Minimum Support Price (MSP) in India is a Support System for Farmers. Agriculture is the backbone of the Indian economy, providing employment to more than half of the country’s population. However, farmers in India face various challenges like unpredictable weather conditions, lack of modern technology, inadequate infrastructure, and a volatile market. To protect the farmers from the risk of price volatility and ensure a fair price for their produce, the Indian government introduced the Minimum Support Price (MSP) system.
Table of Contents
What is MSP?
MSP is a price support mechanism used by the government to support farmers by offering them a guaranteed minimum price for their crops to safeguard against any sharp fall in farm prices. The MSP system was introduced in the 1960s as a part of the Green Revolution to ensure food security and support farmers. The MSP is announced by the government before the sowing season for various crops like wheat, rice, pulses, oilseeds, and cotton.
How is MSP determined?
The MSP is determined by the government-appointed Commission for Agricultural Costs and Prices (CACP) based on various factors such as the cost of production, market demand and supply, inflation, and international prices. The MSP is calculated to cover the cost of production, ensure a reasonable profit to farmers, and provide a fair price to consumers.
Benefits of MSP
- Price Stability: MSP ensures a stable income to farmers by protecting them from price volatility in the market. Farmers can plan their production and investment based on the MSP announced by the government.
- Food Security: MSP encourages farmers to produce more food crops like wheat and rice, which are essential for food security in India. The MSP system ensures that farmers get a fair price for their produce, which motivates them to continue farming.
- Rural Development: MSP has a positive impact on rural development as it generates employment opportunities, increases the income of farmers, and enhances rural infrastructure.
- Inflation Control: MSP helps to control inflation as it ensures that the prices of essential commodities like food grains remain stable. This, in turn, benefits consumers as they get a fair price for their purchase.
Methods of MSP calculation
There are different methods of calculating the Minimum Support Price (MSP) in India. Some of these methods are:
- Cost of Production (A2+FL): Under this method, the MSP is determined by taking into account the total cost of production, which includes actual expenses on seeds, fertilizers, pesticides, hired labour, irrigation, and other inputs. The MSP is calculated to ensure that farmers get a minimum profit margin of 50% over the cost of production.
- Comprehensive Cost (C2): This method takes into account the actual cost of production, imputed rent and interest on owned land and fixed capital, and the value of family labour. The MSP is fixed to ensure that farmers get a minimum profit margin of 50% over the comprehensive cost of production.
- Market Price Approach: This method takes into account the prevailing market prices of the commodity, both in domestic and international markets. The MSP is fixed at a level that is higher than the prevailing market price to incentivize farmers to produce more.
- Price Policy: This method takes into account the overall price policy of the government, which aims to balance the interests of producers and consumers. The MSP is fixed in a way that ensures a fair price to farmers and reasonable prices to consumers.
- Commission for Agricultural Costs and Prices (CACP) Recommendations: The CACP, which is a statutory body of the government, makes recommendations on the MSP for various crops based on various factors such as cost of production, market demand and supply, inflation, and international prices. The government considers the recommendations of the CACP before fixing the MSP.
Overall, the calculation of MSP is a complex process that takes into account various factors. The government needs to ensure that the MSP mechanism is transparent, efficient, and fair to farmers to ensure that they get a fair price for their produce.
The Commission for Agricultural Costs and Prices (CACP) is a statutory body that advises the government on the pricing policy of agricultural commodities, including the Minimum Support Price (MSP). The CACP was established in 1965, and it makes recommendations on the MSP for various crops before each sowing season.
The CACP considers various factors before making its recommendations, including the cost of production, market demand and supply, domestic and international prices, inflation, and other relevant factors. The CACP also takes into account the government’s objective of providing remunerative prices to farmers while keeping in mind the interests of consumers.
Once the CACP makes its recommendations, the government considers these recommendations before announcing the MSP for various crops. The government usually announces the MSP before the sowing season to provide farmers with the assurance of a minimum price for their crops.
The MSP is an important policy measure for ensuring food security in India. It provides a minimum price to farmers for their produce, which acts as a safety net and ensures that farmers are not forced to sell their crops at distress prices. The MSP also encourages farmers to produce more, which helps in achieving self-sufficiency in food grains.
However, there are some concerns with the MSP mechanism, such as the distortion of market prices, lack of procurement infrastructure, and insufficient storage facilities. The government needs to address these concerns to ensure that the MSP mechanism remains effective in achieving its objectives.
