By Mayank Bhardwaj and Rajendra Jadhav
NEW DELHI (Reuters) - The Indian government raised state-mandated prices for winter crops such as wheat and rapeseed on Wednesday, as Prime Minister Narendra Modi tries to defuse discontent among farmers ahead of elections in 2019.
The government announces minimum support prices (MSPs) for most crops yearly to set a benchmark, although state agencies usually buy limited quantities of staples such as rice and wheat at those prices due to a lack of storage and funds. Market prices for many crops typically run well below MSPs.
This year, Modi's cabinet raised the MSP on wheat by 105 rupees ($1.44) to 1,840 rupees per 100 kg. The 6 percent rise compares with a 7 percent hike the previous season.
The increase will widen the difference between local and overseas wheat prices and make exports from the world second biggest producer of the grain unviable, said a Mumbai-based trader with a global trading firm.
The south Asian country also raised the minimum price of rapeseed and chickpeas by 5 percent to 4,200 rupees and 4,620 rupees respectively, Farm Minister Radha Mohan Singh said.
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Low crop prices and protests by farmers are bad news for Modi's Bharatiya Janata Party ahead of three big state elections this year and a general election early next year.
Indian police on Tuesday fired teargas and water cannons to halt and scatter a march by thousands of protesting farmers heading for New Delhi to demand better prices for their produce.
The farm ministry's Commission for Agricultural Costs and Prices (CACP) estimates that the average cost of production for wheat this season would be 1,339 rupees, according to a government document reviewed by Reuters.
The CACP said that MSPs alone do little for farmers as market prices for all winter crops last season were below the government recommended rates.
"This trend essentially shows that a high MSP is not the only policy instrument to sustain higher production and income but it should be backed up by an effective procurement mechanism to arrest the prices falling below MSP," CACP said.
"This emphasizes the importance of public procurement machinery and adequate preparatory measures for establishment of a proper procurement system along with adequate modern storage and warehousing facilities with active participation of state agencies."
($1 = 73.1100 Indian rupees)
(Reporting by Mayank Bhardwaj and Rajendra Jadhavl; writing by Krishna N. Das; editing by Richard Pullin and Emelia Sithole-Matarise)
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