Saturday, 22 September, 2018

MSP hike could stoke inflation, prompt RBI to raise interest rates

India announces minimum support prices for more than 20 crops each year to set a benchmark India announces minimum support prices for more than 20 crops each year to set a benchmark
Russell Knight | 05 July, 2018, 13:17

Earlier, sources had said that the MSP rate proposed by the agriculture ministry is higher than the government's farm advisory body CACP, considering growing farm distress because of fall in prices of most crops, owing to bumper production.

A statement said the cost yardstick used to calculate the MSP includes all paid-out costs such, such as expenses incurred on seeds, fertilizers, manures, irrigation charges, depreciation on implements, hired human labour, rent paid for leased land and imputed value of family labour. The farmers have been demanding that MSP should be 1.5 times of C2, which was what the Swaminathan Commission had also suggested, and not 1.5 times of A2+FL.

The MSP of paddy (common) was Rs 1,550 per quintal and Rs 1,590 per quintal for paddy (grade A) variety.

Announcing the Cabinet's "historic" decision, Union Home Minister Rajnath Singh said that the MSP for common grade paddy has been increased from Rs 1,550 per quintal to Rs 1,750 per quintal, an increase of almost 13 per cent. However, the government-announced MSP is Rs 476 per quintal short of the same.

The below-MSP rates, however, are as much as 30 percent higher than global prices for some commodities like pulses, making exports uncompetitive, Galipelli added. Among oilseeds, MSP of soyabean has been increased to Rs 3,399 per quintal from Rs 3,050, while that of groundnut (shell) to Rs 4,890 per quintal from Rs 4,450, sunflower seed to Rs 5,388 per quintal from Rs 4,100, Sesamum to Rs 6,249 per quintal from 5,300 and niger seed to Rs 5,877 per quintal from Rs 4,050.

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DTE calculated the MSP for 13 crops by taking into account the C2 formula and multiplying it by 1.5 times.

But Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities in Mumbai, said farmers sold below MSP even a year ago and were likely to do so again given piles of grains and sugar lying in private warehouses. Rakesh Tikait, national spokesperson of Bhartiya Kisan Union, said, "This is simply a dejection".

"No government has given such a substantive hike in the MSP in independent India's history", said Singh. "We will not be fooled by this and we would continue our agitation". "The Congress raised Rs 420 in [minimum support price] for paddy from 2009 to 2014 while the Modi government has raised it by only Rs 350". Terming it as a historic decision, the minister said the sharp increase in MSP was done after a lot of consideration and "not in hurry". Paddy is the main kharif (summer sown) crop, the sowing of which has already begun with the onset of southwest monsoon.

Meanwhile, Maharashtra Chief Minister Devendra Fadnavis said the Centre's decision was a "historic and great step" towards doubling the farmers' income, reported PTI. The highest percentage increase in MSP over the previous year is for ragi (52.47 %) followed by jowar hybrid (42.94%). The prices of urad and bajra have also been hiked. The modality of MSP implementation is more important for rural demand.

Though the government announces MSPs for most crops, state agencies buy only rice and wheat at those prices given a lack of financial resources, limiting the benefit of higher crop prices to only 7 per cent of the country's farmers.

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