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Having raised farmers' expectations by promising them a higher Minimum Support Price (MSP), the government will find it a 'tight rope walk' situation in managing the conflicting interests between farm producers and consumers, the Assocham said.
"With inflation maintaining an upward trend for last six months in a row and possibly moving towards six per cent mark that can make general households restive, the government has a tough task of balancing interests," Assocham President Sandeep Jajodia said at a managing committee meeting here.
Assocham further noted that while the Reserve Bank of India (RBI) in its credit policy commentary were yet to assess the impact of increased MSP on retail inflation, impact would be clearly seen, especially on cereals and other foodgrains like wheat and rice.
"Going forward, that situation cannot sustain and farmers, growing pulses, for instances would have to be protected along with ensuring adequate remunerative prices for wheat and paddy. Therein lies the problem. With vegetables and fruits having seen notorious gyrations in prices, the overall CPI inflation may well cross even the limit of four per cent by the RBI," said Jajodia.
With regards to the central bank's monetary policy, the Assocham said although the repo rate and reverse repo rates were unchanged, there was an elbow room of plus or minus one/two percentage points from the threshold of four per cent.
As the RBI highlighted in its credit policy document, households' inflation expectations, measured by the Reserve Bank's survey of households, remained elevated for both three-month ahead and one-year ahead horizons even as inflation expectation for one-year ahead horizon moderated marginally.
"The question remains whether the consumers, especially those vocal in urban India, would bear with government and buy the argument that farmers have to be protected. Besides, even within rural India, there are more of landless workers than land owners growing grains. The entire rural population, especially those earning wages, has to be protected against inflation, which is considered to be a painful tax on the poor," Jajodia said.