The Cabinet Committee on Economic Affairs (CCEA) on October 29 raised the minimum support prices (MSP) for rabi crops for the 2014-15 season ending June. The increase in prices has been in line with the recommendations of the Commission for Agricultural Costs and Prices (CACP).

The Government has hiked the MSP of various crops between 1.5 and 4.5 per cent to incorporate the increase in the cost of production for farmers.

The Government increased wheat price by ₹50 a quintal to ₹1,450; barley by ₹50 to ₹1,150; gram (chana) by ₹75 to ₹3,175; masur by ₹125 to ₹3,075 and safflower by ₹50 to ₹3,050.

At the outset, the marginal hike in the MSP has reiterated the NDA government’s stand of curbing inflation.

The Wholesale Price Index (WPI) inflation declined to 2.38 per cent in September 2014 from 6.18 per cent in May 2014 when the new Government came to power and the lowest since November 2009.

The WPI food inflation declined to 3.52 per cent, the lowest in almost three years.

The Consumer Price Index (CPI) was also down to 6.46 per cent, the lowest since its inception in January 2012.

CPI food inflation declined to 7.67 per cent compared with 11.75 per cent in September 2013.

Declining global prices across commodities – be it food, crude oil or base metals – have also played a role in bringing down the inflation in India.

The FAO Food Price Index in September 2014 declined to 191.5 points, about 6 per cent lower compared with the corresponding period a year ago and, the lowest in more than four years since August 2010.

Over the last few years, the Government has increased MSP of kharif and rabi crops substantially, to boost food production in India, particularly cereals, oilseeds and pulses.

With record cereal production over the last couple of years, the stocks of rice and wheat are overflowing and were more double the buffer norms in July.

However, pulses and oilseeds production is insufficient to meet the domestic demand, making the country depend in imports.

To tackle both the issues and encourage farmers to grow more of pulses and oilseeds, the Government hiked the MSP of pulses and oilseeds more than those of cereals.

The Ministry of Agriculture has targeted rabi foodgrain production for the 2014-15 season at 130.75 million tonnes, marginally lower compared with 135.53 million tonnes last year as below normal rains and lower water levels in the country’s reservoirs may affect the yield.

There is optimism that with the increase in MSP, the country will be able to achieve higher food production this year, and fulfil the promises made earlier this year.

The RBI has also held the interest rates unchanged since the start of the year, and is waiting for the inflation to come under control to make policy changes.

With a sharp decline in inflation, there are expectations that the Central Bank will take a call on cutting the interest rates. There are expectations that the RBI may cut the rates in the first quarter of 2015 and that will help boost the economy.

The writer is Associate Director-Commodity & Currencies, Angel Commodity Broking. Views are personal.

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