Raising minimum support price may pose inflation challenge for govt

With the minimum support price (MSP) for kharif crops for the 2018-19 season set to be announced next week, the big question among policymakers and experts is its potential impact on inflation.

The Centre has decided to fix MSP at 1.5 times of the cost of production from this year.

The cost in this case will be A2+FL, which broadly includes all paid-out input costs plus own and family labour. Though this is much less than the comprehensive cost, given that crude oil prices have been rising, not all are convinced about its non-inflationary character.

“So far the NDA government has seen a benign atmosphere. Now that fuel prices have started moving upwards, the government has proposed a revised framework for MSPs of select food articles in Budget 2018-19 and fiscal slippages have started happening. It remains to be seen whether inflation targeting can wither more rough weather in the days to come,” a recent research paper by Brookings India said.

MSPs in themselves are not a solution to the problem of rural distress. They can at best cushion the impact to some extent, because unless the announcement is supplemented by a move to expand procurement operations, any hike will remain a mere slogan. The political significance of the announcement is huge, given that hiking MSPs has been a key point of the BJP manifesto, while the Prime Minister himself has mentioned it several times as a tool to double farmers’ incomes by 2022. Rural distress could have a potential impact on the elections in Madhya Pradesh, Chhattisgarh and Rajasthan. So it is important for the government not to let inflation go out of control while hiking MSP. “Inflation will be affected if market prices rise with the hike in MSP, but this theory is not very clearly established. Therefore in the short term, there is unlikely to be an impact on inflation due to a hike in MSP,” former agriculture secretary Shiraz Hussain said. Benefits to farmers depend on the procurement policy announced.

“They are yet to make public how the MSP will be calculated, and the kind of inputs costs that will be factored in,” according to Vijoo Krishnan, joint secretary, Communist Party of India (Marxist) affiliated All India Kisan Sabha (AIKS) said. Krishnan, one of the key organisers behind the Nashik to Mumbai ‘long march’ of farmers a few months ago, said the AIKS had called for a massive farmers protest from August 9, which would be followed by farmers and workers’ protests in New Delhi on September 5.

The ruling party, though, is all set to cash in on the MSP announcement clubbed with the other pro-farmer measures of the government.

The BJP’s Kisan Morcha, or farmers' cell, has been training party workers to take the message of the government’s farm-friendly policies to the ground.

“The objective is to blunt the Congress’ and others efforts to create a farmers’ movement in the country. We have asked these leaders to showcase the government’s achievements at the block level,” Morcha National Vice-President Shailendra Sengar said.