Low increase in wheat MSP makes economic sense. Major reform await their political moment

Political compulsions — assembly polls are due in Uttar Pradesh and Punjab — may rule out any major reform of the current MSP procurement regime.

ARs 40 increase in the minimum support price (MSP) of wheat, to Rs 2,015 per quintal, is the lowest since the Rs 20 hike for the 2009-10 crop. From a purely economic standpoint, this makes sense. At 56.48 million tonnes (mt) as on August 1, public wheat stocks stood way above the 51.33 mt, 43.59 mt, 40.86 mt and 30.06 mt for the same date of the preceding four years. Together with 44.46 mt of rice, it adds up to almost 101 mt of stocks — this, after the record quantum of free/near-free grain distributed under the post-Covid relief package. Simply put, there’s too much wheat and rice in government godowns today. Economic logic dictates that the government should freeze, if not reduce, the MSPs of both cereals and also cap the total quantity procured — ideally, to half of the 103 mt-plus (60 mt rice and 43 mt wheat) bought from last year’s crop.

But political compulsions — assembly polls are due in Uttar Pradesh and Punjab — may rule out any major reform of the current MSP procurement regime, which incentivises production of crops already in surplus and also requiring more water than those (oilseeds and pulses) that the country significantly imports. One shouldn’t rule out the so-called state advised price (SAP) of sugarcane in UP, too, being substantially raised ahead of the new crushing season from October. Given that the Congress government in Punjab has only recently revised its SAP upwards, from Rs 295-310 to Rs 345-360 per quintal, it is unlikely that the Yogi Adityanath-led BJP administration in UP won’t follow suit. Both UP and Punjab had, interestingly, frozen their cane SAPs, after having last increased them by a paltry Rs 10/quintal (to Rs 315-325 and Rs 295-310, respectively) in the 2017-18 season. Now, with state elections hardly five months away, it would be too much to expect any rational pricing policies discouraging cultivation of surplus, water-guzzling crops that also militate against dietary diversification; the poor need to consume foods richer in proteins and micronutrients rather than mere carbohydrates and sugar.

The much-delayed yet necessary reforms in Indian agriculture — moving away from input and crop MSP subsidies to per-acre/per-farmer transfers, focusing on production cost reductions and investing more in public farm R&D and infrastructure — are well known. The Narendra Modi government’s farm laws — which seek to end the monopoly of state-regulated agricultural markets, allow private players to contract directly with farmers and remove stocking limits on produce — are, no doubt, well-intended. But whether in expending too much political capital on these laws, it has boxed itself into a corner with regard to undertaking the more substantial reforms remains to be seen. For now, at least, that seems to be the case.

This editorial first appeared in the print edition on September 10, 2021 under the title ‘Waiting for change’.

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