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Essential Commodities Act: Implications on the Indian Economy and Impact of COVID-19

Essential commodities are those that the Central Government may notify and declare to be an essential commodity for the purpose of this Act. The Act reaches out to the entire of India including the State of Jammu and Kashmir. It came into power on 1.4.1955. The fundamental motivation behind the Essential Commodities Act is to guarantee that the normal man gets the basic items without obstruction with respect to the trade.

Fundamental wares/ essential commodities are separated into two classes, viz., the items of industrial consumption and the items of general consumption. The first type consists of coal, textile, iron and steel etc. and the second type consists of food-stuffs, cattle feed and others.in the study done by us we are dealing with the concept of essential commodities with respect to current pandemic situation.

The significance of ECA, dealing with the Act is implemented by the state governments and union territories, leaving the central government to merely monitor the action taken by states in implementing the provisions of the Act. State and UT administrations use the powers of the Act to impose stock or turnover limits for various commodities and penalize those who hold them in excess of the limit.

Stock limits have been imposed in several states for pulses, edible oil, edible oil seeds, rice, paddy and sugar. Important clauses dealing with the law, namely section 3 and section 7. Governments' outlook towards ECA and a brief analysis of and data of different states and the essential commodities. ECA's role in COVID-19 and on the Demand and Supply chain. We have essentially reflected the idea of the Act.

Introduction:
[1]The Essential Commodities Act was enacted in the year 1955. It has been used by the Government to regulate the activities such as manufacturing, supply and distribution of an entire host of goods it broadcasts “essentials” in order to lead them to consumers at reasonable and fair prices. The Basic Items Act is a demonstration of Parliament of India, which was set up to guarantee the conveyance of specific wares or items, the stockpile of which whenever impeded attributable to storing or dark showcasing would influence the typical existence of the individuals. This incorporates staple, drugs, fuel (oil-based goods) etc.

The rundown of things under the Demonstration incorporate medications, manures, heartbeats and eatable oils, and oil and oil-based commodities. The Middle can incorporate new items as and when the need emerges, and take them off the rundown once the circumstance improves.

[2] Here's the manner by which it works. In the event that the Inside finds that a specific item is hard to find and its cost is spiking, it can tell stock-holding limits on it for a predetermined period. The States follow up on this notice as far as possible and find a way to guarantee that these are clung to. Anyone exchanging or managing in a product, be it wholesalers, retailers or even merchants are kept from accumulating it past a specific amount.

A State can, be that as it may, decide not to force any limitations. Be that as it may, when it does, brokers need to quickly sell into the market any stocks held past the commanded amount. This improves supplies and cuts down costs. As not all business people and brokers go along, State offices lead assaults to get everybody to fall in line and the errant are rebuffed. The abundance stocks are unloaded or sold through reasonable value shops.

Objective of Research:
To analyse various nuance of Essential Commodities Act and to examine the effect of COVID-19 on the essentials commodity's Act 1955.

Significance of Essential Commodities Act:

[3]The ECA gives buyers insurance against nonsensical spikes in costs of fundamental items. The Legislature has summoned the Demonstration umpteen occasions to guarantee sufficient supplies. It gets serious about hoarders and dark marketeers of such items.

Be that as it may, there is another side to the story. Given that practically all harvests are occasional, guaranteeing nonstop inventory requires satisfactory develop of stocks during the season. In this way, it may not generally be conceivable to separate between veritable stock develop and theoretical storing. Likewise, there can be real deficiencies activated by climate related disturbances in which case costs will climb. Along these lines, if costs are constantly checked, ranchers may have no motivating force to cultivate.

With too-visit stock cut-off points, brokers likewise may have no motivation to put resources into better stockpiling framework. Likewise, nourishment preparing enterprises need to keep up enormous stocks to run their tasks easily. Stock cut-off points diminish their activities. In such a circumstance, enormous scope private speculations are probably not going to stream into nourishment preparing and cold storerooms.

Important Clauses

In this approach combi Section 3 gives power to Central Government of India to regulate or prohibit the production, supply and distribution, trade and commerce of any essential commodity and regulates by licenses, permits or otherwise the production or manufacture of any essential commodity, and also, the storage, transport, distribution, disposal, acquisition and consumption. District Collector has to check all the commodities and if he isn't satisfied and thinks that there has been any contravention, he can order the confiscation of goods.

