MSP hike could stoke inflation, prompt RBI to raise interest rates

05 July, 2018, 13:19 | Author: Brooke Harris
  • India announces minimum support prices for more than 20 crops each year to set a benchmark

For the 2018-19 crop season, the MSP for paddy, the main crop planted during the ongoing kharif (summer) season, has been fixed at Rs 1,750 per quintal, 13% higher than a year ago.

The MSP of paddy (common) was Rs 1,550 per quintal and Rs 1,590 per quintal for paddy (grade A) variety. "The BJD government in Odisha had asked the Centre to announce an MSP of at least ₹2,930 a quintal of paddy as the input cost in Odisha is higher than the calculations made by the Centre", he said.

Announcing the Cabinet's "historic" decision, Union Home Minister Rajnath Singh said that the MSP for common grade paddy has been increased from Rs 1,550 per quintal to Rs 1,750 per quintal, an increase of almost 13 per cent.

The government said prices paid to local farmers for common grade paddy rice will be raised by 13 per cent from a year ago to Rs 1,750 ($25.50) per 100 kg for the year starting on July 1.

"Should the government rely on large-scale procurement of crops to implement these prices, then the fiscal cost could be around 0.3 percent of GDP (gross domestic product), which will likely be shared by the central and state governments", said A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai.

To woo distressed farmers, the government had assured farmers in the Budget for 2018-19 that it would increase MSPs for the summer-sown season so that they get 50% returns over cost.

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"This will send a positive message to farmers and boost their confidence and end farm distress", Singh said. The hike in MSP will cost the exchequer over Rs 15,000 crore, he added.

Among pulses, tur will fetch Rs. 5,675, moong Rs. 6,975, and urad Rs. 5,600. However, CoP according to C2 formula was Rs 2,089 per quintal in 2017-18 and so the MSP should have been Rs 3,113.5 per quintal. Asserting that farmers are biggest producers and consumers, Singh said, "After the country's independence, farmers have not got right price for their produce". The MSP of jowar (hybrid) has been raised by Rs 730 per quintal to Rs 2,340 for this year, while that of Maldani variety by Rs 725 per quintal to Rs 2,450, the government said.

Congress President Rahul Gandhi had accused the prime minister of "finishing the farmer". The Food Corporation of India (FCI), the government's nodal agency for procurement and distribution of foodgrains, buys wheat and rice from farmers at MSP and supply the grains under the food security law. "I want to thank Prime Minister Narendra Modi and his cabinet colleagues.this is a big decision in the interest of farmers.this will resolve many problems faced by farmers", he told reporters here after visiting "Maa Vindhvasini" shrine.

Reacting to the development, MS Swaminathan, who headed the previous national commission on farmers, said that hiking the MSP rates is "a welcome first step" in tackling the agrarian crisis.

The government was regularly attacked by farmer associations and the opposition for making "hollow promises" about doubling their income by 2022. "But unlike them, our initiatives do not stay limited to the files, but enter the field", he said, citing crop insurance schemes, higher minimum support price, soil health card and neem-coated urea as the cornerstone of his government's rural focus.

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