CCEA approves increase in MSP for kharif crops - Angel Broking

The Cabinet Committee on Economic Affairs (CCEA) approved the Minimum Support Prices (MSPs) for kharif crops for the 2013-14 season. Overall, the MSP increases are expectedly moderate and in the range of 0-15% as against increases of 15-53% in the 2012-13 crop season for kharif. We believe that these moderate price hikes for cereals mainly, in particular for rice (Rs.60-65), are positive for the food inflation outlook as cereal inflation remains at elevated levels. Notably, the MSP for jowar, ragi and urad remain unchanged and this can be attributed to the high MSP increases of 53%, 43% and 30% respectively for these crops during the previous year. Since FY2001, the increase in MSP for these three items stands at a massive 9.8-10.3% CAGR.

During May 2013, inflation in cereals came in at 16.0% while inflation in pulses came in a reasonable 5.9%. As far as sowing of kharif crops is concerned, reports of various States indicate that sowing has picked up robustly by about 85% to 251 lakh hectares in 2013 as compared to 136 lakh hectare in the corresponding period of the previous year.

We are thus positive on food inflation moderating going ahead owing to positive factors including the onset of normal monsoon, decent rabi production in 2012-2013 season, increase in sowing of kharif crops and these reasonable MSP hikes. In addition, the moderation in inflation is likely to lead to further easing of rural wage inflation which has been softening to about 17.3% in April 2013 from 18.3% in January 2013 thus breaking the wage-price spiral. We believe that the government's stance on MSP is reflective of their firm commitment to fiscal consolidation despite the upcoming elections. Earlier in December 2012, the MSP for wheat was increased by Rs. 65 per quintal, lower than the agricultural ministry's proposal of a hike of Rs. 100 per quintal. Other rabi crops witnessed similar MSP hikes in the range of 5% - 20%.

Source : Equity Bulls

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