Section 7 defines the offences and penalties which says any property in respect of which the order has been contravened shall be forfeited to the government. And if any property is found carried by any animal, vehicle or any other conveyance shall, if the court orders so, be forfeited to the government. All offences are cognizable and non-bailable with imprisonment term of 3-7 years.

Outlook of Government:

As per the Economic Survey of 2019-20 conducted by the Government of India, government intervention in market flow or functioning though intended to help often cause more harm by discourage the capacity of the markets to create wealth.[4] The survey report terms the essential commodities act as an “anachronistic” intervention. As per the survey, the essential commodities act becomes an erratic imposition of a margin of stock on the commodities which neither reduces price nor makes it more stable much contrary to the objective of the act.

It also talks about how the act "distorts the incentives for the creation of storage infrastructure by the private sector, movement up the agricultural value chain and development of national market for agricultural commodities". The act also provides for raids to prevent the overstocking which in the recent years has not yielded any great results and has abysmally low conviction levels to a point where the government is now calling it outdated.

They feel that the act was necessary at the time it was passed due to the economic situation of the country and also the famines. The statistics of a Rajya Sabha meeting in 2015 that go as follows shoe the raids and their implications.

The data in Table 1 clearly shows the very low rate of convictions and seizes as compared to the raids which the government felt as a waste of resources as a lot of money and human resource goes into conducting these raids which they feel will be a wastage of these resources.

The arrests come to only 2.35% of the number of raids and the number of convictions even shockingly lower rate of 0.092%. The data in Table 2 shows the further process of the seized commodities. The data in the tables show the inefficient processing of the goods and hence the government is justified in terming this act as outdated as it is not suitable for the current functioning of the bodies. Out of the commodities seized 20.48% are disposed and the balance just left.

S.No. States/UTs No. of Raids Conducted No. of Persons - Arrested No. of Persons - Prosecuted No. of Persons - Convicted Value of goods Confiscated (Rs. In Lakhs) Detentions Ordered Reported up to
1 Arunachal Pradesh Nil Nil Nil Nil Nil NA May
2 Bihar 54 0 0 0 0 NA NA
3 Chhattisgarh 81 0 0 0 0 NA April to June
4 Delhi 78 NA NA NA NA NA June (Except 2/3/4/5/2016)
5 Goa 9 Nil Nil Nil Nil NA June
6 Gujarat 4428 11 11 NA 57.58 June
7 Haryana 53 36 4 NA 57.29 NA June (Except 03/2016)
8 Himachal Pradesh 10513 NA NA NA 10.17 NA May
9 Kerala 105 26 14 0 0.45 NA May
10 Maharashtra 212 322 163 0 119.6 11 May
11 Manipur Nil Nil Nil Nil Nil 1 March
12 Mizoram 10 NA NA NA NA NA June (Except 2/4/2016)
13 Meghalaya 2 Nil Nil Nil Nil NA May
14 Nagaland Nil Nil Nil Nil Nil NA January
15 Rajasthan 35 Nil Nil Nil Nil NA NA
16 Sikkim 57 NA NA NA NA NA June (Except 03/2016)
17 Tamil Nadu NR NR NR NR NR NA NA
18 Telangana 1062 136 5 5 762.76 77 June
19 Tripura 152 0 0 0 2.95 7 June
20 Uttarakhand 595 22 4 NA 0.3 NA June
21 Uttar Pradesh 10966 49 57 21 115.49 NA April
22 West Bengal 253 86 18 NIL 1881.33 NA June
23 A & N Islands 35 NA NA NA NA NA June
24 Chandigarh Nil Nil 3 1 Nil NA June
25 D & N Haveli Nil Nil Nil Nil Nil NA June
26 Puducherry 469 NA 3 NA 2.14 NA June
Total Total 29169 688 282 27 3010.06 96 NA


