The Centre on Wednesday hiked the minimum support price (MSP) for kharif season main crop paddy by Rs 100 to Rs 2,040 per quintal for the 2022-23 crop year.

The hike was greater in oil seeds and pulses to encourage a shift from water-intensive crops and reduce imports.

Analysts said the hike would add to the inflationary pressure in the economy.

Soumya Kanti Ghosh, the chief economic adviser of SBI, says decision to raise MSP on kharif crop will raise inflation by 15-20 basis points.

“The average price hike would be around 5.8 per cent for these commodities. Given a weight of 3.4 per cent in the overall index, the direct impact on WPI inflation can be around 0.20 per cent if all crops receive the higher price,” Madan Sabnavis, chief economist at Bank of Baroda said.

The MSP of the common grade variety of paddy has been increased to Rs 2,040 per quintal for the 2022-23 crop year from Rs 1,940 in the previous year. The support price of the “A” grade variety has been hiked to Rs 2,060 per quintal from Rs 1,960.

Paddy is the main kharif crop, the sowing of which has already begun. The meteorological department has forecast that the 2022 southwest monsoon will be normal at 99 per cent of average.

“The only concern is, that while increased MSPs may boost rural income and purchasing power, this can also increase inflationary pressures further. To note, the wholesale inflation in April rose to 15.08 per cent, which is the highest in the last one-and-a- half-decade,” Kalyan Goswami, director-general, Agro Chem Federation of India, a body representing pesticide manufacturers and importers, said.

Sesamum gains

The MSP of 14 kharif crops has been increased in the range of Rs 92-523 per quintal. The maximum hike has been given in sesamum of Rs 523 per quintal, while the lowest Rs 92 per quintal is in the case of maize. The MSP of paddy and bajra has been increased by

Rs 100 per quintal, while tur, urad and groundnut MSP has been hiked by Rs 300 per quintal each for the 2022-23 crop year.

Aditi Nayar, chief economist, ICRA, said the absolute increase in MSP is higher for oilseeds and pulses that are grown in the kharif season compared with cereals, “I think that is an appropriate thing to do. As we look at what are the items that are causing inflation right now, certainly oilseeds is a big issue.”

“The hike in MSP of oilseeds is a step in the right direction. As farmers get a secured price for their crops, it will encourage more and more farmers to grow oilseeds as well as prompt them to shift away from grains. The area under oilseed cultivation has been on a steady rise over the last few years and with today's rise, we expect it to rise further,” Suresh Nagpal, chairman, COOIT (Central Organisation for Oil Industry & Trade), an apex association of edible oils, said.

Meanwhile, the government has issued export release orders for 10 lakh tonnes of sugar on “pro-rata basis”, out of the total applications of 23 lakh tonnes, till June 3.

The government has capped sugar exports at 100 lakh tonnes for the 2021-22 marketing year (October-September) with effect from June 1, due to which mills and exporters need to get approval in the form of “export release orders” from the food ministry.

The country has already exported 86 lakh tonnes of sugar till May, as per industry data.