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By Ruma Dubey

We most certainly have entered the election year! Not to mention the election in agrarian states like Chhattisgarh, Rajasthan and Madhya Pradesh.

Fearing a major backlash from farmers across India, yesterday the Modi Govt approved the steepest hike since 2012-13 in minimum support prices (MSP) for paddy, the main crop planted by farmers in the rain-fed kharif season.

MSP is the price at which the Govt will buy the harvest from the farmers.

This is not the first time that MSPs have been hiked in a year ahead of the election – 40% in 2009, 27% in 2013 and now 25% in 2018.

For 2018-19 crop season, the MSP for paddy was fixed at Rs.1,750 per quintal, 13% higher than last year.

The Govt also raised MSP for other kharif crops:

  • Cotton – Rs.5150/quintal – up 28% (YoY)
  • Maize -  Rs.1700/quintal – up 19%
  • Bajra – Rs.1950/quintal – up 37%
  • Tur dal – Rs.5675/quintal – up 4%
  • Moong dal – Rs.6975/quintal, up 25%
  • Urad dal – Rs.5600/quintal, up 3.7%
  • Soyabean – Rs.3399/quintal, up 11.4%
  • Groundnut – Rs.4890/quintal, up 10%
  • Raagi – Rs.2897/quintal, up 52.5%.

There is no doubt that the farmers are undergoing a lot of duress and distress and this move was needed to aid them, increase their farm income. But the success or failure of this MSP hike depends on the implementation. The wholesale prices of most of these crops are as such ruling over and above the MSP. Thus in the absence of significant procurement by the government, this anomaly will not get corrected and farmers will be got the full benefit of this hiked MSP.

On the macro economic front, any hike in MSP is always inflationary. This Rs.200 price hike in paddy was widely expected so this will not send shock waves. But there is also no doubt that it will add on at least 25 -35 bps to the inflation.

What does this mean for the RBI? In actuality, just the MSP hike alone would not have such a major impact but as this is coupled with the increasing price of crude oil and depreciating rupee, RBI will surely do a rethink. Most analysts are now certain about another 25bps interest rate hike, most likely in the October meet.

This is a good and much needed move but we only hope that at least this time, the announced MSP does translate into reality for the farmers. Fervently hope that the Govt ensures procurement from farmers does happen and the farmers reap the entire benefits rather than he getting just a small percentage. People like Vijay Mallya and Nirav Modi dupe the system, swindle banks of crores of money and farmers, with debt of less than Rs.50,000 are forced to commit suicide. Surely there is something fundamentally wrong?

Farmers, just like those in defence services are providing a service on which our life depends; including the mudslinging petty politicians. Wish the media and the politicians pay more attention to these ground realities, rather than be focused only on who will win and who will lose, though right now, we all are losers.

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