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  1. Budget 2018: Reason why Arun Jaitley’s higher MSP announcement may likely raise fears in RBI

Budget 2018: Reason why Arun Jaitley’s higher MSP announcement may likely raise fears in RBI

Budget 2018: Finance Minister Arun Jaitley in his budget speech 2018 on 1 February said the government will offer farmers a minimum support price (MSP) that’s 50 percent above the production costs for remaining rabi crops as well as kharif crops.

By: | Updated: February 5, 2018 11:22 AM
Budget 2018 and announcement on Arun Jaitley on MSP Budget 2018: A certain section of economists think that it’s advisable to wait for the implementation of the new MSP before coming up with its impact on food prices. (Image: PTI)

Budget 2018: Finance Minister Arun Jaitley in his budget speech 2018 on 1 February said the government will offer farmers a minimum support price (MSP) that’s 50 percent above the production costs for remaining rabi crops as well as kharif crops. This may have raised some hopes among the farmers, the Reserve Bank of India (RBI) is likely to keep a hawkish stance in view of this announcement. The RBI is scheduled to announce its sixth bi-monthly monetary policy statement for 2017-18 on 7 February. The central bank may keep repo rates unchanged this time considering the chances of inflation getting heightened, Mint’s survey of 15 economists said. The possibility of rise in oil prices and increase in MSP in fiscal year 2019 may result in uptick in inflation, Mint’s survey said.  This can easily lead to rise in inflation. However, a certain section of economists think that it’s advisable to wait for the implementation of the new MSP before coming up with its impact on food prices.

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RBI in its last policy statement in 2017 had listed several factors which threatened to push inflation, including rising food and fuel prices, hike in input costs and farm loan waivers in a few states. “In our party’s manifesto it has been stated that the farmers should realize at least 50 per cent more than the cost of their produce, in other words, one and a half times of the cost of their

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production. Government have been very much sensitive to this resolutions and it has declared Minimum support price (MSP) for the majority of rabi crops at least at one and a half times the cost involved. Now, we have decided to implement this resolution as a principle for the rest of crops,” said Arun Jaitley in Union Budget 2018-19 speech.

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Farm distress has been a serious political issue in the last year or such. Even in Gujarat, the stronghold of Bharatiya Janata Party, the party ended losing various important seats in the rural belt of the state. Considering the impending union polls in 2018-19, the budget 2018 appears to have catered to the rural sector in a big way.

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