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LATEST NEWS UPDATES | Stepping it up

Stepping it up

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published Published on Nov 2, 2012   modified Modified on Nov 2, 2012
-The Indian Express

After 14 years, the Central government has held the minimum support price (MSP) for wheat constant at last year’s Rs 1,285 per quintal. There is, of course, still no guarantee that the price will not be changed if major producer states like Punjab and Haryana raise objections. But for now, the UPA government’s newly discovered zeal to push through another reform is heartening. It may also be useful in stemming the inflationary pressures that are again threatening to build up in the economy.

The price of wheat procured from farmers between 1998-99 and 2012-13 (rabi season) has risen by over 170 per cent. The wholesale price inflation in the same period has risen by nearly 60 per cent. Even after accounting for the rise in the cost of farm equipment among other factors, the rise in the minimum support price has been one of the chief contributors towards persistent inflation. As the rate of hikes in the MSP has accelerated since 2006-07, the UPA government, not surprisingly, has got caught up in an inflationary spiral. In that year, it raised the MSP to Rs 700 per quintal from Rs 640 a year before, and kept generously adding to it later. The planned Food Security Act means the government is even now building up more wheat procurement at these high prices. In this year itself, this level of procurement has made the retail price of wheat and atta increase by 20 per cent in markets like Delhi and UP. With high-cost wheat having few takers and exports, too, not picking up, the only option will be to sell the crop at a loss to the exchequer or let it rot. The combination of higher priced wheat with a flat issue price has made the food subsidy balloon, forced larger support to landless labourers as NREGA wages, and pushed the fiscal deficit upwards.

On Thursday, in an unrelated move, the public sector oil marketing companies raised the price of cooking gas by Rs 26.50 for non-subsidised cylinders since the international prices have firmed up. Prime Minister Manmohan Singh’s advice on the perils of a large fiscal deficit to his recast council of ministers should arguably fall on more receptive ears now. It could also make the monetary authorities feel more confident about this government’s intention to keep its promise of suppressing inflation.

The Indian Express, 2 November, 2012, http://www.indianexpress.com/news/stepping-it-up/1025379/0


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