Lower MSP rise shows govt’s aim to balance farmer, consumer interests: Nomura

Financial services company Nomura on Wednesday said that lower minimum support price (MSP) increase reflects lower input costs of production this year (fertilisers, diesel), higher buffer stocks (rice and wheat) and also the government’s aim to balance the interests of farmers and consumers.

In a report, it also said that MSPs are an important driver of food price inflation when there is public procurement and this, along with other factors such as negative real rural wage growth, should lower food price inflation.

“Also, recent agricultural reforms remove inter-state restrictions on farmers selling their produce and enable contract farming, which should boost farm productivity and lower costs for consumers,” it said.


Food price inflation has remained elevated this year at around 10% owing to lockdown-induced supply disruptions, and this rise has been sustained in September due to higher vegetable prices (unseasonal rains). However, structural factors still argue for lower, not higher, food price inflation.

“Lower minimum support prices are a tailwind for food price inflation. Supply-chain disruptions and unseasonal rains are a near-term headwind, but structural factors still argue for lower food price inflation,” Nomura said.

The government has announced MSP for winter (rabi) crops, raising wheat’s MSP by 2.6%, down from 4.6% last year-the lowest in a decade.

The MSP rises for other crops were higher at around 5%, but on a CPI-weighted basis, winter crop MSPs are up only 3.5% compared to 4.9% last year, Nomura said. This follows a muted increase in kharif (summer) MSPs earlier this year at 3.5% as against 4.9% last year.