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Minimum Support Price (MSP)

Last Updated : 23 Feb, 2024
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The Minimum support price (MSP) is announced by the government to provide to support farmers and stabilize the agricultural sector. This pivotal policy, relevant for Minimum support price (MSP) UPSC, covers various crops. MSP for food grains was introduced to benefit farmers, and its local implementation impacts communities. Explore the why, how theMSP minimum support price, including the recent Increase in minimum support price (MSP) for rabi crops in 2023. Stay informed with the comprehensive MSP list for different crops in India.

Minimum Support Price is the guaranteed minimum price at which certain agricultural products or crops are purchased from farmers by government agencies. MSP is announced by the government to ensure that farmers receive a fair and remunerative price for their produce, especially in situations where market prices might fall due to various factors such as oversupply, adverse weather, or other market uncertainties. Recently, the MSP 2023-24 list for Kharif and Rabi crops was announced by the government with the hike in the MSP. The increase in the MSP aligns to set the MSP at a minimum of 1.5 times the All-India weighted average Cost of Production, thereby ensuring fair income for farmers.


Minimum Support Price (MSP)

In this article, you will learn about what is MSP (Minimum Support Price), how it is determined, crops eligible for MSP, challenges faced during MSP, etc.

What is Minimum Support Price (MSP)?

Minimum Support Price (MSP) is a form of government intervention where a minimum price is guaranteed at which certain crops are purchased from farmers. MSP supports the farmers by ensuring them a reasonable income, providing incentives to increase agricultural production, and helping maintain stable food supplies. The MSP is announced by the government before the sowing season. MSP is mainly announced for various essential crops, including cereals (such as rice, wheat, and millets), pulses, oilseeds, and some commercial crops (like cotton and sugarcane). Government agencies, such as the Food Corporation of India (FCI) and different state-level agencies, are responsible for procuring crops from farmers at the MSP. The procured crops are often used for various government programs, including the public distribution system (PDS).

MSP Meaning

MSP is the price set by the government to ensure that farmers receive a fair and guaranteed income for their crops. It serves as a safety net for agricultural producers by establishing a baseline price for their produce.

Also read: Full Form of MSP – Benefits of MSP

How is MSP (Minimum Support Price) determined?

The Minimum Support Price (MSP) is determined after taking into consideration various factors related to production costs, market trends, and the overall well-being of farmers. MSP for each crop is determined in the following way:

  • There are two major cropping seasons in India: ‘Rabi’ and ‘Kharif and MSP is announced by the government at the start of each cropping season.
  • The MSP is determined after the government thoroughly studies the major points raised by the Agricultural Costs and Prices Commission. The Commission for Agricultural Costs and Prices(CACP) calculates and recommends the MSP.
  • The CACP uses a comprehensive view of a particular commodity or group of commodities to calculate the MSP. These recommendations are based on pre-set formulae.
  • Key factors in determining MSP are the cost of production, which includes various components such as labor, seeds, fertilizers, irrigation, machinery, and other inputs.
  • These variables are known as A2, FL, and C2 in technical terms. The CACP uses the formula “A2+FL,” which includes actual paid-out costs (A2) such as seeds, fertilizers, labor, and other expenses, as well as imputed costs (FL) like the value of family labor and land rent. This helps in calculating the total cost of production for each crop. The MSP is calculated by adding all of these.
  • The other important factors that are taken into account for calculating MSP are:
  1. Change in the input costs such as fuel, labor, and fertilizer
  2. Demand and supply situations both in the domestic and international markets.
  3. Inflation
  4. The significance of the crop in terms of food security, nutritional value, and economic importance also influences the MSP price.
  • The CACP provides recommendations to the government on MSPs based on the factors mentioned above. The government takes these recommendations into account while announcing the MSPs for each crop.

Minimum Support Price (MSP) is Announced by the Government to Provide

  • Financial security to farmers by ensuring a minimum price for their produce.
  • A safety net against fluctuating market prices.
  • Incentives for the production of specific crops.

