Minimum Support Price Scheme

The Minimum Support Prices were announced by the Government of India for the first time in 1966-67 for wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits. Since then, the MSP regime has been expanded to many crops. Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops.

Crops Covered

The MSP is announced by the Government of India for 25 crops currently at the beginning of each season viz. Rabi and Kharif. Following are the 25 crops covered by MSP:

Kharif Crops Rabi Crops
1Paddy15Wheat
2Jowar16Barley
3Bajra17Gram
4Maize18Masur (Lentil)
5Ragi19Rapeseed/Mustard
6Arhar(Tur)20Safflower
7Moong21Toria
8UradOther Crops
9Cotton22Copra
10Groundnut23De-Husked Coconut
11Sunflower Seed24Jute
12Soyabeen Black25Sugarcane
13Sesamum
14Nigerseed

Rationale behind MSP

If there is a fall in the prices of the crops, after a bumper harvest, the government purchases at the MSP and this is the reason that the priced cannot go below MSP. So this directly helps the farmers.

How MSP is decided?

The government decides the support prices for various agricultural commodities after taking into account the following:

  • Recommendations of Commission for Agricultural Costs and Prices
  • Views of State Governments
  • Views of Ministries
  • Other relevant factors.

Various Issues around MSP

The major issues around the Minimum Support Price Scheme are as follows:

The Crop production is still unviable despite of so many years of crop production

Even after so many years of operation, the crop production is still increasingly unviable. The support prices that are being provided do not increase at par with increase in cost of production. A rating agency, CRISIL pointed out that the increase in MSP has indeed fallen in the years between 2014-17. While in the years 2009-13, the annual growth of MSP was around 19.3%, it has become only 3.6% in 2014-17. It has been observed that this decrease in MSP has contributed further to the acceleration of distress of farmers. This deceleration in rates especially at a time when agricultural prices in domestic market have become equivalent to the international prices, leading to rise in competition from low cost imports.

MSPs have unequal access

This problem has been in existence since the creation of this scheme. The benefits of this scheme do not reach all farmers and for all crops. There are many regions of the country like the north-eastern region where the implementation is too weak.

Effects of Inflation

There are instances of procurement below MSP as procurement is tardy and trade and other policies sometimes reduce the market prices during good harvest years also. It has an impact on inflation. Lower the market price; lower the MSP and eventually market prices become dependent on MSP due to market intervention measure.

Disadvantages of procurement

Almost 2/3rd of the total cereal production is taken through the route of MSP, leaving only 1/3rd for open market. As a result, a farmer who chooses the MSP route cannot take advantage of beneficial market prices and has to depend solely on the MSP. It prevents earning of profit by producers. This has created shortage of crops in the open market also which has a serious impact on consumption pattern. It has shifted consumption towards non-cereal foods (that are available more in open market relatively), but production has not risen simultaneously, causing a production-demand gap.

Excess storage

This kind of procurement without sufficient storage has resulted in huge piling of stocks in the warehouses. The stock has now become double the requirements under the schemes of PDS, Buffer stock etc. So, many grains have rotten in the storages.

Issues in WTO

India’s MSP scheme for many crops has been challenged by many countries in the WTO. For example, Australia has complained of the MSP on wheat, US and EU complained of sugarcane and pulses MSP. They have been claimed to be highly trade-distorting by its method of calculation. If the current process continues, the country will face international criticism for breaching the 10 per cent norm for subsidy on farm production set by the WTO.

Rectifying Measures

There are several rectifying measures that the government has adopted / can adopt for achieving desired objectives of MSP. These are as follows:

Recent budget initiatives
  • In latest budget, states have been allowed to intervene in the agricultural markets to ensure that the prices do not fall sharply. The Centre will be bearing 40% of the losses that the states suffer.
  • In case of northeastern states the Centre will bear the loss upto a limit of 50%. The coverage will be of every commodity except rice and wheat. This scheme has been named as ‘Market Assurance Scheme’.
WTO negotiations
  • India has been able to gain some time by pushing for inclusion of a peace clause in the 2013 Bali Conference wherein every country agreed not to charge another country for its subsidy scheme until a permanent solution is drawn.
  • Although the solution is yet to be drawn, the deadline for its activities are nearing, requiring immediate efforts.
Priority based procurement
  • The procurement must be done on priority basis for the states or farmers who are more in distress and require immediate assistance. It should be ensured that the MSP does not cause fall in prices due to the interventionist measures.

Even after so much of criticism, it is undoubted that the scheme is a necessity in times of distress. There is a need to consolidate and relook into the scheme and ensure that it is properly implemented.