S. No. State Raids conducted Qty seized Qty disposed Balance
1 Chhattisgarh 112 5447.93 2471.39 2976.54
2 Haryana 1108 14.6 NA 14.6
3 Karnataka* 1351 25545.82 488.53 25057.3
4 Madhya Pradesh 969 3373.6 1972.9 1400.7
5 Maharashtra 5250 86709.39 19756.25 66953.14
6 Telangana 1924 3152.38 NA 3152.38
7 Rajasthan 797 2643.77 261.61 2382.16
8 Jharkhand 140 282.02 NA 282.02
9 Odisha 180 1410.26 1403.86 6.4
10 Andhra Pradesh 1300 1361.52 352.5 1009.02
11 Gujarat 203 53.01 NA 53.01
12 Himachal Pradesh 500 3.42 NA 3.42
13 NCT Delhi 1 81.29 8.13 73.16
14 Bihar 299 360.41 NA 360.41
Total Total 14134 130439.4 26715.17 103724.3

Also, according to an article by Jatin Verma[7], which also draws an analysis of the economic survey, the act was passed at a time where the position of the economy was radically different. He also builds a case against the act that analyses the drawbacks of the act in terms of the market distortion, agricultural impact, price volatility and administrative issues. He mentions how the act reduces free flow of markets and makes commodities deficit.

They also distort chain of delivery and the derivative markets of the commodities. The raids also become a negative incentive to dealers and prevent entry. In some cases, particularly in agricultural markets, the act fails at certain points to distinguish between genuine requirements of the inventory and the illegal hoarding.

He also talks about the high administrative burdens like mentioned before in terms of personnel and other resources required to comply to the provisions of the act. The act also has a negative incentive for storage facilities thereby making volatility of price high due to production and consumption shocks.

[7]The finance minister of India announced an amendment on the Essential Commodities Act to deregulate costs for staple including oats, palatable oils, oilseeds, pulses, onions, and potatoes. Nirmala Sitharaman said the move was focused on better value acknowledgment for ranchers and to pull in interests in the segment.

The change basically implies that the costs of the above staple farming produce will presently be represented by the market powers. Sitharaman said that the governmental intercession might be done in crisis circumstances like emergency.

Under the demonstration, the legislature coordinates organizations for support of stock restrictions of basics commodities, so that costs of these products can be managed. Stock breaking point to be forced under incredibly extraordinary conditions like national disasters, famine with surge in price. It included that 'no such stock cutoff will apply to processors or value chain member, subject to their introduced limit or to any exporter subject to the fare request.

The legislature contemplated that the EC Act was ordered in the times of shortage and deregulation was intended to pull in better costs, investment and to make farm sector competitive. The above announcement is in keeping with Prime Minister Narendra Modi's promise to bring in broad and sweeping agriculture reforms to transform the farm sector and unlock its true economic potential with special emphasis on strengthening the supply chain.

ECA and COVID-19:

[8]As a result of the COVID'19 outbreak, the government declared masks and sanitizers as commodities under the ECA. This was because the coronavirus pandemic has activated frenzy purchasing of covers and hand sanitizers at numerous spots the world over. Remembering for India, the administration's organization has come in the wake of reports of a lack of these wares and an abrupt and sharp spike in their costs, and the supposed accumulating of stocks by producer.

Without the ECA the regular man would be helpless before shrewd merchants and retailers. It engages the legislature to control costs straightforwardly as well. The Administration can fix the retail cost of any bundled ware that falls under the ECA.

[9]As a feature of keeping up smooth stockpile of basic things in the nation, Union Home Secretary, Ajay Kumar Bhalla has kept in touch with all State Chief Secretaries to find a way to guarantee accessibility of fundamental merchandise, by summoning arrangements of the ECA 1955.

These measures incorporate fixing of stock cut-off points, topping of costs, upgrading creation, assessment of records of sellers and other such activities. In addition to the amendment to the Essentials Commodity Act, the finance minister unleashed an eight-point-reform program aimed to boost the self-sufficient India vision under the Rs 20,000 crore Atma Nirbhar Bharat special economic package, being announced in the wake of the disaster unleashed by coronavirus pandemic.

[10]The impact of COVID-19 on the demand and supply chain:

If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period. The States act on this notification to specify limits and take steps to ensure that these are adhered to. Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.

[11]This empyrean has had a huge impact on the exchange of goods throughout the world. Let us think of a supply chain as a supply network. Number of manufacturing facilities are connected by transportation routes with several storage nodes along the way.

