Resisting populist impulses and being inflation-wary, the Cabinet on Wednesday announced modest increases in the minimum support prices (MSPs) of 14 kharif crops for 2015-16, a move that was in consonance with the Modi government’s policy of realistic price support to farmers and termed by analysts as non-market-distorting.
While the MSP for paddy, the largest kharif crop, was hiked by Rs 50 or 3.7%, the support prices for pulses, whose prices remain elevated due to a drop in production, were hiked by 5.4-6.3% with an ad hoc bonus of Rs 200 a quintal.
The Cabinet went by the recommendations of the Commission for Agricultural Costs and Prices (CACP) in the case of all crops except three varieties of pulses, where the price support was strengthened with the bonus in view of a supply deficit.
Analysts said an inflationary-wary government didn’t want to take any chances, especially when the weather office has forecast a deficient monsoon season for 2015.
“In view of a large surplus of cereals (the paddy stocks with government is 50% higher than buffer level) in contrast to huge deficit of pulses, the Cabinet made an exception and decided to give a bonus of R200 per quintal for pulses over and above the recommendations of the CACP,” an official statement said.
Analysts said an inflationary-wary government didn’t want to take chances, especially when the weather office has forecast a deficient monsoon for 2015. An analysis of food prices during drought years since 1982-83 showed in some years — 2002-03 when the NDA was in power and 2004-05 when the UPA was at the helm — food inflation could be contained at 1.76% and 2.64%, respectively, with proper management of food stocks and minimal hikes in MSPs of crops. “The idea of giving bonus on pulses is a step in the right direction given the need to curb rising imports (imports touched a record 4 million tonnes (mt) in 2014-15, compared with around 3 mt in the previous year). The government could have been bolder on this. The moderate hike in paddy MSP will help in creating a crop neutral incentive structure which is currently skewed in favour of paddy,” ex-CACP chairman Ashok Gulati said.
As per the third advance estimate for 2014-15, production of pulses declined by over 10% from the previous year to 17.38 million tonnes. The government last week asked MMTC to import about 5000 tonnes of pulses to curb retail prices.
Pulses prices have already skyrocketed in the recent months, with wholesale price inflation in the segment having risen to 22.8% in May, the fifth straight month of double-digit inflation, even when the overall primary food inflation was just 3.80%. In 2009-10, when the country faced the worst drought in 37 years, pulses inflation of 22.4% helped drive up food inflation to as high as 15.3%.
Ajay Jakhar, chairman, Bharat Krishak Samaj, said that while the farm sector is under stress, the government could have hiked MSPs more steeply. “With such a moderate hikes in MSP, the crisis in the agriculture has not been dealt with,” he said. Rural consumption has been in the doldrums in recent months, prompting many to attribute the same to the recent years’ modest increases in MSPs. A rise in consumer durables output in April after 10 consecutive months of contraction , however, seemed to indicate that the rural economy was on the mend.
The UPA government had raised the MSPs of various crops in the range of 30% to 91% over the five years through the summer of 2013-14. While relentless increases in the MSPs led to higher disposal incomes with rural households, spurring consumption, but these had also fanned inflation, especially in food items, and raised the government’s procurement costs.
In October 2013, facing criticism over its inability to contain food inflation, the UPA government effected mild hikes in the MSPs of winter crops to a maximum of 12.24% and prices of key crops like wheat and mustard seed were raised just 3.7% and 1.7%, respectively. After coming to power, the NDA chose to hike the benchmark prices only modestly to tame inflationary pressures and the increases in the MSPs were up to 4% for the summer crops and up to 4.2% for the winter crops in 2014-15.