Seeking to address farm distress ahead of general elections, the Centre today hiked price paid to farmers for paddy by a record Rs 200 per quintal and by up to 52 per cent in other summer-sown crops, a move that may push food subsidy beyond Rs 2 lakh crore and possibly stoke inflation.
With this decision to hike the minimum support price (MSP), the BJP-led government said it has fulfilled its election promise of providing farmers 1.5 times of their cost of producing a crop.
Today's decision covers kharif crops which include paddy, cotton, soyabean and some pulses. MSP using the same principle for rabi crops, like wheat and mustard, is yet to be announced.
Announcing the decision after a meeting of the Cabinet Committee on Economic Affairs (CCEA), Home Minister Rajnath Singh said the decision would cost an additional Rs 15,000 crore to the exchequer.
Prime Minister Narendra Modi tweeted that the government has fulfilled its promise of raising the MSP at least 1.5 times of the production cost and is committed to the development of the farm sector.
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While the MSP of paddy (common grade variety) has been raised by Rs 200 a quintal to Rs 1,750, that of Grade A variety has gone up by Rs 180 to Rs 1,770 for the crop year to June 2019. This is based on production cost of paddy being considered at Rs 1,166 per quintal.
This is the highest ever single hike in paddy MSP, overshadowing Rs 170 per quintal announced by the previous UPA government in 2012-13 crop year. In the last four years, the NDA government has annually raised the paddy MSP between Rs 50-80 a quintal.
The MSP for kharif crops of 2018-19 has been raised by 3.7 per cent to 52.47 per cent as compared to last year. With this jump, now the support price of all 14 kharif crops is higher by 50-97 per cent over the production cost.
Agri expert Ashok Gulati said the move will lead to higher inflation and widen fiscal deficit because of increase in food subsidy bill to over Rs 2 lakh crore from Rs 1.70 lakh crore provided in the Budget for 2018-19.
"It is a historical decision. Farmers are biggest producers and consumers. After the country's independence, farmers have not got the right price for their produce. Farmers were in despair and their plight was addressed by the Prime Minister," the Home Minister said.
The hike comes just before the upcoming assembly elections in the BJP-ruled Madhya Pradesh, Rajasthan and Chhattisgarh as well as 2019 general polls.
Singh further said the decision is aimed at achieving the government's target of doubling farmers income by 2022.
"This will increase the income of farmers and their purchasing capacity, which will have an impact on wider economic activity".
On likely impact on food prices, Singh said, "We are concerned about inflation. It is not correct to say that inflation will go up."
The government has been successful in controlling inflation during last four years and will continue to do in future as well, he added.
The substantial increase in MSP, the minister said "will send a positive message to farmers and boost their confidence and end farm distress".
According to a senior agriculture ministry official, the increase in MSP of paddy would result in an additional burden of Rs 12,000 crore to the exchequer as the government procures paddy from farmers for supply through ration shops.
The remaining Rs 3,000 crore has been provided for procurement of other crops when market prices fall below the MSP, the official explained.
In pulses, moong MSP has been hiked by Rs 1,400/quintal to Rs 6,975, tur by Rs 225/quintal to Rs 5,675 and urad by Rs 200/quintal to Rs 5,600 for this year.
Among coarse cereals, the MSP of ragi has raised by Rs 997/quintal to Rs 2,897, while that of bajra by Rs 525/quintal to Rs 1,950 and maize by Rs 275/quintal to Rs 1,700.
The MSP of jowar (hybrid) has been raised by Rs 730/quintal to Rs 2,340 for this year, while that of Maldani variety by Rs 725/quintal to Rs 2,450.
Among oilseeds, MSP of soyabean hiked by Rs 349/quintal to Rs 3,399, groundnut (shell) by Rs 440/quintal to Rs 4,890, sunflower seed by Rs 1,288/quintal to Rs 5,388, Sesamum by Rs 949/quintal to Rs 6,249 and niger seed by Rs 1,827/quintal to Rs 5,877.
Among cash crops, the MSP of cotton (medium staple) has been raised to Rs 5,150 this year from Rs 4,020 in 2017-18 crop year and that of cotton (long staple) to Rs 5,450 from 4,320 per quintal in the said period.
While the BJP had promised in 2014 to give farmers a price of 1.5 times of cost, an announcement to give effect to the promise was made in the government's fifth and final annual Budget presented on February 1 this year.
Welcoming the decision, Food Minister Ram Vilas Paswan said, "We have fulfilled the promise. The decision is not linked to next year general election. ...We will ensure that each and every grain is bought at the new MSP."
India is estimated to have harvested a record foodgrains production at 279.51 million tonnes in the 2017-18 crop year (July-June) on an all-time high output of rice, wheat, coarse cereals, and pulses.
The announcement of higher MSP coupled with the forecast of a normal monsoon this year could further boost foodgrains output.
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