Why India Needs a Stronger Essential Commodities Act

Why India Needs a Stronger Essential Commodities Act

Why India Needs a Stronger Essential Commodities Act

Representational image. | Image Courtesy: RSTV

As agribusinesses celebrate the removal of pulses, oilseeds, cereals, etc from the purview of the Essential Commodities Act (ECA), Indian farmers and consumers may not be so jubilant. The government’s advisors, in an attempt to bring more “agri-dollars” to India, may have misled opened the doors for cartelisation of these commodities, while dismantling consumers’ and farmers’ only defence against unfair monopolies.

For evidence, we need to look no further than 2015, when Modi Government 1.0 was completing one year in office and the prices of pulses had skyrocketed. Retail prices of Tur/Arhar had climbed to hit over Rs. 200 a kilo in October 2015. After the Income Tax Department investigated the matter, the Rs. 2.5 lakh crore dal scam was unearthed.

A 2,000-page investigation by the Income Tax department, known as theAppraisal Report in the Case of Pulse Importers and Traders Group” said, “The abnormal price situation in India was created by a coordinated collusive activity orchestrated by few trading and financial entities.” The report found that “physical stocks of pulses [were] cornered in domestic and international markets. Significant long positions on the future were taken on exchanges to create an artificial scarcity at the whole sale and retail levels.”

International agribusiness and grain traders had shrewdly circumvented the Essential Commodities Act, leveraging their overseas presence and created a monopoly by “procuring and hoarding stocks of pulses in national as well as overseas markets”. They manipulated domestic prices to plummet so that they gain the maximum possible from their dal stocks bought at low prices. The super profit earned in this manner was not offered to tax and siphoned off either abroad or converted into unaccounted cash through entry operators. Finally, the treacherous agri-commodity giants got a taste of Indian dals.

It was then that the government, using the ECA, raided and seized over 70,000 metric tonnes (MT) of pulses from hoarders and traders and broke the cartel. The entire supply chain was complicit and in fact the Income Tax department investigated the NCDEX too, for their role in aiding this crisis.

The feat was managed by the involvement of international agri-business, local suppliers and traders, and agri-commodity brokers at the NCDEX. But the government’s advisors are perhaps once bitten yet still not twice shy, and hence they have removed all the barriers to stocking limits etc. So the dal scam can now legally repeat itself, or rather operate, and even past crimes can be absolved.

The curious case of cotton seed:

Cotton is not only a fibrous cash crop but also now an oilseed. Many have raised bio-safety concerns on GMO Bt Cotton seed being blended freely into our edible oils, nevertheless the demand for cotton seed oil is ever-growing. Much like pulses, oilseeds were removed from ECA too. It is almost expected that the government will deregulate cotton seed as well, as it is also an oilseed.

Interestingly enough, the Modi government has had a tryst with Bt cotton monopoly too, where it used the same Essential Commodities Act to prevent unfair business practices and to control the prices of cotton seed. This happened in 2015 and it was done because illegal “trait value” was being charged. The farmers quoting the PPVFRA (or Protection of Plant Varieties and Farmers’ Rights Authority) demanded that the government step in to stop this. As a result, the Competition Commission of India (CCI) had even started an anti-trust investigation into it. The cotton seed sector was valued at Rs. 24.86 billion in India in 2016.

The ECA had repeatedly come to the aid of the Indian government, legal traders, farmers and consumers. Of late, it helped break the cotton seed and dal cartels. However, the safeguard measures of emergency control laid out by the government in the ordinance for protecting different stakeholders is not strong enough.

What the government should do is, first, keep all seeds for sowing under the purview of the ECA and second add clauses to strengthen this law. India’s cotton farmers are already highly indebted and 84% of farmers’ suicides are reported from the cotton-farming belts. No illegal trait fees, royalties, and so on, should be charged and cotton seed should remain under the ECA.

