India raises crop prices as Modi tries to win over farmers

By Rajendra Jadhav and Mayank Bhardwaj

MUMBAI/NEW DELHI (Reuters) - India on Wednesday raised the government-mandated price for summer-sown crops such as rice, soybean and cotton as Prime Minister Narendra Modi looks to woo millions of farmers ahead of key state elections later this year.

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

India has raised the price at which it will buy new-season common rice paddy from farmers by 5.4% to 2,300 rupees ($27.57) per 100 kg, the information minister Ashwini Vaishnaw said on Wednesday after a cabinet meeting chaired by Modi.

Higher prices will encourage farmers to boost output in the world's second-biggest rice producer, and bountiful harvests could encourage the government to relax a ban on some exports. India is the world's biggest exporter of rice.

The paddy buying price has been raised to reflect the rising cost of production, which will encourage farmers to boost production, said B.V. Krishna Rao, president of the Rice Exporters Association of India.

"However, this will also make Indian rice more expensive for overseas buyers. To mitigate this, the government should reduce the export duty from 20% to 15%," Rao said.

India has imposed a 20% duty on exports of parboiled rice after banning shipments of white rice last year.

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

Modi's Bharatiya Janata Party (BJP) failed to secure a majority on its own in the recently held general elections, losing more than six dozen seats in rural areas.

The BJP faces provincial elections later this year in two key agricultural states, Haryana and Maharashtra, which have strong farm lobbies.

New support prices of key crops in rupees per 100 kg

Crop New support price Old support price

Rice 2300 2183

Cotton 7121 6620

Soybean 4892 4600

Corn 2225 2090

Ground nut 6783 6377

Pigeon peas 7550 7000

($1 = 83.4101 Indian rupees)

(Reporting by Rajendra Jadhav and Mayank Bhardwaj; Editing by David Goodman and Leslie Adler)