A moderate increase in minimum support prices (MSP) of key crops that was announced by the Centre last week will not be too inflationary as the market price of many summer crops are above the announced MSP. However, rural demand may not get a boost as real rural wage growth has remained weak and farm profitability has been stagnant for crops such as rice and wheat. This is despite the expectations of a normal monsoon this year, and commodity prices reigning high; the pain-point may be input costs.
As a large portion of rural income is derived from non-agriculture sources, government-spending will remain the key to boost rural demand.
