Essential Commodities Act, 1955 – Recent Invocation and Policy Significance

Why in News?

Recently, the Union government once again invoked the provisions of the Act amid a global energy crisis, highlighting the continued relevance of the legislation in responding to extraordinary economic situations.

What is the recent invocation?

• March 2026 LPG Supply Order – On March 5, 2026, the Centre invoked the Essential Commodities Act following an oil supply disruption triggered by geopolitical tensions involving strikes by Israel and the United States on Iran.
• Under this order, oil refining companies were directed to maximise production of Liquefied Petroleum Gas (LPG) and ensure that it is made available exclusively for domestic consumers.
• The government specifically named the three major public sector Oil Marketing Companies (OMCs):
  • Indian Oil Corporation
  • Hindustan Petroleum Corporation Limited
  • Bharat Petroleum Corporation Limited
• These companies collectively supply LPG to around 99% of domestic households in India.
• Key Provisions of the Order
  • The government directed OMCs to prioritise the utilisation of propane and butane streams for LPG production.
  • Refineries were prohibited from diverting propane or butane to petrochemical manufacturing.
  • LPG production must be directed exclusively toward domestic consumption.
• The order invoked Clauses 3 and 5 of the Essential Commodities Act, which empower the Centre to regulate production, supply, and distribution of essential commodities.
• The directive came into force immediately and will remain effective until further orders.

What is the purpose and scope of the essential commodities act?

• Purpose & scope – The Essential Commodities Act, enacted in 1955, allows the government to:
  • Regulate production and supply of essential goods
  • Control distribution and pricing
  • Impose stock limits to prevent hoarding
  • Ensure equitable availability of key commodities
• The Act has been widely used to stabilise prices of food items such as cereals, pulses, sugar, and edible oils during periods of inflation or supply disruptions.
• The 2020 Amendment to the Act – In 2020, Parliament amended the Essential Commodities Act with the aim of liberalising agricultural markets and encouraging private investment in storage and supply chains.
• Key commodities – The amendment deregulated stock limits on key agricultural commodities such as:
  • Cereals
  • Pulses
  • Potatoes
  • Onions
  • Edible oilseeds and edible oils
• Restrictions – However, the government retained the power to impose restrictions under extraordinary circumstances, including:
  • War
  • Famine
  • Natural calamities of grave nature
  • Extraordinary price rise
• Threshold – The amendment also introduced specific thresholds for imposing stock limits:
  • 100% increase in retail price of perishable horticultural produce
  • 50% increase in retail price of non-perishable food items
• Last Invocation Before 2026: Wheat Stock Limits in August 2025
• The Centre last invoked the Act on August 26, 2025, to control rising wheat prices ahead of the festive season.
• The government revised stock limits as follows:
  • Traders and wholesalers – Reduced from 3,000 MT to 2,000 MT
  • Retailers – Reduced from 10 MT to 8 MT
  • Processors – Limited to 60% of Monthly Installed Capacity (MIC), down from 70%
• These restrictions were imposed as part of the government’s price moderation strategy ahead of the festive season, particularly before Deepavali and the Bihar Assembly elections scheduled for October–November 2025.
• The limits are set to remain in force until March 31, 2026.

What are the major invocations of the act since 2020?

• April 2020: During the COVID-19 Lockdown – During the nationwide lockdown imposed to control the spread of COVID-19, the Centre invoked the Act and urged states to do the same.
• The objective was to:
  • Ensure availability of essential commodities
  • Prevent hoarding and black marketing
  • Stabilise prices during supply disruptions caused by labour shortages and transport restrictions.
• September 2020: Legislative Amendment – As the economy began reopening after the lockdown, Parliament amended the Essential Commodities Act.
• This was done to deregulate stock limits and promote agricultural investment, while retaining emergency powers for the government.
• May 2022: Sugar Export Cap – To maintain domestic supply and price stability, the government capped sugar exports at 10 million tonnes until September 2022.
• The decision followed record sugar exports during the 2020–21 season, which reached 7 million tonnes, significantly higher than 5.96 million tonnes in 2019–20.
• August 2022: Monitoring Tur Dal Stocks – Amid rising prices of tur dal, the Centre directed states to monitor and verify stocks held by traders.
• The price increase was attributed to slow kharif sowing due to excessive rainfall and waterlogging in major producing states such as Karnataka, Maharashtra, and Madhya Pradesh.
• At that time, retail inflation had remained above 7% since April 2022.
• September 2023: Wheat Stock Limits – The government imposed stock limits on wheat to curb artificial scarcity created by hoarders.
• Traders, retailers, processors, and large retail chains were required to:
  • Register on the wheat stock limit portal
  • Report stock positions weekly
  • Reduce stock holdings exceeding prescribed limits.
• December 2023: Further Tightening of Wheat Limits – As wheat and wheat flour (atta) prices remained elevated in several regions, the Centre further tightened stock limits:
  • Traders and wholesalers: reduced to 1,000 MT
  • Retailers: reduced from 10 MT to 5 MT
  • Processors: reduced from 75% to 70% of MIC
• The government justified these measures on the grounds of ensuring national food security and price stability.

What lies ahead?

• Despite attempts to liberalise agricultural markets through the 2020 amendment, the Essential Commodities Act continues to remain a critical policy tool for crisis management.
• Whether addressing food inflation, hoarding, supply disruptions, or energy shortages, the Act enables the government to intervene swiftly in markets to safeguard consumer interests and maintain national economic stability.
• The recent invocation in March 2026 to prioritise LPG supply underscores the Act’s continuing relevance in managing both food and energy security challenges in an increasingly uncertain global environment.

Reference

The Hindu| Essential Commodities Act