The Cabinet Committee on Economic Affairs (CCEA) recently approved the Minimum Support Prices (MSPs) for six Rabi crops, namely wheat, barley, gram, lentil (masur), rapeseed and mustard, and safflower for the Rabi marketing season (RMS) 2025-26.
The government claimed that the increase in MSPs for mandated Rabi crops for RMS 2025-26 falls in line with the Budget 2018-19 announcement for fixing the MSP at the level of at least 1.5 times the All-India weighted average cost of production (₹ per quintal). This follows the recommendations of the Swaminathan Committee.
Is the government claim of MSP hike for Rabi crops justified? What is the basis of estimating all-India weighted average cost of production for Rabi crops? What is the base year used for weighted average cost of production for mandated rabi crops?
Does weighted average cost of production consider climate related financial risks and inflation-adjusted paid-out costs that are accounted for MSP calculation?
A different method
According to the PIB release on Rabi MSPs, the expected margin between announced MSPs over all-India weighted average cost of production stands at 105.16 per cent and 97.61 per cent for rapeseed and mustard, 89.42 per cent for lentil, 60.19 per cent for gram, 59.80 per cent for barley, and 50 per cent for safflower.
This calculation points to underestimation of weighted average cost of production.
This is attributed to limited assumptions, such as lack of climate-risk induced cost of production and indexation of paid-out costs like agri inputs, land rent, labour wages, etc.
It is worth noting that the major components of cost of production for comprehensive cost-driven MSP are labour costs, imputed value of family labour and rent on leased land.
For example, labour costs and land rent for MSP-covered Rabi crops account for 70.38 per cent (wheat), 71.62 per cent (barley), 61.06 per cent (gram), 68.08 per cent (lentil), and 74.94 per cent (rapeseed & mustard).
So, CPI-adjusted wages for agricultural workers and agricultural land valuation against a base year need to be used that could vary State-wise.
Need for a relook
The methodology needs to be reexamined, as it does not fully include the above mentioned factors.
Therefore, if these factors are included, the margin between the MSP and average cost of production looks different.
The average costs of production (in quintals per hectare) is computed as a ratio of average costs of cultivation per hectare (incorporating actuarial premium rates and indexation of paid-out costs to arrive at a realistic estimate) to average crop yields per hectare in quintals.
Average yields of crops are taken from States’ agriculture departments.
In table 1 wheat, barley, gram, lentil, and rapeseed-mustard cost of cultivation data are used from Uttar Pradesh, Madhya Pradesh, and Rajasthan’s State-level Technical Committee’s published Scale of Finance for 2020-21 to 2024-25.
Direct estimation of weighted average COP is often infeasible.
Table 1 points to what the costs actually are. Except for rapeseed and mustard, MSPs for barley, gram, and lentil should be increased to ₹4,587, ₹11,602, and ₹7.912 per quintal, respectively (table 2).
The estimated costs of production for Rabi crops are multiplied with 1.5 per the Swaminathan Committee’s recommendation.
Third, the MSPs CAGR for Rabi crops hover around 3-6 per cent from 2019-20 to 2025-26.
This is a nominal increase which could be negative in real terms.
The writer teaches at IIM Lucknow. Views expressed are personal