Kharif crop MSPs raised sharply, government says it won't hurt fiscal deficit, inflation

In what could spell relief for farmers, the Cabinet Committee on Economic Affairs on Wednesday has raised minimum support price (MSP) for kharif crops for FY19.

MSP for common variety of paddy has been raised by around 200 per quintal while that of fine paddy is up at Rs 1,750, from Rs 1,550 in FY18. The government has also upped urad MSP to Rs 5,600 per 100 kg from Rs 5,400 a year earlier. 

"We don't think there should be any concern over fiscal slippage due to the latest MSP hike," Niti Aayog Vice Chairman Rajiv Kumar told ET Now. "We must not look at negatives of it. Food and fuel are not contributing to current inflation." 
In the case of moong, MSP has gone up to Rs 6,975 per 100 kg, from Rs 5,575 earlier. Ragi MSP now stands at Rs 2,897 per 100 grams, from Rs 1,900 earlier. For soyabean, the figure is Rs 3,399 per 100 kg, up from Rs 3,050 earlier. 
For hybrid jawar, MSP now reads Rs 2,430 per 100 kg, up from Rs 1,700. Bajra MSP stands hiked to Rs 1,950 per 100 kg against Rs 1,425. 
The announcement drove the benchmark stock indices higher, which were ruling at day's high. The MSP hike will bring paradigm shift in the agriculture sector, said Union agriculture secretary. The MSP increase, he said, was 150 per cent increase over the cost of cultivation as promised by the government in the Budget FY19. 
India has a robust procurement mechanism, the secretary asserted. 
Key agrarian states like UP, Bihar and parts of MP are on the backfoot, resulting in 10 per cent lower sowing so far amid delays in advancement of southeast monsoon and MSP announcement, Axis Capital noted. 
The total sowing area stood at 115.9 lakh hectares till June 22 compared with 128.4 lakh hectares last year. Oil seeds and pulses have witnessed highest decline of 49 per cent and 24 per cent, respectively. 
Brokerage Axis Capital expected the new MSP policy to stoke inflation in cereals with spillover effect in other foods, which is likely to have a direct impact on headline inflation. "But there are potential offsets from good supply conditions in milk, sugarNSE 0.00 % and vegetables," it recently said. 
"Historically, we have always seen that in a year where monsoons are better along with expectations of MSP hikes, the discretionary spending patterns obviously improve specifically in  terms of rural and semi-urban economies. Having said that, the government spending programme in terms of rural infrastructure and rural consumption in respect of that are expected to grow multi-fold because that is going to get front loaded as well," said Mayuresh Joshi, Fund Manager at Angel Broking.

[ 4June2018]