The Hindu Business Line : Is the Centre deliberately delaying paddy MSP hike decision?

In the event of MSP going up to Rs 1,050, corresponding rate payable to millers would work out to Rs 1,750-1,800 a quintal. Just after price hikes on petrol, diesel and LPG, this is something the Centre would not want.

Harish Damodaran

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New Delhi, June 8 With headline inflation touching 8.24 per cent for the week ended May 24, the Centre is in a quandary over granting the proposed 34-35 per cent increase in the minimum support price (MSP) of paddy for the current kharif season.

A final decision on the proposed MSP of Rs 1,000 a quintal for common paddy and Rs 1,050 a quintal for Grade ‘A’ varieties — as against the corresponding procurement prices of Rs 745 and Rs 775 a quintal during the 2007-08 season — has been pending for the last few weeks.

The Cabinet Committee on Economic Affairs in its meeting on Thursday did not take up the issue. The official reason: the Union Agriculture Minister, Mr Sharad Pawar’s absence due to his attending a conference of the Food & Agricultural Organisation in Rome.

Impact worry

According to sources, the real reason has to do with worries over the potential impact of MSP hikes, as proposed by the Commission for Agricultural Costs & Prices. At the existing Rs 775 a quintal MSP for paddy, the equivalent levy price of rice comes to around Rs 1,340 (this is the rate millers are paid for 25 per cent brokens, taking a rice-paddy recovery ratio of 67 per cent).

In the event of the MSP going up to Rs 1,050, the corresponding rate payable to millers for levy rice custom-milled and delivered to the Government would work out to Rs 1,750-1,800 a quintal. “On an average, rice prices will shoot up by Rs 400 a quintal or more, which is about 30 per cent. Open market rates may not rise as much, but one can still expect a 15-20 per cent jump,” the sources pointed out.

Now, this is something that the Centre would not really want at the present moment, just after the recent price hikes announced on petrol, diesel and LPG. Moreover, rice has a 2.45 per cent weight in the wholesale price index, which is more than the 2.02 per cent on diesel and 0.89 per cent on petrol.

‘Minimising WPI impact’

Even a 10 per cent increase in rice prices can push up the WPI by about 0.5 points, translating into an additional inflation of 25 basis points or so. “Political compulsions will force them to ultimately announce the higher MSPs. What they are trying is to delay it to the extent possible, so that there is no bunching up of various price hike decisions and the impact on the WPI is minimised,” the sources added.

Also, unlike last year, there is no desperation on the Centre’s part to offer a huge MSP increase this time, given that it has procured a record 217.72 lakh tonnes (lt) of wheat during the current rabi season as on Friday. Even for rice, the cumulative purchases of 252.41 lt in the ongoing 2007-08 marketing season (October-September) are more than the corresponding 228.95 lt of the preceding season.

Interestingly, even assuming rice prices reach Rs 1,700-1,800 a quintal after the proposed MSP hikes, they will be below the equivalent international price of $800 a tonne on 25 per cent brokens. The Centre has managed to keep domestic prices on leash so far by first stipulating a minimum export price and then altogether banning shipments of non-basmati rice.