Announcement: Highest increase in MSP for paddy crop

The highest ever single-year raise in the minimum support price (MSP) of paddy from this Kharif season to honour its Budget announcement is all set from government’s side.

The government is considering raising the paddy MSP to the tune of about Rs 200 per quint. The MSP for common grade of paddy was Rs 1,550 per quint the previous year. The previous best paddy MSP hike stood at Rs 155 a quint (including the bonus of Rs 50) a decade ago in the 2008-09 election year of UPA-I.

This massive hike in MSP for paddy comes in the election year of the Narendra Modi government like in the UPA-I. The hike covers the crop which constitutes over 50 per cent of the total acreage of food grain crops during Kharif season.

An additional burden of an estimated Rs 12,000 crore on account of procurement based on records of procurement in previous years is expected due to this move. Last year rice procurement stood at over 36 million tonnes which corresponds to about 55 million tonnes of paddy.

Last week during an interaction with sugarcane farmers, Prime Minister Narendra Modi had promised to “approve” the implementation of 150 per cent of input cost as MSP for kharif crops during the “forthcoming meeting” of the Cabinet this week.

Finance Minister Arun Jaitley had announced presenting the Budget in Parliament early this year that “I am pleased to announce that as per pre-determined principle, Government has decided to keep MSP for the all unannounced crops of kharif at least at one and half times of their production cost. I am confident that this historic decision will prove an important step towards doubling the income of our farmers.”

For the kharif season, the government is also considering a hike upwards of Rs 200 a quintal in the MSP for pulses (Tur, Moong, Urad). Actually, the government may hike the MSP for moong to the tune of about Rs 500 a quint.

The large farming community is expecting motivation through this move as such massive hike in the MSP may have an inflationary pressure.

One of the source told press “There need not be inflationary pressure associated depending upon the marketable surplus of the commodity, but it is definitely likely to have pressure on the government Budget.”

Like paddy, many kharif corps don’t have a well-oiled procurement mechanism. So, immediately, the fiscal implications of the MSP hike to meet 150 per cent of input cost of other kharif crops cannot be determined. For example, NAFED procures pulses from the market and later sells it when required. It undertakes this operation with help of credit limits and seeks government help in case of losing money while liquidating its stock. The government source suggested that the MSP hike for pulses may entail an additional cost of Rs 5000-10000 crore depending upon the scale of its intervention.

The massive hike in MSP is one of the two (the other being Rs 5-lakh health protection cover for over 10 crore families) major schemes announced by the Modi government as it enters the last lap of its term.

Also Read: PM Modi says, ‘next week MSP decision announcement to be made’