Experts foresee minimal impact on retail inflation

New Delhi: Increase in the minimum support price for rabi crops will have minimal impact on retail inflation, economists said. Based on the weight of these commodities, the MSP hike will result in a 10-basis point increase in the Wholesale Price Index and a 30-basis point increase in the Consumer Price Index , assuming other variables remain constant, said DK Pant, chief economist at Indian Ratings and Research.

“Wheat is a key ingredient in products like maida, suji, noodles, bread, and biscuits, which together account for 0.23% of CPI basket. Considering this, the impact on CPI could rise to around 32 basis points,” he added.

While benchmark market prices may rise slightly when the MSP is announced, the overall effect is limited, said Madan Sabnavis, chief economist at the Bank of Baroda.

The four crops, wheat, chana, mustard, and masoor, have a weight of almost 4.5% in CPI, he added. “If the entire MSP increase were reflected in final prices, the maximum impact on CPI would be about 0.27%. However, this is mainly for wheat, and the effect on other crops may vary, resulting in an overall inflationary impact estimated at 0.18-0.20% for the year”.