Prime Minster Narendra Modi's pre-election gambit to sharply hike state-mandated prices for summer crops, including rice, may mean little to millions of farmers, as the government lacks the storage and funds needed to buy most of the produce.

The median increase in the so called minimum support prices [MSPs] approved by the government just this last Wednesday was 25-percent, compared with 3-4 percent in the first four years in office for Modi -

Whose bid for a second term next year is expected to be much tougher than than the landslide victory in 2014.

The government announces  MSPs for most crops to set a benchmark, but state agencies mainly buy limited quantities of staples such as rice and wheat at those prices, restricting benefits of higher prices to only around 7 percent of the country's 263 million farmers, according to various studies.

Implementing the scheme in full would be expensive, economists say.  The government's fiscal deficit target for the current financial year, at 3.3 percent of  GDP, is already under pressure due to high oil prices.

"With funding under stress, the government can't widen the scope of agri purchases," said Sanjay Mookim. India equity strategist at Bank of America Merril Lynch. And even if it does, there is no storage available you can't build storage in two or three months."

The ministries of agriculture and food did not respond for comment.

The government said its limited purchases could cost it 150 billion rupees [$2.18 billion] this year,  although industry officials say it is difficult to estimate actual spending, which depends on the  quantity procured.

MSPs typically dictate crops that most farmers opt for, often leading a glut of certain commodities, millions of tonnes of which have to be sold into a depressed local market at well below the cost of production, sparking angry farmer protests across the country.

The honor and serving of that latest Operational Research on Farming and Farmers continues to Part 2.


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