Right now, the labor who work together during the manufacturing work dependent intently together have been disturbed due to social separating necessities. For instance, produce that depends on spring harvest may be hard to come by summer because of work deficiencies. For different makers, maybe it won't be work or crude materials that are hard to come by, yet the capacity to have their item conveyed. For instance, transportation courses are in danger of interruption if truck drivers become wiped out. It's hard to foresee precisely where disturbances will be felt the most, yet explicit inventory chains have been influenced.

[12]Makers and distributors throughout the world are confronting expanded interest for customer bundled merchandise, for example, nourishment, drinks, and cleaning items because of customers alarm purchasing in mass. This is the reason we see void racks at markets. Yet, I don't think there is deficiency in the nourishment inventory network. We have the assembling, transportation, and capacity ability to manage buyer bundled merchandise. Truth be told, it's not basic for individuals to stock up in their homes. There is no on a very basic level broken bit of the nourishment inventory network.

Doctor prescribed medications might be distinctive since the store network is increasingly worldwide and depends on China and India. China is a key provider of the crude materials for physician recommended medications and India has become a significant maker of nonexclusive medications. The shutdown in China and the ongoing lock-down in India may affect the sorts of physician endorsed drugs we find right now all through the world. Two partners at the University of Michigan as of late wrote in an article that even in the best of times, the U.S. sedate inventory network is delicate. Also, we are not in the best of times.

On the off chance that individuals are purchasing more merchandise now, it isn't really on the grounds that they are utilizing more—they are accumulating. At the point when things return to ordinary, customers will have a ton of canned soup and bathroom tissue at home and won't have to purchase more. It is anything but a simple choice for organizations to contribute noteworthy assets to satisfy the spike in need that may be unnatural and bring about future misfortunes.

Regardless of the entirety of this, there have been endeavors by producers and retailers to improve things for shoppers despite the fact that it probably won't be promptly gainful for business. For instance, supermarkets have built up devoted times of the day for the old to approach stores without an introduction to other people and stores have been forcing limits on the number of individuals allowed to shop at once to take into consideration social separating. Numerous stores are proportioning popular items by setting a boundary for amounts for every client.

A portion of the obligation is on the shoppers themselves to understand that our activities have swayed on others. The individuals who generally are affected by deficiencies at supermarkets are those with restricted portability and constrained salary who might not have trustworthy access to transportation, have constrained measures of money and will be unable to reserve.

How can we be better prepared for a future crisis relative to supply chains?

Private companies have playbooks of supply chain disruptions in their network. In supply chain management, it is crucial to diversify your source of supply so that when one supplier is impacted, people can switch go the supplier. But what is happening now is beyond the means of any individual company to deal with.

There is a job for government and worldwide administrative offices to play in making of our inventory chains stronger for future emergencies. For products to stream uninhibitedly, send out limitations must be evacuated. In the event that you don't have the opportunity to deliver something by sea and you need to transport it via plane—and this is particularly valid for items like covers or swabs that were modest to such an extent that their stock chains were assembled more for proficiency than strength-conventions must be set up for who is going to pay for it. These are the sorts of inquiries that require global participation.

The People Most Impacted By Shortages At Grocery Stores Are Those With Limited Mobility And Limited Income Who May Not Have Dependable Access To Transportation, Have Limited Amounts Of Cash, And May Not Be Able To Stockpile.

Limitations of ECA:

  1. The stock limits on commodities under the Essential Commodities Act (ECA) ‘neither bring down prices nor reduce price volatility. The Act is anachronistic as it was passed in 1955 out of an India stressed over starvations and deficiencies; it is unessential in the present India and must be cast off.
     
  2. According to a survey, in 2019 alone, there were 76,033 raids under ECA, as per the report. Nonetheless, the conviction rate was exceptionally low — only 2,941, or .8 percent of the total raids directed.
     
  3. Section 3 of the Essential Commodities Act gives the central government powers to control the production, supply and distribution of specified essential commodities listed in it. The rundown is drawn up after joint discussion between the center and the states, and the last force stockholding limits on the listed products. And it is the stockholding limits under the Essential Commodities Act that defines hoarding. It is this anomaly that needs to be addressed, not pushing more and more items under the Act whenever there is a price shock. And thus, if Act to be retained and strengthened, looks like the country is going to have to live with an ineffective, harassment-prone law.
     
