MSP

Notes

Minimum Support Price (MSP) is the price at which the Government is prepared to buy crops from farmers, an assured floor price meant to protect farmers from sharp price falls and to promote production.

How it is decided

The Commission for Agricultural Costs and Prices (CACP) (1965) recommends MSPs for 22 mandated crops: 14 kharif crops (paddy, jowar, bajra, ragi, maize, tur, moong, urad, groundnut, soybean, sunflower, sesamum, nigerseed, cotton), 6 rabi crops (wheat, barley, gram, masur, rapeseed-mustard, safflower) and 2 commercial crops (jute and copra). For sugarcane, a Fair and Remunerative Price (FRP) is set.
The Cabinet Committee on Economic Affairs (CCEA) approves it, before the sowing season.

Cost concepts

A2: the actual paid-out costs. A2+FL: A2 plus the imputed value of family labour. C2: A2+FL plus imputed rent on owned land and interest on owned capital (the comprehensive cost).
Budget 2018-19 set MSP at at least 1.5 times A2+FL. Farmers' groups and the Swaminathan Commission demand C2 + 50%.

Procurement and price support

Effective procurement is mostly of wheat and rice by the FCI and State agencies (strong in Punjab, Haryana and Madhya Pradesh). NAFED buys pulses and oilseeds under the Price Support Scheme.
PM-AASHA (2018): price support, price deficiency payment and pilot private procurement. Bhavantar (Madhya Pradesh) pays the price difference. A Price Stabilisation Fund exists.

Criticisms: MSP is not a legal right; effective for only a few crops and regions; only a minority of farmers benefit; it skews cropping towards water-intensive paddy and wheat and depletes groundwater; it adds to the food subsidy and inflation. Farmers have demanded a legal guarantee (2020-21 protests against the three farm laws, which were repealed in 2021).

Key Points

MSP: an assured price; the CACP recommends and the CCEA approves.
22 crops; sugarcane has FRP.
Cost concepts: A2, A2+FL, C2; MSP at 1.5 times A2+FL since 2018-19.
Procurement is mostly for wheat and rice; NAFED for pulses and oilseeds.
Criticism: no legal backing, regional skew, distorts cropping.

MCQs

Q1. MSPs are recommended by the: (a) NITI Aayog (b) CACP (c) RBI (d) FCI Ans: (b).

Q2. The Government has promised an MSP of at least what multiple of A2+FL cost? (a) 1.25 times (b) 1.5 times (c) 2 times (d) 1 times Ans: (b).

Q3. Which of the following is NOT an MSP crop? (a) Cotton (b) Jute (c) Tea (d) Wheat Ans: (c).