Next, the government needs to study the dal scam and IT department’s findings in the Appraisal Report. We need to bring pulses and oilseeds back under the ECA. By deregulation, we are blindly copying the United States’ post World War-II agricultural policy, which has failed for American farmers and led to the creation of agri-commodity giants. The liberalisation of farm-gate has destroyed farmers not just in the United States, but in Mexico, Brazil, and in each country that has walked the United States line. Indian farmers will be the biggest losers.

And the consumers won’t be far behind either. Once farmers are under control, as we have seen in the United States, consumers gradually feel the burn of such deregulation too. American consumers have experienced the sharpest food inflation as a result of the consolidation by agri-business and trade. India will be no different.

The Modi government must tread carefully and learn from its own experience with the dal and cotton seed scams. And before dismantling the ECA the government must revisit the history of the East India Company, which was the world’s first agri-business trans-national corporation. For what lies ahead is best described by its own Income Tax department’s report: “…a sad commentary on tax compliance behaviour of a global giant who fleeced poor Indian consumers through monopolistic trades and robbed off the exchequer of its legitimate dues. Indulging in unethical, illegal and money laundering activities, [the] Glencore-led cartel seriously threatened the economic security of the country.”

The author is director, policy and outreach, National Seed Association of India. The views are personal.

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COVID-19 Crisis Brings to Light the Need for a Much Stronger Public Sector

COVID-19 Crisis Brings to Light the Need for a Much Stronger Public Sector

It is a sign of how bad things are when the editorial board of the Financial Times, the world’s leading business newspaper, carries an editorial calling for “radical reforms… reversing the prevailing policy direction of the last four decades.” The FT editorial of April 3 has advocated, among other things, a more active role for governments in the economy, ways to make labor markets less insecure, and wealth taxes. The FT’s editorial board, increasingly concerned about saving capitalism from itself, had written about the need for “state planning” and a “worker-led economy” last year in August. But the April 3 editorial has garnered much more attention since it comes amidst a massive crisis.

By now it has become obvious that substantial state intervention in the economy—frowned upon by the apostles of neoliberal economics—is back to the center stage across the world.

The situation is such that the public sector, long maligned by neoliberal economists and weakened by governments beholden to neoliberalism, is playing a major role in the fight against coronavirus. Its role would have been much more effective and wide-ranging if it hadn’t been hit hard by decades of fund cuts and waves of privatization. Nevertheless, with the ineffectiveness of private production with profit motive as its driving force to handle a crisis becoming more evident, the public sector, production with state direction, and some amount of planning are making a major comeback.

Public Health Care

The case of the sectors that are directly concerned with health care provision is the most conspicuous, with the inadequacies of private health care during a crisis becoming evident to even right-wing leaders.

We see Boris Johnson, the Prime Minister of the UK, repeatedly talking about the need to protect the National Health Service (Britain’s publicly funded health care system). He even said, “there really is such a thing as society,” contradicting Margaret Thatcher, his conservative predecessor who batted for pure individualism in 1987 by saying “There is no such thing as society.”

Britain and many other countries in Western Europe have had relatively robust public health care systems. In many of these countries, such as ItalySpain and the UK, public health care systems have suffered in recent years because of fund cuts and privatization of public facilities. Apart from the policy vision of the leaders of these countries themselves, they also came under pressure from the technocrats of the European Commission, who repeatedly demanded spending cuts on health care. Along with the easy-going attitude displayed by many of the Western governments in the early weeks of the coronavirus outbreak, such weakening of the public health care systems have made their response to the coronavirus outbreak a more arduous task. For now, the governments of Spain and Ireland have temporarily taken over their private hospitals to deal with the crisis.

The case of the United States, with its private, insurance-based health care system, is far worse. Not only was a sufficient number of testing kits unavailable in the United States for months, but the costs of testing and treatment remain prohibitive for a large section of the population, particularly to the 30 million uninsured and 44 million underinsured. This means that many people simply wouldn’t be able to afford to get tested and treated, endangering the health and lives of themselves and others.

