The Union Cabinet approved the hike on the minimum support price (MSP) for paddy by a steep Rs 200 per quintal. Headed by Prime Minister Narendra Modi, the cabinet looked to fulfill its poll promise of giving farmers 50 percent more than the cost of production of crops.

The decision comes less than a year before next general election. In 2014, the BJP had promised to give farmers 1.5 times the cost. It was brought into effect in the government's fifth and final annual Budget presented on February 1 this year.

The MSPs of 14 Kharif (summer-sown) crops were approved by the Cabinet Committee on Economic Affairs (CCEA) in its meeting on Wednesday. PTI reported citing sources that the MSP of paddy (common grade) was increased by Rs 200 to Rs 1,750 per quintal, while that of Grade A variety by Rs 160 per quintal to Rs 1,750. The MSP of paddy (common) was Rs 1,550 per quintal and Rs 1,590 per quintal for paddy (grade A) variety. The MSP of cotton (medium staple) has been increased to Rs 5,150 from Rs 4,020 and that of cotton (long staple) to Rs 5,450 from 4,320 per quintal. In pulses, tur MSP has been raised to Rs 5,675 per quintal from Rs 5,450, and that of moong to Rs 6,975 per quintal from Rs 5,575. Urad MSP has been hiked to Rs 5,600 from Rs 5,400 per quintal.

The new hike in paddy's MSP would increase the country's food subsidy bill by over Rs 11,000 crore taking procurement figures of the 2016-17 marketing year (October-September).

MSP is the rate at which the Food Corporation of India (FCI) buys supply from Indian farmers to distribute under the food security act. Paddy is the main Kharif crop and its sowing season has already begun with the onset of southwest monsoon.

It is estimated that India has harvested a record production of food grains at 279.51 million tonnes in the 2017-18 crop year (July-June) on the all-time high output of rice, wheat, coarse cereals, and pulses.

A higher MSP coupled with normal monsoon (as per forecasts), food grain output could boost further and could also fuel food inflation.