The State Bank of India (SBI) research in its latest report has said that the government's decision to fix the minimum support price (MSP) of kharif crops like paddy at least 50 percent higher than the cost of production, will have marginal impact on India's inflation. It also pointed out that an early implementation of the MSP scheme that will be 1.5 times higher than farmers' production costs along with price compensation support and other innovative schemes for the rural sector will pave the way for a transformational change in rural economy going forward.
According to the report, presently, the Commission for Agricultural Costs and Prices (CACP) has three different definitions of productions costs – A2 (actual paid out cost), A2+FL (actual paid out cost plus imputed value of family labour) and C2 (comprehensive cost including imputed rent and interest on owned land and capital). Allaying fears of increased market prices of the crops, it said that the recent debate in public domain of whether the MSP is fixed over the production costs A2+FL and C2 is meaningless as long as the government compensates the farmer over and above the prevailing gap between the market price and MSP of that particular crop.
Finance Minister Arun Jaitley in Union Budget for 2018-2019, had announced fixation of MSP of coming Kharif (summer sown) crops, which include maize, soyabean and pulses, at least one-and-half times the cost of production. He noted that the MSPs of most of rabi (winter sown) crops have already been raised. He hopes that the decision would prove to be an important step towards doubling the income of farmers. He also said that NITI Aayog, in consultation with Central and State governments, will put in place a fool-proof mechanism so that farmers will get adequate price for their produce.
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