The proposal was cleared by the Cabinet Committee on Economic Affairs (CCEA).
"Jute MSP of TD-5 variety has been increased by Rs 100 per quintal," Finance Minister P Chidambaram told reporters after the CCEA meeting.
In order to incentivise farmers for the production of higher grades, the premiums for TD-3 and TD-4 varieties of raw jute will be maintained at 20 per cent and 8 per cent respectively in relation to the price of TD-5, an official statement said.
The hike in MSP is expected to prompt farmers to increase investment in jute cultivation and boost production.
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The Jute Corporation of India (JCI) will continue to act as the nodal agency of the Ministry of Textiles for procurement of raw jute.
Jute is largely cultivated in Assam, Bihar, Meghalaya, Nagaland, Orissa, West Bengal and Tripura.
Meanwhile, CCEA also approved additional allocation of foodgrains at MSP rates to meet requirement in the event of natural calamities, festivals and other exigencies.