Know all about Minimum Support Price-MSP

By Aman|Updated : July 11th, 2021

Recently, farmers across country have been agitating and protesting against the central Government there basic demand is to increase the MSP-Minimum support price. Read this article to know all about it.

Know all about Minimum Support Price-MSP


  • Recently, farmers across country have been agitating and protesting against the central Government there basic demand is to increase the MSP-Minimum support price and the Government has recently hiked to a new low that is the Minimum support price for 6 crops which includes major pulses its price is to be increased by 350-450 per quintal and that of paddy by 80 per quintal. byjusexamprep

Source: Indian Express

What is MSP?

  • Minimum support price (MSP) is a “minimum price” for any crop that the government considers as remunerative or which the government wanted to promote for farmers and hence consider it as deserving of “support”. It is also called the price that government agencies pay whenever they procure the particular crop.
  • The Centre government currently fixes MSPs for 23 farm commodities — 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley), 5 pulses (chana, arhar/tur, urad, moong and masoor), 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and niger seed) and 4 commercial crops (cotton, sugarcane, copra and raw jute).

MSP Timeline?

  • On the eve of Independence, India was staring at a major deficit in terms of cereal production. After struggling for the first 10 years, India decided to go for extensive agricultural reforms throughout the nation. It was the 1st time in the year 1966-67 that the MSP-Minimum Support Price was bought by the Centre. At 54 rupees per quintal, the MSP for wheat was fixed for the first time in history.
  • On the path of the Green Revolution, Indian policymakers realised that the farmers needed incentives to grow food crops. Otherwise, they won’t opt for crops such as wheat and paddy as they were labour-intensive and didn’t fetch lucrative prices. Hence, to incentivise the farmers and boost production, the MSP was introduced in the 1960s.

 Determinants Of MSP

  • While recommending price policy of various commodities under its mandate, the Commission keeps in mind the various Terms of Reference (ToR) given to CACP in 2009. Accordingly, it analyzes
  1. demand and supply;
  2. cost of production;
  3. price trends in the market, both domestic and international;
  4. inter-crop price parity;
  5. terms of trade between agriculture and non-agriculture;
  6. a minimum of 50 percent as the margin over cost of production; and
  7. likely implications of MSP on consumers of that product.
  • It may be noted that cost of production is an important factor that goes as an input in determination of MSP, but it is certainly not the only factor that determines MSP.


CACP Role:

  • In India, there are 2 major cropping seasons,
  1. Rabi
  2. Kharif
  • Central government announces the MSP at the start of each cropping season in the country.
  • The MSP is determined after the government exhaustively studies the major points made by the CACP-Commission for Agricultural Costs and Prices-Agriculture Ministry.
  • These recommendations are based on some pre-fixed formulae. This includes the actual cost incurred, implicit family labour as well as the sort of fixed assets or rent paid by the farmers.
  • In technical terms, these variables are called A2, FL and C2. The MSP is calculated by the government by often adding all these. 

Swaminathan Committee Report

  • Government fixes the Minimum Support Prices (MSPs) of various agricultural crops on the recommendations of the Commission for Agricultural Costs & Prices (CACP), after ascertaining the views of State Governments and Central Ministries/ Departments concerned. While recommending MSPs, CACP considers the cost of production and host of factors such as demand-supply situation, trends in domestic and international prices, inter-crop price parity, terms of trade between agricultural and non-agricultural sectors and the likely impact of MSP on consumers and overall economy along with rational utilization of scarce natural resources like land and water.
  • National Commission on Farmers headed by Dr. M. S. Swaminathan submitted its report in 2006. One of the recommendations of the Commission was that MSP should be at least 50 percent more than the weighted average cost of production. This recommendation was not incorporated in the National policy for Farmers 2007.
  • However, recently the Government has increased the MSP for all Kharif and Rabi crops and other commercial crops for the season 2018-19 with a return of at least 50 percent over cost of production, which was a historic decision by the Government.

Minimum Support Price related challenge:

  • The farmers wanted to Protect MSPs, or minimum support prices, which according to them can be damaged by the new laws. Actually MSP are the pre-defined prices at which the Central government purchases the extra produce from farmers.
  • These prices may differ from market rates, and are declared for 23 crops at the beginning of each sowing season.
  • The Centre government only purchases paddy, wheat and selected pulses in large quantities, statistically only 6% of farmers in the country actually sell their produce at MSP Rates.
  • According to Shanta Kumar Committee’s report, 2015 that was published using NSSO data, reveals that No law can directly cross check upon the MSP system.
  • However, most of the government procurement centres in States are located within the notified APMC mandis that itself is an issue.
  • Farmers always fear that by promoting tax-free private trade of agri-produce outside the APMC mandis will make these mandies of no use, which could lead to a reduction in government procurement itself in future.
  • Farmers are also demanding that MSPs should be made universal, within mandis and outside, so that all buyers either government or private will have to use these rates as a floor price below which sales cannot be made.
  • Some States have already invested a lot in the APMC system, with a strong mandi network, a well-oiled system of arthiyas or commission agents facilitating procurement, and link roads connecting most villages to the notified markets and allowing farmers to easily bring their produce for procurement.

 Some other Related Issues to MSP?

  • Agriculture is considered in the subject of the State list. It has risen One other major concern is that it is questionable in the sense that the Centre government should not make law on this subject at all, it will also affect the federal structure of the country.
  • The states are also having issues about their loss of revenue from mandi taxes and fees which in particular states lead to huge loss to exchequer.
  • Some economists and activists say both states like Punjab and Rajasthan are considering legal measures to expand the bounds of their APMC mandi premises to ensure that they can continue to collect tax on all agricultural trade within their State’s border areas.
  • Some newborn States have set up all new infra for APMC mandies, which all will go in vain after the implementation of this decentralised procurement system.


    • More scientific approach is required for agriculture and allocation of a higher budget should be made mandatory in research to boost production and productivity per hectare land.
    • NITI Aayog has already declared to announce MSP well ahead of the sowing season in the country.
    • MSP must be fixed for the current costs instead of fixing it on the historical costs basis.
    • The whole process of procurement must be changed and the procedures made should focus more on local procurement especially at the panchayat level should be promoted. Use of advanced warehousing infrastructure like modernised storage facilities, weighing bridges etc. to extend shelf life and prevent rotting of grains should be kept in the ambit of panchayats only.
    • Shanta Kumar committee recommendations related to the overhaul of FCI-Food corporation of India must be implemented throughout the country and the suggestions made by the National Commission of farmers under MS Swaminathan in 2007 to fix the MSP at cost of production + 50% so as to have a definitive roadmap for fiscal expenses and better remunerative output for farmers rather than adopting temporary methods.
    • Farmers must be educated in terms so that they can understand the benefits of crop diversification so they can produce more pulses to ensure nutritional security and prevent supply-side shocks.

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Upsc Topper

Upsc TopperJun 15, 2021

This is good article sir, please write on agriculture subsidy also.

AmichandJul 11, 2021

I am Rekha Swami I believe you IAS officer UPSC topper I am leave you I am Rekha Swami thank you
Rambha Kumari
Sir can u please provide me article in Hindi pls sir ..
Sunny Malik

Sunny MalikJul 12, 2021

Hindi m nhi h kya ye
Akarsh To

Akarsh ToJul 12, 2021

Sir I like your all posts but when it's not in Hindi it's irritated me most. I hope you understand
Shabbu Shiddiqui
Sir Hindi me posts kijiye na sir plzzz

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