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The Narendra Modi government has hiked the minimum support price (MSP) of wheat to be sown in the coming 2023-24 rabi season by Rs 150 to Rs 2,275 per quintal. That’s the highest spike since the same level of increases in the two consecutive crop years of 2006-07 and 2007-08 during the previous United Progressive Alliance (UPA) regime. The latest procurement price raise has both a political and economic dimension. Politically, this is the last one before the 2024 Lok Sabha elections and ahead of next month’s state assembly polls, with wheat a key rabi crop in Madhya Pradesh and Rajasthan. Cumulatively, the Modi government’s MSP increase of Rs 875/quintal for wheat over 10 years works out more than the Rs 770 during the UPA’s tenure, and so is the case of common paddy (Rs 873 versus Rs 760/quintal).
As far as economics goes, the current MSP rise has been largely prompted by wheat stocks in government warehouses, at 239.95 lakh tonnes (lt) on October 1, hovering just over the required normative minimum of 205.2 lt for this date. There are also worries over the prospects for the new crop, given that water levels in the country’s major reservoirs are only 82.4 per cent of last year’s and 94.4 per cent of the 10-year average for this date. Moreover, a strengthening El Niño, which is projected to continue through the winter and spring till May, could affect rainfall during the rabi season. Winter rains, at least a couple of spells, provide moisture as well as help sustain low temperatures that the wheat crop requires. The Modi government obviously wants to take no chances in an overall tight supply situation, especially in the run-up to national elections.
But that does not justify the magnitude of MSP hike granted, for two reasons. First, wheat is a default crop option for farmers with access to irrigation in much of northern and central India. They don’t need any special incentive, over and above assured government procurement, for growing it. Wheat accounts for almost half of the country’s total area under all rabi crops. If acreage goes up further this time, it will hardly be courtesy of a Rs 150/quintal higher purchase price. Secondly, if tight supplies are a concern, the government can import. European Union export prices for wheat have fallen from $360 to below $250 per tonne in the last one year. Russian wheat is available cheaper at $230-235 per tonne. Even after adding ocean freight, insurance and other costs, imports would be viable, at least on government account, for building its own stocks. On balance, the MSP decision has been forced more by political than economic considerations.
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