The Cabinet on Wednesday announced a modest year-on-year increase of 1-7% in the benchmark prices of over a dozen summer-sown crops for the year starting July.
The move reflects the government’s intent to keep inflationary pressure in check at a time when it needs the monetary policy committee to retain its accommodative stance for long to spur growth in the aftermath of the pandemic.
The modest increase will likely upset farmers, many of whom (especially from Punjab and Haryana) have been protesting against the Centre’s new farm laws for over six months now. But agriculture minister Narendra Singh Tomar stressed that the MSPs of all Kharif crops are still at least 50% higher than their full paid-out costs (A2+FL). In 2018, the year in which the cost-linked norm was introduced ahead of the last general elections to ensure farmers get 50% over the paid-out costs, the increases were more dramatic – in the range of 50-97%.
Tomar said, with the latest increase, the expected returns to farmers over their cost are expected to be the highest in case of bajra (85%), followed by urad (65%) and tur (62%).
While any increase in the support prices can potentially inflate the government’s food subsidy, except for few crops (primarily grains), the procurement mechanism is still far from robust. Nevertheless, in years of bumper procurement, elevated MSPs tend to dent the fisc. Analysts have often argued against unreasonable hike in MSPs, highlighting its impact on both food as well as headline inflation.
The government has now raised the price of paddy (common variety) by 3.9% on year to Rs 1,940 per quintal in 2021-22, jowar (hybrid) by 4.5% to Rs 2,738, maize by 1.1% to Rs 1,870, moong by 1.1% to Rs 7,275, tur and urad by 5% each to Rs 6,300, groundnut by 5.2% to Rs 5,550, soyabean (yellow) by 1.8% to Rs 3,950 and cotton (medium staple) by 3.8% to Rs 5,726. The highest increase was in sesamum—7% to Rs 7,307 per quintal.
Already, the central bank last week flagged the rising trajectory of international commodity prices, especially of crude. Together with logistics costs, elevated commodity prices pose upside risks to the inflation outlook, it said.
Though retail inflation eased to 4.29% in April from 5.52% in the previous month, wholesale price inflation (WPI) shot up to as high as 10.49%, the highest in the current 2011-12 series. Analysts expect WPI inflation to rise further to about 13-13.5% in May. Any sustained spurt in WPI inflation may spill over to the retail level, some of them have cautioned.
Despite the farmers’ protests, the Centre’s procurement of grains has only risen. It has procured a record 81.3 million tonnes of rice from farmers so far in the 2020/21 marketing year, up over 10% from a year earlier, Tomar said. Similarly, the government has purchased 41.7 million tonnes of wheat so far, 12% higher than a year before, he added. As much as Rs 1,53,515 crore has been transferred to farmers for rice purchases and Rs 82,347 crore for wheat procurement, the minister said.
As reported by FE earlier, the country is set to report record wheat procurement at MSP for the soon-to-be-concluded rabi season. And two thirds of the payments were made to farmers in Punjab and Haryana, the two states which are at the forefront of the agitation against the new farm laws.