The difference between the United States on the one hand, and China and South Korea on the other, comes readily into the picture here. Testing and treatment for coronavirus is free in China, which was crucial in the country’s success in bringing the epidemic under control. South Korea has done extensive testing, which was made available for free. Treatment costs were covered by the government and the insurance companies.

The Importance of the Public Sector, However, Goes Much Further

In times of crises such as the present one, which is comparable to war, the ability of economies to produce (or at least source) and distribute things becomes critical. Two kinds of things assume particular importance:

  1. Essential things that are necessary for the immediate sustenance of the people. These include food and medicines, and in turn, the things necessary to produce them. If there are large gaps in the supply and distribution of these things, there would be a famine. If the gap is smaller, there would still be many unnecessary deaths. Even leaders who are otherwise callous about starvation deaths would be concerned about such an eventuality during a crisis, because social tensions that could rise as a result of this would make it even more difficult to tide over the crisis, whether it is a war or a pandemic. During the Second World War, Britain resorted to rationing to solve this problem. The people of India were squeezed to finance the Allies’ war in South Asia with Japan, and the result was the Bengal Famine, which took the lives of 3 million people.
  1. The kind of things that are necessary to tide over the crisis. During times of war, armaments would be the most crucial among these. In the case of the coronavirus crisis, the main things would be items like ventilators, masks, hand sanitizer, gloves and medicines to treat the symptoms. Large gaps in the supply of these things would be disastrous. In the case of a war, such gaps could lead to defeat in war. In the case of a lethal pandemic, people would die in huge numbers, as we see right now. We could say this is an industrial famine of sorts contributing to the casualties, with countries unable to make ICUs, ventilators and masks fast enough in adequate quantities, and in many cases, to set up hospitals and quarantine facilities quickly enough.

It is in this context that leaders of government who ideologically disagree with state intervention in the economy are seen taking direct action in commandeering private companies to produce necessary things.

Thus we see Donald Trump, who had initially resisted the pressure to use the Defense Production Act—a wartime law—to mobilize private industry, finally using the law to direct General Motors to produce ventilators.

The government of Italy directed its only producer of ventilators, Siare Engineering, to ramp up the production of ventilators for the country, and sent engineers and other staff members from the Ministry of Defense to help with production. The company canceled all its orders from abroad to produce for the country.

Countries with a large public sector, robust industrial capacity, and the ability to effectively intervene in the market would be at a considerable advantage here. That is the case with China, which put the state-owned China State Construction Engineering to work to construct two emergency quarantine hospitals at breath-taking speed. The state ensured the flow of products such as grain, meat and eggs into the Hubei province while it was under lockdown, and coordinated the production and distribution of masks and other medical products. Once the outbreak within the country was under control, it began supplying masks and ICU equipment to other countries in need.

India, a large country with a poor health care system, does not have enough masks and Personal Protective Equipment (PPE) for its health workers. The number of ICU beds and ventilators available in the country is very low. For a population of 1.34 billion, it only has 31,900 ICU beds available for COVID-19 patients, according to the country’s Health Ministry officials. To compare, Germany, with 82.8 million people, had 28,000 ICU beds as of mid-March.

If the number of COVID-19 patients in India surges, hospitals and their critical care facilities will be overwhelmed. The public sector Bharat Electronics Limited has been asked to produce 30,000 ventilators to meet the urgent need. Hindustan Lifecare (another public sector company) and the Rail Coach Factory under the Indian Railways are going to manufacture ventilators. The public sector Ordnance Factory Board (OFB), which the government has tried continuously to weaken in the recent years, is now producing masks, sanitizer and coveralls for Personal Protective Equipment (PPE). It has also developed a ventilator prototype and is preparing for production.

Within India, it is the state of Kerala that has dealt with the pandemic in the most effective manner. In the Left-ruled state, which has resisted the policy of privatization pushed by successive central governments, public sector companies are manufacturing hand sanitizer and gloves, and have raised the production of essential medicines. Kudumbashree, a massive government-backed organization of women’s collectives with 4.5 million members, is making masks, which the public sector is helping distribute. Mass organizations of youth and popular science activists are pitching in by making hand sanitizer. Volunteers supported by a state-led initiative have developed a respiratory apparatus that could free up ventilators.

