By Mayank Bhardwaj and Rajendra Jadhav
NEW DELHI (Reuters) - India's cabinet is set to raise the state-mandated prices for winter-sown crops such as wheat later on Wednesday, two government sources said, as Prime Minister Narendra Modi tries to tackle rising discontent among farmers amid a price slump.
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 is expected to raise the MSP on wheat by 105 rupees ($1.44) to 1,840 rupees per 100 kg, the sources said, declining to be named ahead of an expected official announcement. The 6 percent rise compares with a 7 percent hike the previous season.
The farm ministry's Commission for Agricultural Costs and Prices (CACP) estimates that the average cost of production for wheat this crop season would be 1,339 rupees, according to a government document reviewed by Reuters.
Modi and his ministerial colleagues are also expected to raise the floor prices for mustard, lentils, sunflower, chickpeas, barley and sunflower, according to local media.
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A farm ministry spokesman could not immediately be contacted.
In the government document, 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 proper procurement system along with adequate modern storage and warehousing facilities with active participation of state agencies."
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.
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.
($1 = 73.1100 rupees)
(Reporting by Mayank Bhardwaj and Rajendra Jadhavl; writing by Krishna N. Das; editing by Richard Pullin)
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