Working group on Consumer affairs committee report; Need for caution and carefulness for policy makers

Shri Narendra Modi, Chief Minister of Gujarat, Chairman of the Working Group on Consumer Affairs, submitted the Report of Working Group to the Hon'ble Prime Minister of India, Dr. Manmohan Singh .

The Working Group on Consumer Affairs was constituted on 8th April, 2010, finalized its Report earlier in January 2011 by the Committee led by Shri Narendra Modi, Chief Minister Gujarat with other member Chief Ministers of States of Maharashtra, Andhra Pradesh and Tamil Nadu.

The Modi Committee Report is a precise document which gives 20 recommendations with 64 detailed actionable points that will facilitate expeditious implementation of the Report.

• With regard to the Future Markets and considering lack of strong linkages between spot and future markets at present, the Modi Committee Report has suggested that for the time being, essential commodities should be kept out of the Future Market. There is danger with only food items. Other commodities can be allowed to be traded.
• The Committee has suggested setting up of a Price Stabilization Fund by Govt. of India to help State Governments for procurement and distribution of essential commodities in short supply. This will cause undue burden on the exchequer. Already many governments are flooded with welfare activities and are unable to meet the promised activities.

Some of the major recommendations made in the Modi Committee Report include

• Liberalization of Agriculture Markets for improving the efficiency of distribution channel from farms to consumer. There are many numbers of such markets all over the country. The efficiency can be increased if commodities useful to farmers are made available in the markets itself, by encouraging the producing companies to establish retail out lets in the market yard itself.
• Increasing participation of organized sector/ cooperatives in retailing including farmers' markets. This suggestion will go a long way in protecting the farming sector
• Agro- processing, storage and cold chains for wastage control and reduction, proactive monetary policy etc. This is a long felt need. Government can also think of encouraging private investments in such activities by providing various tax concessions and incentives.
• For evolving single National agriculture market, the Committee Report has recommended to set up a Ministerial level Coordination mechanism at the National and the Regional level for coordinated policy making.
• Enlarging the scope of priority sector lending such that the Agriculture Marketing activities are also be made eligible. Many food processing units are depending on commercial banks for such purpose by paying very high interest rates. Concessional rates of interest should be provided for construction of such processing units.
• The ratio of priority sector lending to the agriculture sector should also be raised further from the current level of 18%.This level can safely be increased up to 25 % since processing units are also included.

To minimize information asymmetry in the Agriculture Market, the Committee Report also calls for

• Establishing a mechanism, if necessary by creating a dedicated agency, to collect and widely disseminate information to all stakeholders on production, import, stocks and overall availability of essential commodities besides extensive use of the Information Technology. This vital information is conspicuously absent. Every state government should initiate the process of speeding such information. Computers and high speed internet even to remote villages should be provided with very low costs.

Since, the FCI plays a major role in procurement and distribution system of essential commodities, a suggestion has been made

• To explore unbundling of FCI operation in terms of procurement, storage and distribution functions. There are several procuring agencies, but they are functioning on commercial lines on par with traders, and making huge profits in the process of procuring and marketing .This should be meant for providing MSP to the farmers and supply them through fair price shops at the predetermined price on the ration cards.

Further, the Committee Report has also emphasized

• Preparation of a 10-year Perspective Plan for improving Agri-infrastructure of backward and forward linkages for Agriculture Production and Marketing. This is a long period considering the urgency for such facilities. It should be a time bound and has to be completed within the stipulated period.

The Committee Report has also recommended that

• Offences under Section 10-A under the Essential Commodities Act should be made non-bail able and
• Special Courts should be set up for speedy trial of offences under the E.C. Act.
• The period of preventive detention under the PBM Act (Black Marketing Act in common parlance) should be increased from six months to one year.

These recommendations need lot of thinking and carefulness before being implemented .Most of the inspecting officials are highly corrupt. They are conducting raids on even the licensed traders and processing units and causing lot of harassments in the process. The processing unit is selected at random and raids are conducted on the unit. There is no sampling justification for such raids, and without any evidence of the unit indulging in hoardings or black marketing. Severe punishments are imposed on such units even for minor variations in stocks (Not even 5% of the stocks with unit).

The processing units buy raw materials with different qualities, waste contents such as soil, stones ,moistures as per the their convenience. In turn they get different yielding of finished products. The processing units have to clean them, dehydrate them and make it fit for consumption. It results in unexplainable variations in stock volumes. Nobody can guess perfectly as what is the loss due to above factors. This becomes a bane for inspecting officials to book cases against them. The inspecting officials resort to physical weighing of the stocks for days together and seize their stocks even for petty reasons and variations The owner of the unit is considered as a black marketer and put to lot of tensions, embarrassments and harassments. This provides lot of scope for corruption. With the result no educated person likes to become an entrepreneur in such units.

However the penal provisions of the act can be applied on the traders who do not have valid license. The cases do not stand the test of legality. But the trader is put to lot of tension since most of his funds are from borrowed sources. It is a discouragement to entrepreneurship.  Adequate care has to be taken to frame the legislation since policy makers are not aware of the ground realities.

Final conclusion and suggestion;

Need for price capping of food items at the national level:

In Ethiopia government has done a wonderful thing to control the food prices. It has proven to be successful and very much effective in controlling the prices and the subsequent food inflation. They have fixed the retail selling prices of many food items and the price list with government stamp is pasted on the glass doors of retail provision stores. The consumer reads it and pays the same price as fixed by the government and if a trader charges a higher price the matter is referred to controlling authorities, where by his license is cancelled and sometimes he is penalized and punished. Consequently prices have come down by 25 to 50 percent. This can be titled as ‘price capping system.' This is the best measure to control food prices. There will be no speculation dealings by traders and food processing units since the prices will not go up because of rate fixation by government. This method can be followed in all the countries to control the food prices effectively and save the consumers and general public from the clutches of inflation. Government will not be criticized for the evil effects of food inflation.