High MSPs could raise food prices, fear experts; some analysts say there will be marginal, crop-intensive impact
To what extent will the government’s efforts to increase minimum support prices (MSPs) and spread their benefits translate into food inflation? And if they do, which are the crops that will be instrumental in pushing the price level up?
From the NITI Aayog to industry leaders to the Reserve Bank of India (RBI), all are apprehensive that any major increase in MSP, following the 2018-19 Budget announcements, would push up prices, if not immediately, in the next six to eight months after the decision is taken.
The RBI, in its monetary policy, has said the revised formula for MSP might have an impact on inflation.
However, there also are opposite views. Some experts say that the inflationary impact of the government guaranteeing an MSP that’s 50 per cent more than the A2+FL cost (costs paid and family labour) won’t be uniform and will be crop-specific for a temporary period. The government can address this through increases in supply, either domestically or through more import. “In many commodities the current MSP is more than the A2+FL production cost, hence there won’t be an inflationary impact in them, while in others there could some rise in prices,” Ashok Dalwai, chief executive officer, National Rainfed Area Authority (NRAA), told Business Standard. He said it was time the consumer-centric approach to farm policies changed.
A case in point as to how higher MSPs could affect inflation is maize.
The MSP for maize in the 2017-18 kharif season has been fixed at Rs 1,425 per quintal, while the A2+FL cost of production is Rs 1,044 per quintal. This means an average return of around 36.49 per cent.
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