Opinion The MSP card: Hike announced is just right to induce farmers to sow wheat

The Narendra Modi government has raised the minimum support price (MSP) of the 2022-23 wheat crop by Rs 110 to Rs 2,125 per quintal. This increase is more than the Rs 40 and Rs 50/quintal hikes of the preceding two years, but justifiable for three reasons. The first is that public wheat stocks, at 22.75 million tonnes (mt) as on October 1, are only below last year’s 46.85 mt, but close to the 20.52 mt required buffer for this date. Farmers, therefore, need to be paid enough for refilling the Food Corporation of India’s warehouses. Second, benchmark prices of wheat at the Chicago Board of Trade exchange, at about $312 per tonne now, are 13.3 per cent higher than a year ago. Third, the rupee has fallen 9.7 per cent against the dollar during this period, further widening the wedge between domestic and global prices. The cheapest wheat from Russia will cost Rs 30/kg-plus at Indian ports today.

Simply put, the MSP increase announced is neither too much nor too little. It’s just right to induce farmers to sow wheat in the coming weeks. They will also be encouraged by the extended monsoon rains, which have recharged aquifers and ensured that current water levels in major reservoirs are 8.6 per cent higher than last year and 117.3 per cent of the 10-year average for this time. The combination of remunerative prices and excellent soil moisture conditions should also help boost acreages under rapeseed-mustard, whose MSP has been hiked by a record Rs 400 (to Rs 5,450 per quintal) for a second successive year. It makes sense, especially given India’s edible oil imports of $19 billion in 2021-22, likely to top $22 billion this fiscal. However, the MSP of chana (chickpea) has gone up by a mere Rs 105 to Rs 5,335 per quintal. And with open market prices ruling at Rs 4,200-4,300, farmers have no real incentive to plant chana or other pulses where government procurement is also limited.

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The government should use MSP as a signaling tool for farmers to grow crops based on both market dynamics as well as resource use efficiency and environmental sustainability. The MSP-based procurement regime has done the opposite — promoting water-intensive crops (specifically rice, sugarcane and wheat) prone to surplus production. MSP, by definition, is supposed to be a “minimum” price that recovers the basic cultivation cost of a crop. Any price over and above has to be based on supply and demand. This is a rare year where wheat and possibly rice supplies are under pressure, which justifies more than normal procurement price increases for them. By the same token, farmers should be prepared for lower increases or even MSP freezes down the line.