Higher MSP may have inflation, fiscal costs: Report

Government’s decision to hike MSP for kharif crops is expected to impact GDP by By 0.1-0.2 per cent besides adding to inflationary pressures, says a DBS report.

According to the global financial services major, higher MSPs carry inflation as well as fiscal costs. “For the fiscal math, impact is likely to be in the tune of 0.1-0.2 per cent of GDP, which might necessitate higher revenue support or lower capex spending to limit any risk to the 2018-19 deficit targets,” DBS said in a research report.

Seeking to address farm distress ahead of general elections, the Centre on July 4 hiked price paid to farmers for paddy by a record Rs 200 per quintal and by up to 52 per cent for other summer-sown crops.

The move is expected to lead to higher inflation and widen fiscal deficit because of increase in food subsidy bill to over Rs 2 lakh crore from Rs 1.70 lakh crore provided in the Budget for 2018-19, experts said.