MSP hike on kharif crops may help lower inflation, say economists

MSP hike on kharif crops may help lower inflation, say economists

The price incentives will result in higher production, which will translate into lower prices and bring down inflation, experts said.

The increase in minimum support prices (MSP) for kharif crops by 5-11 percent will have a negligible impact on inflation unless the government significantly ramps up procurement, experts said.

“The increase is unlikely to be inflationary as any impact on inflation is directly proportional to procurement. While procurement of cereals is primarily in the realm of wheat and rice, the procurement of pulses by NAFED (National Agricultural Cooperative Marketing Federation of India) is not much… We believe the impact will be negligible,” State Bank of India’s Economic Research Department noted in a report.

On June 7, the Union government hiked the MSP of 14 kharif crops, which are grown during the monsoon season. While prices for both varieties of paddy were hiked by Rs 143 per quintal, the MSP for moong dal was increased by the highest amount of Rs 803 per quintal.

“If we take paddy, a 7 percent increase is not very huge. Promising higher prices incentivises farmers to increase yields. And if MSP is more than the expected price, farmers will work harder, take more area under the cultivation of the said crop and produce more. Putting other things constant, this will be a positive for the Indian economy,” said Avinash Kumar, a senior research fellow at the International Food Policy Research Institute.

Higher production will translate into lower prices for consumers.

“It may even help the government meet its procurement targets, which it has been missing for the past two years,” Kumar added.

With the threat of El Nino looming, this was a necessary incentive for paddy, a water-intensive crop, Kumar said. El Nino is a weather pattern that could disrupt monsoon rainfall in India.

Implementation is key

Farm experts termed the hike good for farmers, while saying that implementation of the hikes would make it count.

“The handsome increase of 8.9 percent of cotton MSP is further welcomed as farmers who had held over cotton last in expectation of a price rise have suffered due to low prices and will benefit from the hike,” former union agriculture secretary Siraj Hussain told Moneycontrol.

However, independent farm analyst Indra Shekhar insisted that implementation of this hike matters.

“The implementation of these MSPs, ensuring that a farmer gets this as the minimum price, is crucial. There is a clear discord between government policies and them reaching the farmers, which needs to be bridged,” he said.

Farm expert Devinder Sharma called the price hike routine and said it only takes care of the rising cost of production.

“The government announces A2 (pocket expenses) plus family labour every season but this is nowhere near C2 plus 50 (comprehensive cost) which needs to be given. That will further raise farmer income by 30-40 percent,” he said.

The National Commission for Farmers, under the chairmanship of agricultural scientist MS Swaminathan, recommended that farmers be given MSP under the C2+50 percent formula – total crop cost (C2) and an additional 50 percent.

As per the A2 method, MSP is set at 50 percent more than the amount spent on farming including expenditure on seeds, fertilisers, pesticides and labour.

Food security

The MSP increase, as per Hussain, is indicative of the government’s concern for the country’s food security.

Stocks of grain in the country plunged due to a strong and early heatwave in 2022 even as exports rose due to a global shortage triggered by the Russia-Ukraine war. In May last year, the government halted exports to control rising prices and over a year later, the ban is yet to be withdrawn.

“Trade sources suggest wheat production this year has been less than the advance estimate… domestic wheat consumption is estimated to be 8 to 10 million tonnes more than Niti Ayog’s estimate of 97 million tonnes. With the threat of El Nino hovering over the country, India needs to use all its resources to ensure food security in a difficult year,” Hussain said.

As per the third advance estimates for 2022-23, total foodgrain production in the country is estimated at a record 330.5 million tonnes, which is 14.9 million tonnes higher than in 2021-22. Wheat production is estimated at a record 112.7 million tonnes, the government said May 25.



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