Minimum Support Prices for agricultural goods have been increased in 2014-15, but only by a marginal amount, less than 5% over the previous year.

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If you don’t know what MSP is: the government buys these goods from farmers at these prices, guaranteeing that a certain amount of their produce will definitely be sold at a certain price. This is supposed to help them get the confidence to sow and reap and harvest.

This has turned into a ridiculous exercise because in no field is your income guaranteed – I would also like to know that someone will keep paying me year after year, but it doesn’t mean taxpayer money should be used for the purpose.

And if you’re wondering that the price increases are low, here’s how much they have increased since 2007-08, both in absolute terms and an annualized basis.

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The second chart shows you how, even after this low increase, the total annualized increase since 2007-08, a seven year inflationary period, has been above 10% for nearly all such goods!

My Take

Someone has finally seen the light. I congratulate this government for helping to bring down food inflation. Food inflation hurts the poor the most. If we don’t cut MSP, we will never see the end of food inflation. In the next few years, we might see prices moderate.

The next step must be to completely disband APMC as a licenced body (it should be “just another market”) and to eventually stop this massive government food purchase program (which is just a subsidy).

Also See: Why Food Inflation Haunts Us and What We Can Do To Fix It

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