Minimum Support Price (MSP) UPSC

  • A critical topic for UPSC aspirants, covering agricultural policies and their socio-economic impacts.
  • Examines the role of MSP in ensuring food security and supporting rural livelihoods.
  • Analyzes the implications of MSP on India’s agricultural economy.

Minimum Support Price (MSP) of How Many Crops are Fixed

  • MSP is currently fixed for 23 crops, including cereals, pulses, oilseeds, and commercial crops.
  • Aimed at encouraging diversified crop production.

The Minimum Support Price (MSP) for Food Grains was Introduced in the Year

  • MSP was introduced in 1966-67 as part of India’s Green Revolution strategy.
  • Initially focused on wheat, it has since expanded to include other food grains.

What is Minimum Support Price MSP and How is it Being Implemented in Your Area?

  • Implementation varies regionally, with state governments and local agencies playing key roles.
  • Involves procurement centers where farmers can sell their crops at MSP rates.

Why is Minimum Support Price (MSP) for Crops?

  • To stabilize the agricultural market and ensure fair prices for farmers.
  • Encourages production of essential crops to achieve food self-sufficiency.

Increase in Minimum Support Price (MSP) for Rabi Crops in 2023

  • Reflects government efforts to promote rabi crop production amid changing market demands.
  • Adjustments made based on inflation, production costs, and market trends.

Who Decides the Minimum Support Price (MSP) for Agricultural Crops in India

  • The MSP is decided by the Government of India, based on recommendations from the Commission for Agricultural Costs and Prices (CACP).
  • Takes into account factors like cost of production, demand-supply dynamics, and overall economic conditions.

Minimum Support Price List

  • Includes essential crops like wheat, paddy, maize, various pulses, oilseeds, and cotton.
  • Updated annually to reflect changes in the agricultural sector.

MSP Minimum Support Price

  • A crucial component of India’s agricultural policy framework.
  • Ensures economic stability for farmers and contributes to the overall goal of agricultural sustainability.

Crops Eligible for MSP (Minimum Support Price)

At present 23 commodities are included in MSP. These are as follows:

Cereals Paddy, wheat, maize, bajra, jowar, ragi, and barley
Pulses Masur, chana, arhur, urad, moong
Oil seeds Rapeseed, groundnut, soya bean, sunflower, sesamum, safflower
Commercial crops Cotton, sugarcane, copra, and raw jute.

Important Questions based on Minimum Support Price (MSP) for UPSC, IAS, and Government Exams:

1. What is the purpose of Minimum Support Price (MSP)?

MSP is aimed at safeguarding the farmer’s interests by ensuring a minimum profit for the harvest, preventing exploitation by market fluctuations.

2. On what basis is MSP calculated?

MSP is calculated considering several factors, including the cost of production, demand and supply dynamics, market price trends, and intercrop price parity, as recommended by the Commission for Agricultural Costs and Prices (CACP).

3. How does MSP contribute to food security in India?

By guaranteeing prices for certain crops, MSP encourages farmers to produce more, which contributes to stable food supplies and thus, national food security.

4. What are the criticisms associated with MSP?

Criticisms include its limited reach, benefiting only a fraction of farmers, market distortion, fiscal burden on the government, and encouragement of the production of waterintensive crops in unsuitable areas.

5. How does MSP impact the agricultural economy and farmers in India?

While MSP aims to provide income security to farmers, its uneven implementation has led to disparities in agricultural prosperity across different regions of India.

6. What reforms have been suggested to improve the MSP system?

Suggested reforms include broadening the basket of MSPcovered crops, improving procurement mechanisms, direct cash transfers as a supplement to MSP, and enhancing market access for farmers.

7. Can MSP lead to inflation? How?

Yes, MSP can lead to inflation if the set prices are significantly higher than market prices, leading to increased government spending and higher food prices.

8. How does MSP relate to the Public Distribution System (PDS)?

MSP supports the PDS by ensuring a steady procurement of grains for distribution, thereby stabilizing grain markets and ensuring food availability at subsidized rates to vulnerable sections.

