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    Higher MSP may lead to inflation as well as fiscal costs: Report

    Synopsis

    Seeking to address farm distress ahead of general elections, the Centre on July 4 hiked price paid to farmers for paddy by a record Rs 200 per quintal.

    Seeking to address farm distress ahead of general elections, the Centre on July 4 hiked price paid to farmers for paddy by a record Rs 200 per quintal and by up to 52 per cent for other summer-sown crops.
    Government's decision to hike MSP for kharif crops is expected to impact GDP by 0.1-0.2 per cent besides adding to inflationary pressures, says a DBS report.

    According to the global financial services major, higher MSPs carry inflation as well as fiscal costs.

    "For the fiscal math, impact is likely to be in the tune of 0.1-0.2 per cent of GDP, which might necessitate higher revenue support or lower capex spending to limit any risk to the 2018-19 deficit targets," DBS said in a research report.

    Seeking to address farm distress ahead of general elections, the Centre on July 4 hiked price paid to farmers for paddy by a record Rs 200 per quintal and by up to 52 per cent for other summer-sown crops.

    The move is expected to 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, experts said.

    As per the report, for the rest of this financial year, the impact on inflation will be in the range of around 25-30 bps.

    Regarding RBI's policy stance, the report said higher MSPs will add to inflationary pressures, fiscal slippage and this might prompt the central bank to go for another rate hike.

    "For RBI, MSP increase poses an additional risk to their inflation view, besides fiscal slippage worries and higher oil prices," the report said adding "August rate hike risks remain on the table".

    In June, the Reserve Bank had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 per cent.
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    5 Comments on this Story

    Lootmar e khangress803 days ago
    Congratulate khangress for spreading lies and misinformation about India.
    k balsubramanian804 days ago
    Irrespective of the catch word INFLATION farmers also should be compensated for their produce. who else will protect the farming community. pulses are always availble at 50 % of the peak prices,. the decision is the right one and if need is there it should be further hiked. all government programmes wages should be 50 % in food grains so that the wage earners will be protected. procurement and storage facilities should be stregthened and it should not be only in paper. being the election year the governemnt should appoint a monitiring commitee with the food secretary as its helm of affairs
    kbalasubramanian chennai
    Ven804 days ago
    it is right decision. Then who will pay right price to farmers.
    You need to bring Agriculture to profits otherwise Govt has to give subsidies and loan waiver. Either way it is had to provide.
    Inflation should be absorbed by raising interests.
    Now only industrialist are eating money by frauds.
    We will vote for BJP
    The Economic Times