The government on Thursday raised minimum support prices (MSPs) of primary kharif crops for the 2012-13 crop marketing year by up to 53 per cent, leading to concern this could further raise food inflation.
“The government has accepted the suggestion made by the Commission for Agriculture Costs and Prices (CACP), which recommends MSPs after taking into account the cost of production,” Home Minister P Chidambaram told reporters after a meeting of the Cabinet Committee on Economic Affairs.
The Cabinet, however, deferred a decision on raising the support prices of moong and tur, owing to strong opposition from the Department of Consumer Affairs, which feared higher MSPs would lead to a rise in retail rates. The CACP had suggested increases of 29 per cent and 25 per cent in the MSPs of moong and tur, respectively. Officials said a proposal to offer an equity bonus of Rs 100 a quintal on paddy, over and above the MSP, was also rejected, fearing a rise in retail rates.
Madan Sabnavis, chief economist, Care Ratings, said, “I can’t understand the need to announce MSPs for crops other wheat and rice, given there is no official procurement. It does nothing, except pushing up food inflation.”
In a research note, Religare Commodities stated though MSPs were thought to be the primary reason behind allocating sown area for a crop, the last few years had show barring soybean, cotton and paddy, farmers did not respond adequately to a rise in MSPs.
Contesting these claims, CACP Chairman Ashok Gulati told Business Standard the high MSP of paddy would not hit the majority of the population, as after the Food Bill was implemented, 60 per cent of the population would get grains at prices lower than market rates. “Apart from this, there is ample grain in government warehouses to keep a tab on any upward rise in prices,” he added.
Despite the rise in MSPs, retail prices of oilseeds and a few pulses wouldn’t rise, as their market rates were already higher, he said. “Ideally, the MSP should be 10-15 per cent less than the prevailing market price. Currently, we had MSPs almost 50 per cent less than market prices. If we had not recommended higher MSPs, farmers would not have been incentivised,” he said.
“We have not just suggested cosmetic adjustments in MSPs, but recommended a thorough restructuring of the process to ensure growers are encouraged to shift towards non-cereals crops, production of which is below the demand,” he added.