India: Minimum support prices still far from maximum – Nomura

Indian Prime Minister Modi’s statement over the weekend that minimum support prices (MSPs) will be based on the comprehensive cost of production is being widely interpreted as the government moving beyond the ‘A2+FL’ cost measure – in other words, taking a more populist approach, explains the research team at Nomura.

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“We believe this conclusion is unfounded. Mapping his statement to the various cost classifications, we find that it reaffirms that ‘A2+FL’ will be used as an input cost benchmark and not the comprehensive cost measure ‘C2’, which would have been significantly inflationary. However, even the use of ‘A2+FL’ will still mean a doubling of the kharif (summer) MSP in FY19, on our estimates, which is an upside risk to inflation. The government’s final decision on MSPs will be known in May/June.”