India raises crop prices as Modi woos farmers ahead of election

NEW DELHI, June 7 (Reuters) - India on Wednesday raised the government-mandated price for summer-sown crops such as rice and cotton by the most in five years as Prime Minister Narendra Modi looks to woo millions of farmers ahead of a general election next year.

The country announces support prices for more than a dozen crops each year to set a benchmark. But analysts say the bigger than usual hike could hit government finances and stoke inflation.

India has raised the price at which it will buy new-season common rice paddy from farmers by 7% to 2,183 rupees ($26.45) per 100 kg, trade minister Piyush Goyal told reporters after a cabinet meeting chaired by Modi.

The government is keen to boost rice output after it banned exports of broken rice in September and imposed a 20% tax on exports of various grades to calm domestic prices, which had surged after below-average rainfall limited planting.

This year, government sources told Reuters that the ban on broken rice exports and a 20% tax on overseas shipments of white rice would be maintained as the worlds biggest exporter of the grain tries to keep a lid on prices.

\“The hike in paddy prices would lift rice export prices by $30 per tonne. India might become uncompetitive in the world market unless government scraps 20% duty on exports,\” said B.V. Krishna Rao, president, Rice Exporters Association of India.

The government would be forced to buy much more paddy rice from farmers if exports slow down because of higher support prices, he said.

India competes with Thailand and Vietnam in the world market and already demand for white rice has been slowing due to the export duty, said Himanshu Agarwal, executive director at Satyam Balajee, Indias biggest rice exporter.

Every year authorities raise the support prices of staples such as rice and wheat to build stockpiles to run the worlds biggest food welfare programme, which entitles poor people to free grains.

But in the last four years New Delhi was forced to buy much more paddy rice from farmers than required for the welfare programme following record crops due to ample monsoon rains.

The government also raised the cotton purchase price by nearly 9% to 6,620 rupees per 100 kg, also the highest increase in five years.

New support prices of key crops in rupees per 100 kg

($1 = 82.52 rupees)