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* The government approved the increase in the Minimum Support Prices (MSPs) of all mandated Rabi crops for the marketing season 2023-24 on 18th Oct’22. The production-weighted average MSP hike of all the six crops stood at 6.4% YoY in FY23, the highest in four years.

* “The increase in MSP for Rabi crops for Marketing Season 2023-24 is in line with the Union Budget 2018-19 announcement of fixing the MSP at a level of at least 1.5 times of the All-India weighted average Cost of Production, aiming at reasonably fair remuneration for the farmers,” stated the government release. The government calculates cost as a function of cost of cultivation plus the value of family labor (A2 + FL).

* The highest absolute MSP increase in FY23 over previous year has been approved for lentil (Masur) at INR500/ quintal followed by rapeseed and mustard at INR400/quintal each. The MSP of wheat, which accounts for 82% (FY18-22 average) of total Rabi crop production, has been raised by INR110/quintal, the highest in five years.

* Overall, farmers’ terms of trade have not been favorable in FY23 as output prices grew only 12% YoY while input prices rose sharply by 28% YoY. The higher MSP for Rabi crops produced this year might improve the terms of trade to some extent though. However, these crops account for only 1.6% weight in WPI basket, of which wheat holds 1% weight and the MSP increase in wheat is the highest in the past five years. This might have some minor inflationary impact (as wheat constitutes only 1% weight in WPI).

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