  4. Identifying the actual hoarders is not at all easy. These may not be small brokers however their tasks are not corporatized and they have numerous roads to spirit away and hoard supplies. The conviction rate under the Act is likewise wretchedly low. So, the hoarders go without any penalty and authentic players in the nourishment economy are bugged.
     
  5. The Act isn't on top of present occasions. It appeared well and good when the transport infrastructure across the nation was poor and markets not coordinated. So, a production stock in one piece of the nation could result in hoarding and black marketing. That is not the case anymore. Deficiencies in a single piece of the nation can be countered if there is abundant inventory elsewhere.
     
  6. Also, food processing industries need to maintain large stocks to run their operations smoothly.
     
  7. The Act doesn't distinguish between food processors and wholesale/retail food chains that stock food, and hampers the creation of what's needed the most – storage and warehouse infrastructure in the agriculture space.
     
  8. The ECA disincentivizes investments in warehouses and storage for crops. It makes useless any effort of the government to improve the income of farmers. Till the time the ECA isn't rejected, the private sector won't approach to put resources into Agri distribution centers.
     
  9. Also, due to the fact that ECA act fails to differentiate between Hoarding and Storage, the recent Economic Survey said that this act is outdated and must go.

Conclusion:
The Essential Commodities Act, 1955, enacted by Parliament for control over the production, supply, distribution, etc. of essential commodities, to maintain or increasing supplies, to secure equitable distribution and availability of commodities at fair price -in the interests of the general public. Hence, it is imperative that the Central Government should regularly monitor its own action, as well as, action taken by State Governments/ UT Administrations.

But the improper implementation of Law, orders and circulars of Supply and Distribution have resulted in maldistribution. Thus, there is need for proper and objective application of this delegated power so as to assure that the fundamental rights are not encroached upon. Also, vexatious complaints have been sought to be discouraged by providing immunity to public officials in discharge of their official duty under S. 15A.

Also, black marketing and bribery and corruption is rampant and a glaring problem in the implementation of orders and directions on essential commodities. Additionally, it was observed that states most frequently withdraw from prosecutions related to cases registered under the Essential Commodities Act as compared with other prosecutions. This shows not only the tolerance that various state governments exhibit towards bribery and corruption but also the influence of the licensees upon the government.

Moreover, another acute problem is that Budgetary subsidies are not able to reach the beneficiaries, and the Absence of stringent Penal liability creates proliferation of Essential Commodity related offenses.

Hence, the following suggestions including both legal and administrative measures are advanced for incorporation in the law and to bring administrative reforms in the control over the essential commodities encompassing, the opinions and views of the Courts, other Connected authorities, general public, stakeholders and media reports.

Legal measures and suggested changes in the Law:

  1. An order issued under Section 3 of the Essential Commodities Act, 1955, is legislative m nature and requires to be notified in the official gazette which is being done by some state governments at present. However, orders issued by the Central Government must also be notified in the Central gazette.
  2. Presently, all offenses and violation of the provision of this law is viewed / seriously and are made cognizable and non-bailable. But the trader's associations have demanded that all offenses be made bailable. As it is, a large number of offenses are being reported and if the offenses are made bailable (as demanded by some dealers) will weaken the Act and its prohibitive nature.
  3. Provision for punishment to erring officials under the Act would give it the vital crucial stringency, needless to explain, that traders have been unnecessarily harassed by the officials for obvious reasons.
  4. A provision that officer, if proved guilty in a court of law, will be punished for harassing the traders will benefit both the traders and consumers; will welcome this amendment.
  5. Similarly, the power of the officials under the Act should be reduced. The officials should be made to take the permission of the First-Class Magistrate or its equivalent before making entry, examination, or seizure of commodities from a trader and produce a copy of the order of permission taken from the Magistrate to the trader.

Preventive Detention:

The basic concept underlying detention is that if preventive steps are not taken then the person sought to be detained is likely to indulge in an activity that is prejudicial to the maintenance of supplies essential to the community.

