India’s Modi keeps pledge to boost crop prices to woo farmers

Bloomberg

India raised purchase prices for crops such as cotton, soybeans and paddy rice to ensure farmers get at least 50 percent more than their production costs, a move toward fulfilling Prime Minister Narendra Modi’s pledge to double farm incomes by 2022.
The minimum support price for monsoon-sown paddy rice for 2018-19 season was increased to 1,750 rupees ($26) per 100 kilograms (220 pounds) from 1,550 rupees a year ago, food minister Ram Vilas Paswan said in New Delhi after a cabinet meeting. The price is 50 percent more than the production cost of 1,166 rupees estimated by the government. Prices of cotton and soybeans were also increased by 50 percent of the cost.
Higher guaranteed returns over the cost of production may help boost incomes of farmers, a key voter base for Modi who faces a general election in early 2019.
The government has announced several programs to win the sympathy of the farming community as about 800 million of India’s 1.3 billion population depend directly or indirectly on agriculture.
Higher support prices will boost production of oilseeds, encourage investments and help reduce India’s imports bill, the agriculture ministry said in a statement. India, the world’s largest buyer of palm oil, purchases about 70 percent of its edible oil needs from .
Although the government announces purchase prices for about two dozen crops every year, it buys only small quantities of the commodities, except wheat and rice that is procured for its welfare programmes.
India’s headline inflation may rise by 70 basis points over the next two years due to a rise in support prices, said Shubhada Rao, chief economist at Yes Bank, Mumbai. “We also don’t see much impact on government finances. The budget has enough levers built in, especially through the food subsidy bill, which can absorb the MSP costs.” Prices of many crops have fallen below the support rates due to bumper harvests in recent years, triggering farmer protests.