Brace for price rise, kharif MSP may be raised up to 30%
If MSP is increased, it will put further pressure on inflation. In such a condition, we won't be able to control inflation.
The Commission on Agricultural Costs and Prices (CACP), under the ministry of agriculture, has recommended a 25% rise in the floor price of cotton, 16% rise in paddy, 30% rise in soyabean and sunflowerseed, 25% in urad and moong, and more than 40% in bajra and jowar, said an official in the agriculture ministry who did not wish to be quoted.
The recommendations will be sent by the ministry to the Cabinet Committee for Economic Affairs for approval. CACP chairman Ashok Gulati was unavailable for comment.
The CACP is learnt to have recommended a minimum support price (MSP) of around 4,125/quintal for urad, 4,375/qtl for moong, 2,200/qtl for soyabean, 3,640/qtl for sunflower seed, 1,250 for paddy, 3,500- 3,900 for cotton, and 1,400/qtl for jowar, maize and bajra. The commission recommends prices for 14 crops planted in the kharif season every year.
"Market responds to floor prices. If MSP is increased, it will put further pressure on inflation. In such a condition, we won't be able to control inflation even if we have bumper production," said CRISIL director Sunil Sinha.
The CACP's price recommendations are eagerly watched by industry and traders because they are an important indicator of how the market for these commodities will move in the coming months.
"Inflation in food items rose sharply to 9.94% in March, as against 6.07% in February government data showed. Food articles have 14.3% share in the WPI basket. During the month, rice and cereals turned costlier by 4.73% and 4.41% respectively. The price of pulses was up 10.05% in March. The rate of price rise was lower than 20% in February.
The sharp increase in the recommended MSP for pulses, coarse grains and oilseeds is in line with the government's objective to incentivize farmers and reduce dependence on imports for proteins and fats. India's edible oil import bill has crossed 29,000 crore.
The rise in MSP of paddy also means a jump in the procurement cost of the Food Corporation of India, which is expected to buy half the marketed surplus in rice.
The FCI's expenditure is part of the food subsidy, which has already cross 75,000-crore mark. "If the price of food grains sold through ration shops remain the same despite the increased MSP, the government will have to shell out more subsidy," said CARE chief economist Madan Sabnavis.
While production of grains during 2011-12 is estimated to reach record levels, that of pulses and oilseeds is expected to be lower than in the previous year, said the RBI recently.
In some crops, such as oilseeds, farmers are already earning more due to a shortage in the market. "There is disconnect between the floor and market prices of oilseeds. The market prices are almost double than the MSP. We want the floor price to rise substantially so that farmers are encouraged to cultivate oilseeds," said coordinator of Soyabean Processors Association of India Rajesh Agarwal.
Overall vegetable oil imports during the November 2011-March 2012 period has recorded a rise of 21% compared to the same period last year.
In other crops, such as cotton, the MSP has become a political hot potato because it has direct bearing on farmer incomes. Farmers in Maharashtra, AP and Gujarat have been clamoring for a mid-season hike in MSP to compensate for their higher cost of production.
"It's too early to comment on the MSP since it will be applicable for next season's crop. Till then there will be a lot of changes," said Saurashtra Ginners Association president Bharat Wala.
In its previous report the CACP said it is guided by two major considerations: "getting the prices right" so that farmers get adequate returns on investment and move towards "getting the markets right" so that natural evolution of efficient functioning of markets is restored.
To achieve this, the Commission factors in the overall demand and supply of the commodity, its costs of production, domestic and international price situation, inter-crop price parity, terms of trade between agriculture and non-agriculture, and finally, the likely implications of price policy recommendations on people's cost of living, especially the poor.