In a farmer-friendly move, the government today hiked the minimum support price (MSP) of paddy by Rs 50 per quintal to Rs 1,360 for this year -- a decision which may fuel inflation.
However, the government said there will be no impact on inflation and measures are being taken to control prices.
The decision to raise the MSP of paddy and other kharif crops for the 2014-15 crop year (July-June) was taken by the Cabinet Committee on Economic Affairs (CCEA).
"Paddy MSP has been hiked by Rs 50 to Rs 1,360 per quintal for 2014-15 crop year," Law and Telecom Minister Ravi Shankar Prasad told reporters after the CCEA meeting.
Paddy MSP of Grade 'A' variety has been raised by Rs 55 to Rs 1,400 a quintal. Paddy is a major Kharif crop, the sowing of which starts with the onset of monsoon in June.
When asked whether increase in paddy MSP will lead to rise in prices, Prasad said: "I do not think rise in MSP is directly linked to inflation. We are taking several measures to control inflation".
"In view of possibility of below normal monsoon, the government has gotten into action and taken several steps to control prices," he said.
MSP is the benchmark price at which the government buys paddy from farmers to run its ration shops. An increase in MSP would also lead to higher subsidy bill.
Commission for Agricultural Costs and Prices (CACP) had said it has recommended a moderate increase in paddy MSP keeping in view the excessive stock of rice in FCI godowns.
Rice prices increased by nine per cent to Rs 25 per kg in the wholesale market in May from the year-ago, while the general WPI inflation rose to 6.01 per cent in May.
To check rice prices, the government had last week announced release of additional 50 lakh tonnes of rice through PDS (Public Distribution System) over and above the normal allocation.
Stating that the government has accepted all the recommendations of the price advisory body CACP, Prasad said: "We have given best possible deal to farmers".
