Higher MSP to fuel food inflation: Experts

NEW DELHI: The hike in the minimum support price (MSP) of agricultural items like paddy for 2013-14 crop year will boost farm output but is also expected to fuel food inflation, experts said.

Government today raised the MSP of nine farm items, including some pulses and oilseeds, in the range of Rs 60-450 per quintal for the 2013-14 crop year (July-June), while the price for five crops like urad and ragi were kept unchanged.

Currently, farmers are sowing kharif crops. The announcement of MSP will help farmers decide which crop to sow for better returns.

"Increasing the MSP could raise the crop area further. However this could also lead to turning these items costlier - leading to higher Inflation," brokerage firm Religare Securities said in a statement.

The main purpose of a rise in MSP is to provide better remuneration to farmers. Apart from that, it would also encourage farmers to produce more of these crops resulting in increased sowing area, it said.

Rainfall activities, which have been very good so far in most parts of India, are going to help the sowing activities of the Kharif crops. July and August months too remain critical as too much excess or deficient rains could hamper the productivity of the sown crops, it added.

Another brokerage firm Angel Broking said that the substantial increase in the support price of oilseeds and pulses will lead to shift in area to these crop from cotton this year.

"Cotton may lose acreage to more lucrative crops like oilseeds and Pulses," it said.

Inflation was 4.7 per cent in May, while in food articles category it was 8.25 per cent.