Home >market >mark-to-market >High government price for rice fuelled inflation

The minimum support price (MSP) for rice has gone up to a record 297.7 per quintal, while the buffer stock in the system rose to a peak at 35.47 million tonnes in 2013-14. High MSPs have been blamed for the sustained increase in food prices over the past eight years along with the government’s procurement policy. Critics say this is the reason why cereal inflation has remained in the double digits, even after bumper crop production in the past few years. The saving grace is that the pace of increase in government prices has moderated.

Retail inflation is expected to climb once again in March from 4.68% in February as food prices have hit a trough. On the credit side, even though the odds of an El Nino weather event have increased, there is room for mitigating the impact of poor monsoon rainfall since the government is sitting on two-and-a-half times the prescribed amount of food grains. For instance, in the 2003 drought year, cereal inflation was just 2% because the government had offloaded food stocks in the system, keeping cereal prices under control, according to Edelweiss Research. Such policies can be reviewed again, when the new government comes to power, to keep inflation in check.

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