Experts see 50-90 bps hike in inflation on MSP move; CPI may rise by 70 bps

It is difficult to gauge the impact of the hike in MSP on government finances

The National Democratic Alliance government’s decision to hike minimum support prices (MSPs) is likely to increase headline retail inflation by 50-90 basis points (bps), say economists. But in the absence of clarity over how much will be actually procured, the impact on the government’s finances is difficult to ascertain. 

The headline consumer price index (CPI) is expected to rise by around 70 bps, while wholesale inflation (WPI) is expected to rise by 38 bps, says Devendra Pant, chief economist at India Ratings and Research (Ind-Ra). 

Suvodeep Rakshit at Kotak Institutional Equities pegs the impact at 50-60 bps, assuming there is full pass-through,