MSP hike likely to push inflation rates, farm income, say experts

The government has increased the Minimum Support Price (MSP) for kharif crops for the 2018-19 season. Let's analyse how generous is this move to woo farmers.

The MSPs effectively matter for and cover only a few crops and that too in a few regions. Punjab, Haryana and Western UP account for most of the purchases of paddy. The approved hikes for 15 crops is expected to cost the exchequer about Rs 15,000 crore.

The proposed hike in paddy MSP is again not the steepest, as far as the last 15 years are concerned. It was in fact the third highest over this period; the highest was again in the election year of 2008/09.

The MSP increase in all the major Kharif crops was more than the hike announced in the 2017/18 kharif season except for two pulses, Arhar and Urad.

The highest percentage increase in MSP over the previous year is for ragi (52.47 per cent) followed by jowar hybrid (42.94 per cent).

Lack of storage has been a big issue for the government and farmers. State agencies bought only 71 million tonnes of wheat and rice in 2017/18 out of 210 million tonnes produced.
In the same year, the country produced hundreds of millions of tonnes of oilseeds and horticulture crops like onion and potatoes, which are not typically procured by the government.
The Food ministry informed parliament in March that the peak storage demand for food grains like rice and wheat was 60 million tonnes for the central pool, compared with a capacity of 73.5 million tonnes, 17 per cent of which was open storage covered by plastic or other material.

Although the impact on inflation could be lower if agricultural production is stronger than expected, coupled with the forecast of favourable monsoon this year.

If implemented successfully, the move stands to bring in much awaited relief for farmers and help the government in reaching its goal of doubling farm income by 2022. The real challenge is the actual on ground implementation. Many crops across states have been selling substantially below the MSP rate. In nominal terms, as the MSP gets implemented, the positive impact on the rural income should be Rs 1.2 lakh crore.