The hike in minimum support prices of rabi crops is a prudent policy response and should keep food price inflation contained in the near term, says a Nomura report.
The government yesterday hiked the minimum support price (MSP) of wheat by Rs 110 to Rs 1,735 a quintal and of pulses by up to Rs 400 per quintal to encourage farmers to boost area and production of these crops.
MSP is the rate at which government buys the grain from farmers.
According to the Japanese financial services major, the MSP increase is largely similar to the hike announced last year, although larger than the rise during 2013-14 to 2015-16.
"In the context of the upcoming elections and reports of farm distress, we view these hikes as a prudent policy response," Nomura said.
It further said that "this (MSP price hike) should keep food price inflation contained in the near term as MSPs typically set the floor for market prices, especially for cereals (rice and wheat)".
In percentage terms, wheat MSP has been hiked by 6.8 per cent, gram 10 per cent, masoor 7.6 per cent, mustard 8.1 per cent, barley 6.4 per cent and safflower seed 10.8 per cent.
Wheat is the main rabi crop, sowing of which will begin from this month. The crop will be marketed from next year April onwards.
"MSP for main winter crop wheat has been increased by 6.8 per cent year-on-year after rising 6.6 per cent in 2016- 17," the report said adding for pulses, where lower market prices led to a reduction in area sown for summer (kharif) pulses, the hike is in the 5-10 per cent range.