9. What role does MSP play in the context of agricultural reforms in India?

MSP is a critical tool for agricultural policy, intended to ensure equitable growth in the agriculture sector amidst reforms aimed at increasing efficiency and market orientation.

10. How has the MSP regime changed over the years?

Over the years, MSP has seen increases in rates and an expansion in the number of covered crops, reflecting the government’s response to changing agricultural dynamics and farmer needs.

Challenges Faced during MSP (Minimum Support Price)

There are a lot of challenges that have to be faced during MSP. These are as follows:

  • The main issue with the MSP, with the exception of wheat and rice( which the Food Corporation of India actively purchases under the PDS) is a lack of government equipment for the procurement of all crops. Farmers in regions where the government purchases the entire grain production tend to receive greater advantages, while those in areas where government procurement is limited often face more significant impacts.
  • The MSP-based procurement system also relies on intermediaries, commission agents, and APMC representatives, which are not accessible especially to the small farmers.
  • MSP can create market distortions by artificially setting a minimum price. This can lead to overproduction of certain crops, affecting market equilibrium and creating storage problem.
  • Setting MSPs at higher levels could contribute to inflation, impacting the cost of living, especially for the poor.
  • If the MSP is higher than the current international market price, it will have an impact on India’s agricultural exports. Farm products account for 11% of all commodity exports.

Incorporating MSP (Minimum Support Price) in Agricultural Strategies

  • Involve farmers’ organizations and other stakeholders in the MSP decision-making process.
  • While MSP is Important, it should be integrated with agricultural market reforms , so that balance can be maintained between ensuring fair incomes for farmers and market efficiency.
  • Expand the list of crops eligible for MSP to include more non-cereal crops, especially perishable commodities like fruits, vegetables, and horticultural products that will help in promoting crop diversification.
  • Consider regional variations in MSP to account for diverse agro-climatic conditions, production costs, and market dynamics.
  • Invest in procurement and storage infrastructure to minimize post-harvest losses, ensure timely procurement, and provide farmers with easy access to government procurement centers.

Also Check:

Major Food Crops in India

Non-Food Crops in India

Crop Production: Harvesting and Storage of Crops

Types of Crops, Food Crops and Cash Crops

Minimum Support Price (MSP) UPSC – FAQs

For which crops is MSP announced?

MSP is announced for 23 crops, including food grains like wheat and paddy, oilseeds, and commercial crops.

How does MSP benefit farmers?

MSP provides financial security to farmers by guaranteeing a minimum price for their produce, reducing the risk of falling prices.

What was the first year MSP was introduced?

MSP was first introduced in 196667 for wheat in the wake of the Green Revolution.

Who announces MSP in India?

MSP is announced by the Government of India, based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).

What is Minimum Support Price (MSP)?

MSP is a government-guaranteed price at which the government buys crops from farmers, intended to protect farmers against any sharp fall in farm prices.

Why was MSP introduced?

MSP was introduced to ensure farmers are not exploited by market fluctuations and to incentivize production of certain crops.

How is MSP determined?

The MSP is determined by the Government of India based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), considering factors like cost of production, supply and demand, market price trends, and inter-crop price parity.

Which crops are covered under MSP?

MSP covers 23 crops, including cereals, pulses, oilseeds, and commercial crops like cotton and sugarcane.

How does MSP benefit farmers?

MSP provides income security to farmers by ensuring a minimum profit for their produce, regardless of market fluctuations.

Can farmers sell their produce above MSP?

Yes, farmers can sell their produce at higher prices in the open market if the market price is above the MSP.

How is MSP implemented?

MSP is implemented through government or government-approved agencies purchasing the crops directly from farmers at the announced prices.

Has MSP been successful in India?

MSP has had mixed success; while it has provided income security to farmers for certain crops, its implementation and reach have been uneven across regions and crops.

What are the challenges associated with MSP?

Challenges include limited procurement infrastructure, delays in payments, and the system benefiting a small fraction of farmers, primarily in regions with better access to procurement centers.

Are there any recent changes to MSP policy?

The government periodically reviews and increases the MSP for various crops based on changing economic conditions and cost of production. For the latest updates, refer to official government announcements.

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