Inflation-wary ministries oppose 15% wheat MSP hike

The ministries for food and finance have opposed an agriculture ministry proposal to raise the minimum support price (MSP) for wheat 15 per cent to Rs 1,350 a quintal. The ministries fear the move would worsen food inflation.

Officials say the farm ministry suggested raising MSP on the recommendations of the Commission for Agricultural Costs and Prices (CACP), but the proposal has not found favour with the two ministries. CACP says MSP should factor in rising input costs and various benefits that would have accrued to farmers if exports were fully allowed.

Earlier this year, CACP had recommended raising of MSP for paddy by 16 per cent to Rs 1,160 a quintal, from the then price of Rs 1,000 crore.

That was suggested as CACP believed farmers should get Rs 80 a quintal in addition to a Rs 80 hike by factoring in benefits they would have got had exports been fully allowed.

However, the cabinet stuck to a Rs 80 a quintal rise, raising the MSP to Rs 1,080. The government had recently allowed exports of wheat and rice up to two million tonnes.

Food inflation, barring a few instances, has refused to come below nine per cent. It stood at 9.13 per cent for the week ended September 17. However, price pressures from wheat are not that much. Prices, in fact, declined 2.67 per cent for the week under review, compared to the corresponding period of last year.

As much as 28 million tonnes of wheat was procured for this financial year, a record high. Officials said the requirement for wheat may be much higher next financial year because of the provisions of the proposed food security law, expected to come into effect from April 1, 2012.

In the draft Food Security Bill, 75 per cent of rural households and half of urban households will be entitled to subsidised grain.

The food ministry feels when the Act is fully implemented, the requirement of grain for feeding the poor should be around 61 million tonnes as against the current annual average procurement of 55-60 million tonnes.

The extent of subsidy is also expected to change if the beneficiaries under the proposed Act are determined on the basis of a socio-economic caste census. The Planning Commission decided yesterday to delink the government’s social welfare measures with its controversial affidavit in the Supreme Court.

Unofficial estimates say the government’s annual food bill could rise to Rs 95,000-99,000 crore if the proposals made in the draft Bill are implemented in toto. In the 2011-12 Budget, the government had estimated the food subsidy bill to be around Rs 60,573 crore.