Govt’s move to increase MSP on kharif crops to boost rural consumption

Bengaluru, 20 June: Rural consumption is likely to get a boost with the central government’s announcement to increase Minimum Support Price (MSP) for 14 kharif crops.

“Rural stimulus programmes are clearly getting higher outlay with Rs 2 lakh crore for MSP, which is Rs 35,000 crore higher (than earlier). This is in line with our expectations and given a coalition government along with scheduled key state elections in next 2-3 quarters. This bodes well for rural consumption for consumer staples and we expect gradual recovery to continue,” Abneesh Roy, Executive Director of Nuvama Institutional Equities said.

On Wednesday, the Union Cabinet approved the MSP for 14 kharif crops based on recommendations from the Commission for Agricultural Costs and Prices (CACP). MSP for common grade paddy has been hiked by Rs 117 to Rs 2,300 per quintal.

According to the announcement, the highest absolute increase in MSP over the previous year has been recommended for oilseeds and pulses which includes niger seed at Rs 983 per quintal, followed by sesamum at Rs 632 per quintal and tur/arhar at Rs 550 per quintal.

After slow rural consumption, FMCG firms have seen some green shoots in the consumption demand from rural areas.

“The slowdown in the FMCG market has bottomed out. The improvement was led by volumes which have turned flat in this quarter versus mid-single digit decline in the December quarter,” Ritesh Tiwari, chief financial officer at HUL has said in a post-earnings analyst call.

On the back of a likely good monsoon and increase in minimum support price of kharif crops, most analysts are expecting the recovery to be solid in coming quarters. Rural consumption is critical for sustaining the earnings growth of most FMCG, automotive, and related companies.