The Commission for Agricultural Costs and Prices (CACP) uses various methods to calculate the Minimum Support Price (MSP) for crops in India. The methods include:
- Cost of Production: The CACP calculates the cost of production of crops based on factors such as labor, seeds, fertilizers, irrigation, and other inputs. The MSP is then fixed at a level that ensures a profit of at least 50% over the cost of production.
- Demand and Supply: The CACP also takes into account the demand and supply situation for crops in the market while fixing the MSP. If the demand for a particular crop is high and the supply is low, the MSP for that crop is likely to be higher.
- Inter-crop Price Parity: The CACP also takes into account the price of other crops while fixing the MSP for a particular crop. This is done to ensure that farmers do not switch to other crops that offer better returns.
- International Prices: In the case of crops that have a significant export market, the CACP takes into account the international prices while fixing the MSP.
Overall, the CACP uses a combination of these methods to arrive at the MSP for different crops. The MSP varies for different crops and regions of the country, depending on factors such as production cost, market demand and supply, and international prices.
In India, the Minimum Support Price (MSP) is recommended by the Commission for Agricultural Costs and Prices (CACP), an autonomous body under the Ministry of Agriculture and Farmers’ Welfare. The CACP recommends the MSP for various crops based on the cost of production, market demand and supply, domestic and international prices, inflation, and other relevant factors.
Once the CACP makes its recommendations, the Cabinet Committee on Economic Affairs (CCEA) approves the MSP for various crops. The CCEA is a high-level committee that comprises senior ministers of the government and is responsible for taking decisions on matters related to the country’s economic policies.
After the CCEA approves the MSP, the government announces the MSP for various crops before the sowing season. The MSP provides farmers with the assurance of a minimum price for their crops, which acts as a safety net and ensures that farmers are not forced to sell their crops at distress prices.
Here is a table of the Minimum Support Price (MSP) for some of the major crops in India for the year 2021-22:
| Crop | MSP (Rs/quintal) |
|---|---|
| Paddy (Common) | 1,940 |
| Paddy (Grade A) | 1,960 |
| Wheat | 1,975 |
| Jowar (Hybrid) | 2,640 |
| Bajra | 2,150 |
| Maize | 1,850 |
| Ragi | 3,377 |
| Arhar (Tur) | 6,000 |
| Moong | 7,196 |
| Urad | 6,000 |
| Groundnut | 5,550 |
| Soybean | 3,950 |
| Sesamum | 7,307 |
| Sunflower Seed | 6,015 |
| Nigerseed | 7,540 |
| Cotton (Medium Staple) | 5,726 |
| Cotton (Long Staple) | 6,025 |
Note: The MSP varies for different grades and regions of the country. The table provides only the MSP for the common grades of the crops. The MSP for other crops and grades can be obtained from the official website of the Commission for Agricultural Costs and Prices (CACP).
The Minimum Support Price (MSP) is announced by the Government of India for certain crops to ensure a fair price for farmers’ produce. However, there are several agricultural products that are not covered under the MSP scheme. Some of them are:
- Fruits and Vegetables: Fruits and vegetables are perishable commodities, and their prices are determined by supply and demand in the market. Hence, they are not covered under the MSP.
- Spices: Most spices are not covered under the MSP. Only a few spices like turmeric, ginger, and copra are covered under the MSP scheme.
- Floriculture: Flowers are also perishable commodities, and their prices are determined by market demand. Hence, they are not covered under the MSP scheme.
- Animal Husbandry Products: Animal husbandry products such as milk, eggs, and meat are not covered under the MSP scheme.
- Fisheries: Fish and other aquatic products are not covered under the MSP scheme.
It is important to note that the government has various schemes and programs to support farmers in the production and marketing of these products. These schemes include the National Horticulture Mission, National Livestock Mission, and the Blue Revolution scheme for fisheries, among others.
Conclusion
The Minimum Support Price (MSP) system is an essential support system for farmers in India. It provides a safety net to farmers by ensuring a fair price for their produce and protects them from the risk of price volatility in the market. The MSP system helps to ensure food security, rural development, and inflation control. However, the MSP system needs to be strengthened to provide better benefits to farmers, and the government needs to work towards creating a more efficient and transparent MSP mechanism.