Minimum support prices: Moderate hike in MSPs amid inflation worries

The Monetary Policy Committee (MPC), which met in Mumbai over the last three days, noted that “continuing shocks to food inflation could sustain pressures on headline inflation”.

Among the increases in MSP announced, the sharpest was for soyabean (yellow) at 9%, while paddy MSP was raised by 5% to Rs 2,040/quintal.

The government on Wednesday announced a 5-9% increase in minimum support prices (MSPs) for summer-sown crops in the 2022-23 season. These rates, the highest since 2018-19, were still lower than expected, given the big spike in prices of assorted farming inputs — from seeds and fertilisers to electricity and transportation.

The Cabinet Committee on Economic Affairs (CCEA), which cleared the recommendations of the Committee of Agricultural Costs and Prices, struck a balance between the twin objectives of providing income support to farmers and reining in the runaway food inflation.

The Monetary Policy Committee (MPC), which met in Mumbai over the last three days, noted that “continuing shocks to food inflation could sustain pressures on headline inflation”.

Among the increases in MSP announced, the sharpest was for soyabean (yellow) at 9%, while paddy MSP was raised by 5% to Rs 2,040/quintal.

Food inflation came in above the overall retail price inflation for April and May 2022. It was 8.1% in April, while the overall consumer price index-based inflation was 7.79%. Among various agricultural items, retail prices of wheat, edible oil and tomato have witnessed the sharpest spike in the last one year.

A policy of 50% profits over computed cost of production led to MSP hikes for kharif crops in the range of 4-28% in 2018-19. Since then, the policy has been followed, but the hikes have been rather moderate.

Union minister for information and broadcasting Anurag Thakur said that the new MSPs of bajra, tur, urad sunflower seed, soyabean and groundnut are 85%, 60%, 59%, 56% , 53% and 51% respectively, over the cost production.

Sowing of Kharif crops such as paddy, pulses, oilseeds and coarse cereals has just commenced.

“Current year’s increase in MSP is well above last year. The balance between ensuring fair price to the farmer and keeping an eye on inflation has been a challenge,” Madan Sabnavis, chief economist at Bank of Baroda, said.

MSP for oilseeds such as groundnut, sunflower and sesamum has been hiked by 5.4%, 6.4% and 7.2% to Rs 5,850, Rs 6,400 and Rs 7,830 a quintal respectively, compared with previous year. The cotton (medium staple) MSP has been hiked by 6.2% to Rs 6,080 a quintal.

In case of pulses, MSP for tur, moong and urad has been increased by 4.8%, 6.6% and 4.8% to Rs 6,600, Rs 7,755 and Rs 6,600 a quintal respectively, against last year.

“Concerted efforts have been made over the last few years to realign the MSP in favour of oilseeds, pulses and coarse cereals to encourage farmers to shift larger areas under these crops and correct demand and supply imbalance,” an official said.

India imports about 55-56% of its total domestic requirement of edible oil, while 15% of pulses consumption is met through imports.

In the race to get on top of rising food inflation, the government recently allowed tariff-free imports of crude soyabean and sunflower oils during this financial year and the next.

While elevated MSPs, backed by procurement, could potentially boost rural income and purchasing power, these can also increase inflationary pressures further.

“Keeping an eye on the inflationary pressures in the economy, the increase in MSP has been somewhat subdued. Also, much of the increased cost due to fertilisers is absorbed by the government through enhanced fertiliser subsidy,” Ashok Gulati, former chairman, Commission for Agricultural Costs and Prices and chair professor (agriculture), India Council for Research in International Economic Relations, told FE.

The government has decided to absorb a substantial part of the rise in fertiliser prices and subsidies are expected to touch Rs 2.15 trillion in 2022-23 against Rs 1.62 trillion in 2021-22, mainly because of spike in global prices of phosphatic and potassic (P&K) fertilisers and urea in last one year.

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