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  3. RBI Governor blames frequent MSP hikes for high food prices

RBI Governor blames frequent MSP hikes for high food prices

28 Feb 2014 Evaluate

The Reserve Bank of India (RBI) Governor Rahguram Rajan has attributed high food inflation to rising rural wages and administered food prices. Highlighting need for slower pace of increase in minimum support prices of foodgrains, the Governor emphasized that food prices should be determined by the market and MSPs (minimum support prices) should be used to provide only a lower level of support so that production decisions do not get distorted. During the last 10 years, MSPs of rice and wheat have increased more than 100 percent.

Referring to rising rural wages, the Governor has stressed that increased liquidity flow into rural areas on the back of centre's rural employment schemes particularly (MGNREGA) has also led to a massive rise in rural wages over the past few years and thus there is a need to contain any unwarranted rise in rural wages as well as rise in other agricultural input costs. Food prices in the country are also high owing to growing prosperity and shift in dietary habits of people towards protein-rich items and other high value foods, Governor added.

The RBI Governor further highlighted the need to amend the Agriculture Produce Marketing Committee (APMC) Act, which governs marketing of agriculture produce and provides a platform to farmers to sell their produce to agents or traders. Further, under Agriculture Produce Marketing Committee (APMC) Act, it has become imperative to reduce the wedge between what the farmer gets and what is paid by the household through reducing the role, number, and monopoly power of middlemen as well as by improving logistics. By adding further, Rahguram Rajan has stated that during the last decade, the share of food in households’ overall consumption has been declining, but at a slow pace than the significant relative increase in food prices, suggesting that demand is relatively less elastic to price changes. 

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