Minimum Support Price is passe, but Narendra Modi government is unwilling to move on

Given the distress in rural India, exacerbated by demonetisation, it is not surprising the government has announced a slightly bigger hike in the Minimum Support Price (MSP) for wheat, of 6.8% compared with a 6.6% increase in FY17. While it is the drop in prices of horticulture—now bigger than agriculture—that is more the cause of the distress, the government is not taking chances since the rabi crop is as important as the kharif one. There are chances the kharif output will come in at levels that are lower than anticipated following the excess rainfall in some regions and a shortfall in others. In aggregate, the weighted average increase for winter crops of an estimated 7.4% is slightly lower than the hike of 8.5% for FY17. While the government has implemented modest hikes—just 4% between FY14 and FY16—this year, the combined hike is slightly higher, at 6.6% compared with 6.4% in FY17.
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