Administrative Measures like:
  1. For efficient implementation of the law and administration of the Essential Commodities Act, 1955 and administration of Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act, 1980, a review of their provisions and other policy matters must be done periodically.
  2. For price control - Emphasis on Food Stuffs and fertilizers.
  3.  For effective Prosecution - The Government of India must take immediate steps to prevent widespread corruption in the supply and distribution of essential commodities through the establishment of independent and separate mechanisms to investigate offenses. This mechanism must be independent of the local police, as the latter is corrupt and therefore, inefficient in investigating corruption. This requires a change in the existing law -The Essential Commodities Act, 1955, and the government of India must be urged to make, such changes and facilitate this process. Confiscation proceedings under Section 6A must be delegated to specially designated full-time officers under the Collectors.
  4. For smooth supply and distribution - Proposed Supply chain Reforms/Changes/Modifications in existing Mechanism like for effectiveness in supply and distribution, minimization of cost of kerosene oil price reduction and putting a check on illegal activities is the need of an hour.

References:
  1. INSIGHTSIAS. (14/03/2020). What is Essential Commodities Act? https://www.insightsonindia.com/2020/03/14/what-is-essential-commodities-act/
  2. The Indian Express. (08/04/2020). Coronavirus lockdown: Invoke Essential Commodities Act, Centre asks states. https://indianexpress.com/article/india/coronavirus-india-lockdown-invoke-essential-commodities-act-centre-asks-states-6353971/
  3. The Business Line. (09/03/2018). All you wanted to know about Essential Commodities Act. https://www.thehindubusinessline.com/opinion/columns/all-you-wanted-to-know-about-essential-commodities-act/article21689980.ece1
  4. Government of India. Economic survey of 2019-2020. Echapter4. Volume 1. https://www.indiabudget.gov.in/economicsurvey/
  5. Government of India. (17/11/2017) Open Government Data (OGD) Platform India. Action taken Hoarding of Food Items under the Essential Commodities act, 1955 during 2016 (Ministry of Consumer Affairs, Food and Public Distribution) https://data.gov.in/resources/action-taken-hoarding-food-items-under-essential-commodities-act-1955-during-2016-ministry
  6. Government of India. (23/03/2016) Open Government Data (OGD) Platform India. Enforcement data under Essential Commodities Act, 1955 for Pulses (From: Ministry of Consumer Affairs, Food, and Public Distribution) https://data.gov.in/resources/enforcement-data-under-essential-commodities-act-1955-pulses-ministry-consumer-affairs
  7. Verma J. (01/02/2020). Jatin Verma's IAS Academy. Essential Commodities Act is Outdated. https://www.jatinverma.org/essential-commodities-act-is-outdated
  8. Edited by:?Abhinav Sahay, Hindustan Times. (2020, May 15). Nirmala Sitharaman special Covid-19 package: Prices of essential commodities to be deregulated. Hindustan Times. https://www.hindustantimes.com/business-news/nirmala-sitharaman-special-covid-19-package-prices-of-essential-commodities-to-be-deregulated/story-7gQ5LPSK3N9c0kLmAkNXZO.html
  9. The Hindu. (08/04/2020). Coronavirus lockdown: Invoke Essential Commodities Act to curb black marketing, Home Secretary tells States. https://www.thehindu.com/news/national/coronavirus-lockdown-invoke-essential-commodities-act-to-curb-black-marketing-home-secretary-tells-states/article31287034.ece
  10. The Hub. (06/04/2020). How has COVID-19 impacted supply chains around the world? https://hub.jhu.edu/2020/04/06/goker-aydin-global-supply-chain/
  11. First post. (04/07/2014) Why Modi should scrap the Essential Commodities Act, not invoke it to control food prices. https://www.firstpost.com/business/economy/why-modi-should-scrap-essential-commodities-act-not-invoke-it-to-control-food-prices-2009561.html
  12. Chronicle India. Sanitizers and Mask Notified as Essential Commodities. https://www.chronicleindia.in/current-news/409-santizers-and-mask-notified-as-essential-commodities
Written By:
  1. Janvi Parihar, Student, Institute of Law, Nirma University,
    Email: [email protected]
  2. Kiruthika S, Student, Institute of Law, Nirma University,
    Email: [email protected]
  3. Kanya Saluja, Student, Institute of Law, Nirma University,
    Email: [email protected]
  4. Kinjal Sharma, Student, Institute of Law, Nirma University,
    Email: [email protected]

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