The 5.5 per cent increase for wheat is the highest since the pandemic. This could be to increase the amount of wheat held in the central pool, according to a note by rating agency CRISIL. The October 2022 level of 22.75 million tonnes is 51.5 per cent lower than in October 2021. The MSP has been rising for other crops such as paddy as well, where the increase earlier announced was also the highest since 2018-19 (see charts 1, 2).
The government’s procurement of both rice and wheat has been going up over time. Wheat procurement was at a record high after the last rabi season. The procurement of paddy had also hit its figure ever, though this was in 2020-21. The 2021-22 season saw a slight decline from this record level (chart 3).
The government’s decisions on MSP are often said to be driven also with an eye on food inflation. The MSP increase is lower than the increase in cost of production for barley, wheat and gram. It is higher than the increase in cost of production for safflower, lentils (masoor) as well as rapeseed and mustard. Lentils saw the largest percentage MSP increase (chart 4, 5).
The correlation between MSP increase and food inflation has been declining, according to a June 2022 Nomura report. Global prices remain a key driver.
There has been some moderation in food prices since June (chart 6), according to the Food and Agriculture Organization data. International cereal prices have declined, though some segments like wheat, according to the organisation, remain affected by Ukraine uncertainty.
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