Inflation worry makes govt limit wheat MSP hike
Oct 17 2013 , New Delhi
This is the first time in recent years that the government has gone for a small hike in MSP, rejecting a proposal for a higher increase. The new price will apply to wheat that would be marketed next year, the year of the general election.
The government is also keen to moderate procurement of food grains in view of the overflowing godowns, which currently hold nearly 80 million tonnes of food stock. Wheat procurement was a record 38 million tonnes last year following 29 million tonnes of purchases in the previous year. This year, wheat procurement stood at 26 million tonnes.
The cabinet committee on economic affairs, which cleared the MSP for several crops on Thursday, raised MSP for wheat by a mere Rs 50 to Rs 1,400 per quintal for the ongoing rabi season.
The 4 per cent increase pales when compared with the average 8-10 per cent hike over the last eight years, barring one.
“The wheat MSP has been increased by Rs 50 per quintal to Rs 1,400 for 2013-14 crop year from Rs 1,350 last year,” food minister K V Thomas said.
“The increase is moderate, and this will not have any significant impact on food inflation,” Planning Commission member Abhijit Sen told Financial Chronicle. In a recent interview with this newspaper, Sen had attributed the high food inflation to mismanagement of rice and wheat stocks and high MSPs.
The increase in MSP was same as recommended by the government advisory body, Commission for Agriculture Costs and Prices (CACP), but lower than the Rs 100 hike proposed by the agriculture ministry.
Barring 2010-11, the year after a major drought in 2009-10, when the MSP for wheat was hiked by a mere Rs 20 to Rs 1,100 per quintal, the hike has been hefty at Rs 70, Rs 115 and Rs 65 per quintal in subsequent years. Wheat MSP has more than doubled in nine years at Rs 1,400 from Rs 640 in 2005-06.
According to the principal economic adviser to the finance ministry, Dipak Dasgupta, the sharp rise in MSPs for a lot of crops had contributed to high food inflation. But the huge hike in MSPs was necessary to rev up the farm sector, which was in great distress five years ago.
High MSP had helped increase food production substantially and the country has been seeing record annual food grain production at around 250 million tonnes in recent years.
The increase in farm output and farmers’ income levels has been a great story, as the country has for the first time averaged 3.6 per cent annual farm growth for five years. Yet, it is now time to moderate MSPs, analysts said. The government has been struggling with the problem of plenty, which has led to a huge storage problem as well as wastage. At the same time, food inflation has been high due to mismanagement of food stocks. Retail food inflation has been stubborn in double digits in recent months.
The CCEA also approved MSPs for other rabi crops for the 2013-14 crop year (July, 2013-June, 2014) to be marketed in 2014-15. The MSP of barley has been raised by Rs 120 a quintal to Rs 1,100.