The government's decision to fix the minimum support price (MSP) at 1.5 times the cost of production is unlikely to raise prices as envisaged, said an SBI report here on Monday.
"There is a market perception that implementation of market compensation scheme may cost the government as much as Rs 80,000 crore, but our estimates suggest it may be less than one-fourth of this figure," SBI Ecowrap said.
In a survey carried out by SBI, it found that there has been a downward pressure on market price during post harvest period, but the difference between market price and MSP varies from state to state.
"In states like Gujarat, Maharashtra, Karnataka and Jharkhand, the market price (both minimum and average price) is higher than MSP," it added.
On conservative basis, the survey estimate showed the combined cost for MSP wheat, paddy, bajra and maize would be less than Rs 11,500 crore.
The four grains contribute more than 80 per cent of total food grain production in the country and 75 per cent of total area was under cultivation of these grains in FY17, the report said.
It further said: "Benefit of this scheme is the price difference that will be directly paid into farmers accounts like other DBT (Direct Benefit Transfer) scheme. So, it will stop the leakages and the accounts of the farmers will remain active, with continued flow of transactions."
The report, however, said, the scheme should be judiciously monitored to achieve its desired objective.
"For majority of the notified rabi crops, MSP at 1.5 times over production cost has been decided. Now, the government has decided to make the MSP for all notified crops in the coming kharif season at least 1.5 times of input cost. It will help in doubling farmers' income," he had said.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)