How will hike in MSP for kharif crops play out for rural demand? Experts say not that much

The hike in the minimum support price (MSP) of kharif crops such as sesamum, tur, paddy and groundnut, in a move to curb inflation, bodes well for keeping inflationary pressure in check.

MSP, MSP on kharif crops, agriculture demand, rural demand, agriculture, Minimum Support Price, food prices, inflation, food inflation

The government announced a hike in the minimum support price (MSP) of kharif crops such as sesamum, tur, paddy and groundnut, in a move to curb inflation. The step bodes well for keeping inflationary pressure in check, however they may do little to boost rural demand, experts said. 

“MSP hikes for the kharif crops were quite subdued on the back of CACP’s (Commission for Agricultural Costs & Prices) estimated cost increases. This bodes well for keeping inflationary pressures in check. However, rural demand is likely to remain subdued with sentiments being boosted in case of a good monsoon and prospects of a bumper harvest,” Kotak Institutional Equities said in a note Thursday.

The Ministry of Agriculture & Farmers Welfare said Wednesday it has raised MSP for kharif crops by 5 to 9 per cent or in the range of Rs 100 to Rs 523 per quintal for marketing season 2022-23. The highest absolute increase in MSP has been recommended for sesamum at Rs 523 per quintal, followed by moong at Rs 480 per quintal and sunflower seed at Rs 385 per quintal, the statement said.

Contrary to expectations, the government announced moderate increases in kharif crops’ MSPs, the brokerage said in a note, adding that on an average MSP increase is around 5.5% on a production-weighted basis. In comparison, CACP estimated in its calculations that input price index for cost of production increased by 6.8 percent in FY2023, which is much lower than expectations, due to sharp price increases in fuel, fertilizers, and seeds.

Economists at Kotak Institutional Equities said the government’s MSP announcement could be a negative for the market when looking for rural demand boost. Factors such as normal monsoon, increase in procurement, increase in labour force participation back to pre-pandemic levels, and government capital spending could however help improve the subdued rural outlook. Majority of these factors have remained stagnant so far tis year.

The brokerage also said farm profitability has been stagnant for major crops such as rice and wheat; it has however seen an increase for other crops on the back of sharp price increases. If the prices remain high, farmers should benefit though they may not enjoy similar income growth, it added. 

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