MSP hike: Too much or too little? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

MSP hike: Too much or too little?

Aug 21, 2009

Although improved rainfall in some regions over the past few days has brought some relief to the parched land, key crops remain endangered. The food price index has climbed by 10.5% in the year through August 8th and the number of drought declared districts have gone up to 246. In its latest move to provide relief from the drought, the government has hiked the purchase price (also known as the minimum support price or MSP) of rice (paddy) and lentils. Moreover, the government has given states permission to increase borrowing limits by around Rs 200 bn this year to meet additional expenditure and stimulate demand.

On Thursday, the government hiked the MSP of rice by Rs 100 per quintal. This is despite its earlier stand of freezing paddy prices. The price of pulses was increased by Rs 240 per quintal. The general view is that the hike it too less. In the year 2008-09, paddy support price was hiked by 31.8% and compared to that the hike this year is of just around 11.8%.

The government estimates that the paddy crop will be 'just marginally' lower this year should be taken with a pinch of salt. The produce this year has come at a heavy increase in input costs apart from the adverse impact on the groundwater levels. The farmers this year had to resort to heavy pumping to water their crops. According to reports, in some parts of the country, the farmers used 30 litres of diesel per acre against the usual consumption of 10 litres of diesel on paddy transplantation.

However, we have to consider the fact that the government is walking on a double edged sword. While it has to help support farmers, it cannot place the entire burden on the common man who has to ultimately bear the burden of rising food prices (on the back of higher MSP). Besides this the government has to procure sufficient grains so that it maintains a buffer stock and has enough grains to supply through the public distribution system (or the ration shops).

We must not forget that in a free economy the market sets the price. Hence, at the end of the day, the government can hardly control what the farmer will get for his produce and what the common man will pay for his purchase.


Equitymaster requests your view! Post a comment on "MSP hike: Too much or too little?". Click here!

  

More Views on News

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

How to Save Money by Exiting Stocks Before They Fall podcast (Views On News)

Sep 24, 2020

A penny saved is a penny earned. It doesn't matter where you enter. All that matter is where you exit. Watch this video to identify an opportune time to exit your investments and book profits.

ICICI Prudential ESG Fund: Aims for Sustainability (Outside View)

Sep 24, 2020

PersonalFN briefly explains the newly launched fund : ICICI Prudential ESG Fund.

What to Do if there is a Second Wave of the Stock Market Crash (Profit Hunter)

Sep 24, 2020

Here's what I think investors should do in this selloff.

IDFC Mutual Fund Starts Campaign 'SIFI'. Should Buy Into the Idea? (Outside View)

Sep 23, 2020

IDFC Mutual Fund is taking the road less travelled and hence started a campaign SIFI (SIP in Fixed Income) to promote the concept of SIP for its debt funds investors.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 24, 2020 (Close)

MARKET STATS