The recent increase in the Minimum Support Price (MSP) for wheat by the government raises concerns and doubts about its implications for India’s agricultural competitiveness and inflation.
Minimum Support Price
- MSP is a form of market intervention by the Government of India to insulate agricultural producers against sharp declines in farm prices.
- They are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
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- New MSP Announcement: The government has set the MSP for the 2024-25 wheat crop at ₹2,425 per quintal, marking a ₹150 increase from the previous year’s ₹2,275 per quintal.
- Rationale for Increase: The primary justification cited for this hike is the current wheat stocks in public godowns, which stand at 23.78 million tonnes (mt), slightly above the minimum required level of 20.52 mt. This stock level is the lowest for this time of year since 2008, excluding 2022.
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Concerns with MSP Hike
- Global Competitiveness: The new MSP may make Indian wheat uncompetitive internationally, as Russian wheat is exported at around $240 per tonne, which is lower than the Indian MSP.
- Rice Stocks Contrast: In contrast, rice stocks are at a record high of 38.68 million tonnes. Since both wheat and rice are distributed through the public distribution system, low wheat stocks alone do not justify the MSP increase.
- Domestic Inflation: Higher MSPs can contribute to rising food prices, impacting consumers and increasing domestic inflation.
- Market Discrepancy: Despite record wheat production and an export ban aimed at stabilising prices, wholesale prices remain high due to inefficiencies in supply chains, regional disparities, and broader economic factors.
- Neglecting Structural Issues: Focusing on MSP diverts attention from critical issues like improving crop yields, reducing cultivation costs, addressing regional disparities, and ensuring market access for poor farmers.
- Sustainable income growth requires investment in agricultural practices, not just price increases.
Way Ahead
- Need for Investment: While raising MSPs for pulses and oilseeds can encourage farmers to expand cultivation, it is essential to invest in agricultural research and practices that enhance yields, nutrient use efficiency, heat tolerance, and pest resistance.
- Practising Alternative Approaches: Encouraging practices like horticulture and aquaculture can lead to better growth rates.
- Strengthen Market Infrastructure: Invest in better storage facilities and transport systems to reduce wastage and improve access to markets for farmers.
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Conclusion
Thus, MSP increase may offer short-term relief, it won’t be enough to address the structural and long-term challenges facing India’s agricultural system. A strategic shift toward improving agricultural productivity and sustainability is essential for the future of Indian farming.
October 19, 2024
