Minimum Support Price (MSP)

By /

Why in News?

Farmers’ organisations have renewed demands for a legal guarantee on MSP, bringing focus back to how MSP is defined, calculated, and implemented in India.

Description:

About MSP:

MSP is a pre-announced minimum procurement price offered by the government for certain crops to protect farmers from sharp drops in market prices and to ensure national food security.

 It acts as a market intervention mechanism administered through the Ministry of Agriculture.

Genesis & Mandate:
  • Established: 1965 with the creation of the Agricultural Prices Commission (APC)—later renamed the Commission for Agricultural Costs and Prices (CACP).
  • Purpose:
    • Ensure remunerative prices for farmers.
    • Encourage the production of essential food crops.
    • Protect farmers from price volatility and exploitation.
    • Maintain adequate stocks for the Public Distribution System (PDS).
How MSP Is Calculated (Cost Concepts):

CACP recommends MSP based on three cost measures:

  1. A2: Paid-out costs: seeds, fertilisers, pesticides, labour, leased land, machinery, fuel, irrigation, etc.
  2. A2 + FL: A2 plus imputed value of unpaid family labour.
  3. C2: Comprehensive cost: A2+FL plus rentals/interest on owned land and fixed capital.

Current Formula: The government fixes MSP at minimum 1.5Ă— A2+FL (not C2), based on the all-India weighted average Cost of Production.

Note: The Swaminathan Commission (2006) recommended that MSP should be 1.5Ă— C2, where C2 includes A2+FL plus interest on owned capital assets and rental value of owned land.

Key difference:

Current system = 1.5Ă— (A2+FL)

Swaminathan formula = 1.5× (C2) (i.e., “C2 + 50%”).

How MSP Is Decided:
  • Recommended by: CACP.
  • Approved by: Cabinet Committee on Economic Affairs (CCEA).
  • Announced: Twice a year — before Kharif and Rabi sowing seasons.

Factors Considered by CACP:

  • Cost of production
  • Market demand & supply
  • Domestic & international price trends
  • Inter-crop price parity
  • Input price changes
  • Input-output price parity
  • Industrial cost structure
  • Impact on subsidies
  • Terms of trade for agriculture
  • Farmer income parity
Crops Covered Under MSP (22 + 2 Linked Crops):

Kharif Crops (14):

Paddy, Jowar, Bajra, Ragi, Maize, Tur, Moong, Urad, Groundnut, Sunflower Seed, Soyabean (Yellow), Sesamum, Nigerseed, Cotton.

Rabi Crops (6):

Wheat, Barley, Gram, Masur, Rapeseed & Mustard, Safflower.

Commercial Crops (2): Copra, Jute.

Significance of MSP:
  • Prevents distress sales during price crashes.
  • Ensures minimum income stability.
  • Supports food security and PDS stocking.
  • Encourages cultivation of strategic crops.
  • Stabilises agricultural markets and reduces farmer vulnerability.

La Excellence IAS Academy, the best IAS coaching in Hyderabad, known for delivering quality content and conceptual clarity for UPSC 2025 preparation.

FOLLOW US ON:

â—‰ YouTube : https://www.youtube.com/@CivilsPrepTeam

â—‰ Facebook: https://www.facebook.com/LaExcellenceIAS

â—‰ Instagram: https://www.instagram.com/laexcellenceiasacademy/

GET IN TOUCH:

Contact us at info@laex.in, https://laex.in/contact-us/

or Call us @ +91 9052 29 2929, +91 9052 99 2929, +91 9154 24 2140

OUR BRANCHES:
Head Office: H No: 1-10-225A, Beside AEVA Fertility Center, Ashok Nagar Extension, VV Giri Nagar, Ashok Nagar, Hyderabad, 500020

Madhapur: Flat no: 301, survey no 58-60, Guttala begumpet Madhapur metro pillar: 1524,  Rangareddy Hyderabad, Telangana 500081

Bangalore: Plot No: 99, 2nd floor, 80 Feet Road, Beside Poorvika Mobiles, Chandra Layout, Attiguppe, Near Vijaya Nagara, Bengaluru, 560040

Scroll to Top