Minimum Support Price (MSPs)

By Hemant Kumar|Updated : December 7th, 2019


  • Before the 1960s, India was dependent on imports of food grains due to low production. However, after 1960, India uses high yielding crops and modern farming technology during the green revolution and production of food grains increases drastically.
  • Due to this sharp increase in production, the supply of food grains in the market increases drastically. However, the demand did not increase accordingly, and hence prices of food grains dropped sharply. 
  • In this situation, the farmers were not able to get even their input cost of production, and this creates a distress situation in the farmers. To handle this situation, the government came with a policy of minimum support price (MSP). 
  • Minimum Support Price (MSP) is the lowest price set by the government of India for certain agricultural products, at which the farmers can sell their products to the government directly.
  • It is a form of market intervention by the government to ensure minimum remuneration to the farmers for certain agricultural products against any sharp fall in farm prices. 
  • It is announced at the beginning of the sowing season by the government of India. 

Major objectives of MSP

  • To support the farmers' interest from distress sale. 
  • To procure food grains for the public distribution system.
  • To provide stability in agriculture production. 
  • MSP may impact the market prices to some extent; however, MSP policy of the government does not aim to influence the market price of the crops.

Method of fixation of MSP

  • The Commission for Agricultural Costs and Prices, under the Ministry of Agriculture and Farmers Welfare, estimates the MSP in the country.
  • As per the formula prescribed by the Swaminathan Committee, MSP can be calculated by estimating the cost of farming at three levels – A2, FL and C2.
  • A2: This variable covers all types of cash expenditure spent by the farmer for the production of the crop ranging from the expenditure for seeds, manure, chemicals, labour costs, fuel costs, irrigation costs etc.
  • FL: Under this, the estimated value of work done by the members of the farmer's family, were added.
  • C2: Under this variable, the estimated land rent and the cost of interest on the money taken for farming are added to A2 and FL.
  • The Comprehensive Cost (C2) is more reflective of the actual cost of production since it takes accounts for rent and interest forgone on owned land and machinery, over and above the A2+FL rate. 
  • After overall calculation, the CACP sends the calculated MSP to the central government, which then forwards it to the state governments for the suggestion.
  • Finally, the Cabinet Committee on Economic Affairs takes the decision, and then CACP issues all the statistics on its website.

Determinants of MSP

While determining the MSP, the CACP considers the following factors:-

  • Cost of Production
  • Cost of processing of crops and changes therein
  • Cost of marketing, storage, transportation, processing, taxes/fees and margins retained by market functionaries.
  • Prices of various inputs and changes therein
  • Demand and Supply
  • The effective cost of living
  • Price trend in the market both domestic and international
  • Intercrop price parity
  • Likely implications of MSP on consumers 

Crops covered under MSP

  • CACP recommends MSP for 22 crops and Fair & Remunerative Price (FRP) for sugarcane. 
  • For sugarcane, FRP is declared by the Department of Food & Public Distribution.
  • Twenty-two crops covered under MSP are Paddy, Bajra, Jowar, Maize, Arhar, Ragi, Moong, Groundnut-in-shell, Urad, Soyabean, Nigerseed, Sunflower, Seasamum, Cotton, Barley, Wheat, Gram, Rapeseed/Mustardseed, Masur (lentil), Jute, Copra and Safflower.
  • The MSP for Toria and De-Husked coconut is fixed by the Department based on MSP's of Rapeseed/Mustardseed and Copra respectively.

Limitations of MSP

  • MSP does not include all crops and is announced for a limited number of crops.
  • There are many flaws in the implementation of this policy, as all beneficiaries did not get the benefit accordingly. 
  • High MSP may lead to high inflation in crop prices.
  • Landless farmers and farmers with small landholding did not get the benefit from this policy.
  • It does not account the huge interstate as well as inter-region variations in the production cost while deciding MSP.
  • It may skew the cropping pattern of the nation.

Recent developments

  • Recently, the Cabinet Committee on Economic Affairs (CCEA) has decided to increase the Minimum Support Prices (MSPs) for mandated Rabi Crops of 2019-20 to be marketed in Rabi Marketing Season 2020-21.
  • This is in line with the principle of fixing the MSPs at least 1.5 times then the all India weighted average cost of production (CoP).
  • The recent progressive steps will help towards doubling the farmers' income by 2022.
  • For the Rabi crops, the highest increase in MSP has been recommended for lentil, followed by safflower and gram.
  • The MSP of Rapeseed & Mustard has been revised and raised by Rs. 225 per quintals. For wheat and barley, MSP has been raised by Rs. 85 per quintals.
  • The overall return, the weighted average cost of production, is 109 % for wheat; 66 % for the barley; 76 % for lentil; 74 % for gram: 50 % for safflower and 90% for rapeseed & mustard.
  • In recent years, the government's focus has shifted from a production-centric approach to income-centric one.

Way forward

  • Considering the various loopholes and flaws in the MSP policy, the government needs to improve the coverage of the beneficiaries.
  • Leakages/ wastages need to be looked into and be corrected.
  • More crops need to be included in the list of MSP.
  • Landless farmers and other low landholding farmers need to be covered under this policy. Necessary changes need to be done in the policy for the same.
  • The Shanta Kumar Committee recommendations for the overhaul of FCI needs to be implemented in complete form and also the suggestions of the National Commission of farmers ( Dr.MS Swaminathan committee, 2007 ) to fix the MSP at the cost of production + 50% in order to have a definitive roadmap for fiscal expenditure and better remunerative output for farmers rather than ad hoc methods.
  • Crop diversification needs to be promoted so as to increase pulses production and will ensure Nutritional security and preventing supply-side shocks.
  • Announcement of NITI Ayog for timely dissemination of information via Krishi Vigyan Kendras(KVKs) and early announcement of MSPs well ahead of the sowing season will help in better planning and decision making by farmers.
  • Cooperative Agriculture can help small and marginal farmers to pool their resources to increase their productivity and profits. Amul Dairy cooperative is the most prominent example of the success of such a method. The Society for Elimination of Rural Poverty in Andhra, Kudumbashree programme in Kerala is some of the recent success stories of cooperative farming.


More from Us:

निश्चय Jharkhand PCS Prelims: A 50-Day Course

लक्ष्य MPPSC 2020: A 45-Day Course to Clear GS Paper

Are you preparing for State PCS exam,

Get Unlimited Access to ALL Mock Tests with Test Series Here

Check other links also:

Previous Year Solved Papers

Monthly Current Affairs

UPSC Study Material

Gist of Yojana

Daily Practice Quizzes, Attempt Here


write a comment
Asir Raza

Asir RazaDec 7, 2019

Sir PDF he
Gulafsha Ansari
A lot of thanks..... sir G
Durga Choudhary
Tq sir
Thanks you so much sir
Gajender Kumar
Pls provide in hindi

Follow us for latest updates