The answer was given to me by a farmer near Coimbatore, a relative of mine. In Tamil Nadu, ever since the DMK promised 3 measures of rice for Re 1 /- in 1967 elections and won it handsomely, it had become an article of faith with all political parties to force the farmers of rice to sell only to the government procurement agencies at prices fixed by them. This rice was sold in ration shops free or at absurdly low prices in one grand universal food protection scheme. Needless to say, farmers paid the indirect price for this because there could never be a decent increase in the prices paid to farmers while the price of rice in the ration shops tended towards zero. While it was easy to implement it on the cauvery delta farmers who grew only rice because of the soil conditions, the farmers in the west near Coimbatore could grow cash crops like turmeric, cotton and sugar cane which were not subject to this monopoly procuerement scheme. Besides, as post-1947 Kerala saw a significant drop in rice productivity in the Kuttanad region as a result of unionization of agricultural labour by the communist parties, rice that could be smuggled across the border to Kerala from western tamil nadu fetched good price for the Coimbatore farmer. Coimbatore's industry owes its origin and growth to the money the agriculturalists of this region generated from the same agriculture that impoverished farmers a few hundred kilometers away!
I have another interesting personal anecdote that involves my mother. During our first trip to Mumbai in 1970 to see our sister who was living there, there were severe restrictions on the movement of food grains anywhere across two districts in India. My sister told us that we have to eat wheat as rice was simply not available in Mumbai. She also had warned us that carrying rice to Mumbai was an offense. Still my mother decided to pack a few kilos of rice in our luggage as she was not used to eat chapatti or bread and dreaded the prospect. Much later when I came to know of this law, I often teased my mother how she was a smuggler in the eyes of law. She would feel shocked a little, but generally shrugged it off as such absurd laws denying economic freedoms were aplenty those days–even a 98% Income Tax we had taken in our stride.
In democracies, once a bad idea gets currency and gets established in time, it is very difficult to dislodge it. Though BJP identified the problems created by this Act in 1991 itself and its 2014 manifesto also contained a whole passage promising reforms, it required a crisis like "COVID" for this Govt lead by a man with 56" chest to amend this Act to render it toothless.
While amending The Act alone is not enough, this is the most important and welcome first step. You may ask how then corporates like Tatas buy and sell "Tur Dal". I am not free to tell you this, suffice it to say that there has to be lot of "Smoke and Mirrors" in the operations and corporates have to take elaborate caution and subterfuge so that their Managing Directors do not go to jail because some Collector gets to the conclusion that Tur Dal is in short supply because companies are buying them and profiteering from it.
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