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India raised the price at which it buys locally produced new-season wheat by 150 rupees or 7% to encourage farmers to expand the growing area as New Delhi tries to increase production.

India, the world's second biggest wheat producer, sets a price each year to protect domestic farmers from distress sales and stock grain for emergency needs. It also uses grain to sell food to the poor at low prices.

The revised purchase price of 2,275 rupees ($27.33) per 100 kg for 2024 compares with 2,125 rupees a year ago, Federal Information and Broadcasting minister Anurag Thakur told reporters on Wednesday.

"The 7% increase is decent for encouraging farmers to expand their areas, but the government should have raised prices further to align with market prices, which are significantly higher than the government price," said a Mumbai-based trader.

In key producing markets the wheat price was above 2,600 rupees on Wednesday, an eight-month high, propelled by strong demand for big festivals, limited supplies and as import duty makes overseas buying unfeasible for domestic flour mills.

The government estimates wheat output jumped to a record 112.74 million metric tons in 2023, but a leading trade body said the harvest was at least 10% lower than the farm ministry's estimate.

As of Oct. 1, wheat stocks in government warehouses stood at 24 million metric tons, sharply down compared with a five-year average of 37.6 million tons.