The Narendra Modi government announced increase in the minimum support price (MSP) for the 2025-26 wheat crop. The MSP was raised by Rs 160 to Rs 2,585 per quintal. This hike surpasses the Rs 150 per quintal increases of the previous two years. The decision has raised questions due to current market and production conditions.
Current Wheat Stock and Market Situation
Public wheat stocks stood at 33.3 million tonnes on 1 September, the highest in four years for this date. The 2024-25 wheat crop was strong, with official procurement exceeding 30 million tonnes for the first time since 2021. Retail wheat prices are lower than last year. Groundwater levels and reservoir storage are near full due to surplus monsoon rains. These factors indicate a likely bumper wheat crop in the 2025-26 season. Thus, there is neither a shortage in government stocks nor in the open market to justify a large MSP increase.
MSP and Production Cost Disparity
The Commission for Agricultural Costs & Prices (CACP) estimated the all-India average cost of wheat cultivation (“A2+FL”) at Rs 1,239 per quintal for 2025-26. The new MSP of Rs 2,585 is about 109% higher than this cost. This is more than double the minimum 50% margin rule used for MSP calculation. In contrast, other rabi crops have MSPs set with smaller margins over costs – safflower at 50%, barley and chana at 58-59%, masur at 89%, and mustard at 93%. Wheat farmers receive disproportionate benefits compared to pulses and oilseeds growers.
Policy Bias in Procurement and Trade
Wheat and paddy are procured by government agencies at MSP, unlike crops such as soyabean, chana, or millets. Import duties on wheat and rice range between 40% and 80%, while pulses attract 0-10%, and crude vegetable oils 16.5%. This protectionist stance supports wheat farmers but distorts market signals. The MSP formula is also intended to consider inter-crop price parity and global market trends, which the current wheat MSP disregards.
Global Price Mismatch and Farmer Income
The wheat MSP at Rs 2,585 per quintal equals over $290 per tonne. This is well above international wheat prices, which hover around $225-230 per tonne. The existing MSP system favours price support rather than addressing farmer income directly. Experts suggest direct income transfers per hectare as a better alternative. Farmers should ideally produce according to market demand, as seen in animal husbandry and horticulture sectors, rather than relying on guaranteed prices.
Implications for Agricultural Policy
The MSP hike may encourage overproduction of wheat, leading to inefficient resource use. It could also widen the income gap between wheat farmers and those growing other crops. The policy risks distorting cropping patterns and market dynamics. A more balanced approach would promote diversification and sustainable farming practices. Aligning MSP with production costs and market realities is essential for long-term agricultural stability.
Questions for UPSC:
- Point out the economic and social impacts of minimum support price (MSP) policies on Indian agriculture with suitable examples.
- Critically analyse the role of government procurement in stabilising agricultural markets and its limitations in India.
- Estimate the effects of import duties on agricultural commodities in India. How do they influence domestic production and trade?
- What is the significance of crop diversification in sustainable agriculture? How can policy reforms support it?
