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Essential commodities, as the name suggests, refer to specific entities which are necessary for the people of the nation. The government of India enacted the Essential Commodities Act in the year 1955 to make certain commodities available to the people at fair prices. The government uses it to regulate the production, supply, and distribution of declared essential entities. The items listed under the ECA include drugs, fertilisers, pulses, edible oils, petroleum, and petroleum products. But in recent times, there has been a drastic and steep rise in the prices of essential commodities.
What are Essential Commodities?
Essential commodities, as the name suggests, refer to certain commodities or products, the supply of which, if obstructed due to hoarding or black marketing, would affect the everyday life of the people. The items that come under the Essential Commodities include drugs, fertilisers, pulses, edible oils, petroleum, and petroleum products. While the essential commodities covered under the ECA may be representative, the confirmed list is broad. We use not only items for mere survival but also a healthy lifestyle. Salt and sugar appear in the list of ECA, but due to our eating habits, condiments and flavouring materials also remain an essential part of our cooking list. Cooking oil and ghee may not appear on government lists, but the ordinary person in our country has to have them in their kitchen. Fresh vegetables, fruits, food grains, salt, sugar, and condiments are essential commodities for our staple diet. Medicines, clean water, diesel, petrol, and many services, like barber shops, are equally necessary – they are next on the list of people’s essential commodities.
What determines the Cost of Commodities?
The classical understanding of costs is based on the gap between supply and demand; the more vast the opening, the lesser the value of the supplied product. If supply and demand break even, i.e., what is demanded is being fulfilled, the prices are fair. If the demand exceeds the supply, many buyers look forward to the commodity, which is scarcely available. This causes the rising prices of commodities. The high commodity inflation of vegetables in lean seasons is an example. Also, the price of mangoes falls every harvest season – following the same relationship. The forever varying petroleum prices constitute another example in this regard.
Why are Commodity Prices Rising?
The supply-demand chain needs to be looked upon carefully, and the recent events surrounding us can help us understand the high commodity inflation. The recent past holds the clue – our international relations, the lockdowns due to Covid-19, and the Ukraine-Russia war. Our country imports many edible products, including dry fruits like figs, raisins, and apricot from Afghanistan; Kabuli chana and rajma seeds from Uzbekistan; sunflower oil from Ukraine; palm oil from Malaysia; and computer chips from South Korea and Taiwan. We import a considerable portion of our petroleum from countries like the UAE, Qatar, and Iran. Any happenings in these countries immediately affect the supply to India.
Change of guards in Kabul and a hostile government in Pakistan make the supply of dry and fresh fruits through the Chaman border difficult for Indian importers. In recent times, a sharp spike in the prices of figs, grapes, and green apples is attributed to this. The Ukraine-Russia war has led to supply redundancy of sunflower oil, and a hostile government in Malaysia has led to a thin supply of palm oil. This has led to an almost two-fold increase in the cost of cooking oils. The shopfloor management in most industrial establishments was negatively impacted due to Covid-19 restrictions, and electronic chip manufacturing dipped globally. This led to an unprecedented rise in the prices of commodities such as computers and automobiles (they use eight or 16-bit chips for fuel metering and injection control).
Is it that Simple?
The answer is no. Costs have a compounding effect. The cost gets compounded as we move further along the chain. For example, the carriage of refined petrol is done in oil tankers, which run on diesel. So, any rise in carriage cost due to the increase in diesel price will lead to a rise in prices of all related commodities, including petrol and diesel itself. Apart from these scientific reasons, there are two more factors, namely psychological pricing and hoarding. Some entities tend to be valued higher due to our perception, like French beans are costlier than long beans. Also, hoarders try to create an artificial supply loss to push the demand up. Annual shortage and the resulting rise in the cost of onions is an example.
Conclusion
The current pandemic situation and lockdown have contributed to the high commodity inflation and rising commodity prices. But it cannot be considered the only reason. Significant policy changes, drowning economic conditions due to the pandemic, and international warfare have equal weightage. As of now, if we are to experience another wave of the pandemic or if global action does not come to a halt, we might suffer even more. However, the increase is mainly based on economic recovery, pent-up demand, and government stimulus, likely to stabilise soon. Here, we learned that the rise in the price of essential commodities is known as inflation.
