Higher MSP: Govt needs to balance farmer, consumer interest

In the Budget 2018, the govt promised to fix the minimum support price at 50% higher than the cost of production.

New Delhi: The government has to walk a tightrope to balance farmers' and consumers' interest in view of the Budget announcement on MSP that could further push up inflation, industry body Assocham said today.

In the Union Budget 2018-19, the government promised to fix the minimum support price (MSP) at 50 percent higher than the cost of production.

"The Budget with a huge focus on agriculture has raised expectation level in the rural landscape. Besides, the entire national discourse has shifted to problems of rural India. The government would find it very difficult to adjust MSPs which do not appear to be in line with promises," Assocham President Sandeep Jajodia was quoted as saying in a statement.

He further said even the formula for costing is being debated in media and among agri-economists and farmers organisations, which means the pressure on retail inflation is bound to be seen.

"The government will find it a 'tightrope walk' situation in managing the conflicting interests between farm producers and consumers, with inflation maintaining an upward trend for the last six months in a row and possibly moving towards six percent mark, that can make general households restive," he said.

Reserve Bank of India (RBI), on the other hand, in its credit policy commentary has said it is yet to assess the impact of increased MSP on retail inflation, and the impact would be clearly seen, especially on cereals and other foodgrains like wheat and rice.

"With vegetables and fruits having seen notorious gyrations in prices, the overall CPI inflation may well cross even the limit of four percent by RBI," he said.

He further said RBI has an elbow room of plus or minus one/two percentage points from the threshold of four percent.

"The question remains whether the consumers, especially those vocal in urban India, would bear with government and buy the argument that farmers have to be protected," Jajodia said.

Besides, even within rural India, there are more of landless workers than landowners growing grains. The entire rural population, especially those earning wages, has to be protected against inflation, which is considered a painful tax on the poor, he added.