It is not as if making masks, sanitizers and gloves requires advanced technology. But industrial capacity is needed to churn them out in large numbers, or at least large mass organizations, class organizations or collectives that can mobilize people to manufacture them. The inability of the United States to even ensure the supply of such items stands out in this regard. Four decades of neoliberalism seem to have led not only to the undermining of industrial capacity useful for public purposes, but also to the hollowing out of collective energies.

Need for Production Capabilities and Societal Control Over Them

In short, the lesson is that in times such as these, a society needs two things.

  1. It needs production capabilities. During a time of crisis, if a country doesn’t have the necessary industrial capacity, it will be in trouble even if it has money to buy if the other countries that do have the production capabilities block the export of the required goods. This is what is happening right now to so many countries, such as Italy and Serbia. (In the mad scramble for resources, there have even been reports of countries offering higher amounts to buy masks ordered by other countries, and of some countries even seizing shipments for themselves.) Not only is industrial capacity needed, but some excess capacity is also required in some crucial areas. As the public health expert T. Sundararaman pointed out recently, the public health care system needs to have unused capacity, which will allow it to expand and take on the extra load when there is an emergency. Excess industrial capacity in China, which is often seen as a problem (including by sympathetic observers), turned out to be useful, with the country being able to manufacture essential goods to not just meet its own demands, but also that of other countries.

    But relying on market forces doesn’t give any guarantee of industrial capacity being built up. The kind of production capabilities built without planning would be haphazard, and may not cover the needs of an emergency when it presents itself. India, which adopted a strategy of substantial economic planning during the first few decades after independence, only to abandon it in the recent decades, is witnessing this to its peril right now.

  1. The society, or the state as the representative of society, needs to be able to control the production facilities. When a crisis hits a country with production capabilities in the private sector, the state can invoke emergency powers to bring them under control. But it would be a painful process, especially in countries where the private corporate sector is not used to submit to discipline. Given the enormous influence that the corporates have over the state itself, the state might try to prolong having to invoke such emergency powers, as was seen in the United States, and that could have disastrous consequences. India has the worst of all possible worlds—cronyism is rampant, industrialization has not taken off (whether it is because of cronyism or in spite of it need not detain us here), and the public sector has been undermined.


    Even when the state is trying to play a more active role, its efforts could be undermined by private firms acting in their own self-interest of maximizing profits. This was seen in the United States, where private companies were engaging in price gouging, by selling masks that are normally sold for 85 cents for $7, leading to the New York state governor to call upon the federal government to nationalize the acquisition of medical supplies. He said that the U.S. government should order factories to produce masks, gowns and ventilators; otherwise the situation would be impossible to manage. The state using private facilities can be costly as well, as was seen in Britain, where the National Health Service is paying 2.4 million pounds per day as rent to private hospitals for 8,000 beds.

Does calling for more domestic production capabilities that the state can control mean that every country should be left to fend for itself? Certainly not—every country cannot produce everything; smaller countries would find it particularly difficult. International trade would be needed for countries to procure things that they cannot produce for themselves. But as the developments of the recent months show, today’s trade regime has nothing to do with solidarity, and it provides no guarantee of countries being able to access goods during an emergency. This is no accident. Lack of solidarity is embedded in the way capitalism has developed, with the bulk of the world’s wealth concentrated in the hands of a few countries, and within countries, in the hands of the super-rich. This system has to be overhauled for a regime of solidarity to emerge. Production and its fruits becoming less concentrated in some regions of the world and in the hands of a minority would pave the way for power relations to be less unequal, which is a precondition for real solidarity among people and societies.

Along with socialized health care, an immediate stop to privatization, and a stronger, expanded public sector should become part of the transitional demands of the left as we search for an exit from the pandemic crisis.

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