Despite elections being around the corner, the government on Thursday put the brakes on the recent years’ practice of hefty hikes in benchmark prices of farm commodities, which has inflated the food subsidy bill, and announced moderate price increases for winter crops. The minimum support prices (MSPs) of wheat and mustard, the key rabi crops, were upped by 3.7% and 1.7%, respectively, while the maximum hike was 12.24% for barley.
Relentless increases in the MSPs for kharif and rabi crops over the last five years have led to higher disposal incomes with rural households, spurring consumption, but also fanning inflation, especially of food items, due to the increased demand. The government has raised the MSPs of various crops in the range of 30% to 91% in the last five years.
“We are concerned about inflation and we can control prices of grains which we procure (with R50 hike in the wheat price),” food minister KV Thomas said after a meeting of the Cabinet Committee on Economic Affairs (CCEA), without elaborating.
The CCEA on Thursday decided to raise the benchmark wheat price by R50, or 3.7%, to R1,400 a quintal for the year through June. It, however, rejected a proposal by the agriculture ministry to raise the MSP of wheat by R100, or 7.4%, to R1,450 and instead accepted recommendations of the Commission For Agricultural Costs and Prices (CACP).Analysts said the “mild” hike in the wheat MSP is basically to balance the interests of farmers with consumers as well as of the government.
"The 3.7% hike in the wheat MSP is a cautious step by the government and it could have a mild impact on food inflation. The food subsidy bill will, of course, rise but the pace of rise in the bill may not surge significantly as the food security Bill is expected to be rolled out from next fiscal only," said DK Joshi, chief economist at Crisil.
While there was no official statement, ostensibly because the government may have to seek clearance from the Election Commission due to assembly polls scheduled for five states, a senior official said the CCEA had approved all the CACP recommendations on prices. Since official wheat procurement will start from April next year after the crop is harvested, the impact on the food subsidy bill will mainly be felt in the next fiscal, although the benchmark prices tend to influence the current price in the open market,