POLITICAL HIKE

Magnitude of increase in minimum support prices for wheat cannot be justified by economic reasons alone

THE NARENDRA MODI government has hiked the minimum support price (MSP) of wheattobesowninthecoming2023-24rabiseasonbyrs150tors 2,275perquintal. That’sthehighestspikesincethesamelevelof increasesin thetwoconsecutivecropyearsof 2006-07and2007-08duringtheprevious 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 Sabhaelectionsandaheadofnextmonth’sstateassemblypolls, withwheatakeyrabicrop 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 overtheprospectsforthenewcrop, giventhatwaterlevelsinthecountry’smajorreservoirs are only 82.4 per cent of last year’s and 94.4 per cent of the 10-year average for this date. Moreover, astrengtheningelniño, whichisprojectedtocontinuethroughthewinterandspringtillmay, couldaffectrainfallduringtherabiseason. Winterrains, atleasta coupleofspells, providemoistureaswellashelpsustainlowtemperaturesthatthewheat 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 andcentralindia. Theydon'tneedanyspecialincentive, overandaboveassuredgovernment procurement, for growing it. Wheat accounts for almost half of the country's total area underall rabicrops. If acreagegoesupfurtherthis time, it willhardly becourtesyof ars150/quintalhigherpurchaseprice. Secondly, if tightsuppliesareaconcern, thegovernment can import. European Union export prices for wheat have fallen from $360 to below$250pertonneinthelastoneyear. Russianwheatisavailablecheaperat$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.