MSPs and Budget 2018-19

In the recent budget, the government has declared that the MSP for kharif will be above the production cost. However the production cost is calculated in three different manners by the CACP which creates huge difference in the final MSP calculated. Three production costs are:

  • A2 which is the actual paid out cost. It includes expenditure done on seeds, fertilizers, hired laborers, leased land, hired machinery etc.
  • A2+FL which is actual paid cost plus the value of family labor.
  • C2 which is the comprehensive cost which includes rent of own land and interest on own capital.

So, it is called as misleading announcement as there is no clarification regarding which production cost will be taken. Speculations are rife that the government has done announced it above A2 and A2+FL. Whereas it has been a long demand of the farmers to consider the cost of production-C2.The same has been recommended by National Commission on Farmers in 2006 headed by M.S Swaminanthan. Further, there are other concerns of the farmers as follows:

  • For the last 10 years MSP for kharif crops is already above A2 and A2+FL. But MSP declared currently does not give them enough or reasonable returns over the cost incurred by the farmers. At the same time experts are of the view that it is unlikely that the government will consider C2 as the cost of production because of increase burden of money that the government will have to shelved out of the their pockets.
  • Cost of factors of production has been fixed and it does not take into account the changing cost due to inflation etc.
  • Ensuring high MSP is not the panacea for increasing farmer’s income. Apart from current 25 crops, MSP for fruits and vegetables should also be announced.
  • Procurement system of the government needs to be streamlined. This is because many times the government does not procure on time leading to distress selling by farmers.

Minimum Support Price versus Price Deficit Financing scheme

MSP scheme serves the purpose of protecting farmers from distress sale and procurement of food for Public distribution system. However, some states like MP have launched Price Deficit Financing schemes (Bhavantaran Bhugtan Yojana) in which the government pays the farmers the difference between modal rate (the average prices in major mandis) and the minimum support prices (MSPs). Thus, cash transfers to farmers who sell their produce below MSP is better alternative to procurement under MSP scheme because of following factors:

  • Under Bhavantar Bhugtan Yojana, primary agricultural co-operative societies are required to help farmers to register which already has huge presence among farmers unlike FCI.
  • Reduce the wastage of crops in transportation, storage and handling. Farmers will have to carry their produce only to Mandis
  • Increase the saving of exchequer as the government would pay only differential and also save on logistics cost.
  • More farmers would be covered under the scheme.
  • In line with government intention to use DBT for food benefit transfer.

However, there are several challenges such as:

  • Digital connectivity and Aadhar-linked bank accounts are pre-requisites, putting remote regions to disadvantage.
  • Primary agricultural co-operative societies need to be upgraded to handle the registration process.
  • Farmers need to upload the details of crops and yield, this may become disadvantageous for small and marginal farmers as they would have to depend on others for this.
  • Transparency in the functioning of Mandis would need to be ensured.

Price Support Scheme (PSS) for Oil seeds and Pulses

The Department of Agriculture and Cooperation implements the Price Support Scheme for Oil Seeds and Pulses through the National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED). NAFED is the nodal procurement agency for Oilseeds and pulses, apart from the Cotton Corporation of India. So, when the prices of oilseeds, pulses and cotton fall below MSP, NAFED purchases them from the farmers.

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Comments

  • Nimesh Sheth
    Reply

    Minimum Support Price for various crops are fixed by the Government of India under which Act. In other words which Act empowers Government of India to fix MSP for various crops?

  • harish meena
    Reply

    good

    • amit

      APC OR CAPC , 1965 ..

  • Nitesh
    Reply

    grt work sir ji

  • sree
    Reply

    Good….

  • Atul
    Reply

    Its Very Good Site to improve your GK…..

  • prashant kr singh
    Reply

    thanks

  • Vivek verma
    Reply

    Good sites to gk improvement

  • ASGAR ANSARI
    Reply

    Its a GOOD site for everyone to know anything in the world.Believe on it blindly.

  • sourabh pandey
    Reply

    Its good that they have described minimum support price for crops and farmers would get the better prices even any time the prices would fell down into that condition also farmers would get better price for their crops but I must suggest them to give links of other useful terms like MEP and other useful schemes also which Gov’t run in that period for that particular topic.

  • Ankit
    Reply

    Good data and information..

  • satish
    Reply

    SUPERB information in a easy language about MSP. A lot of thnx for that.

  • Deelip gupta
    Reply

    why r not decided onion MSP

  • Nimish
    Reply

    Comprehensive. One other , often overlooked, reason for the Government to follow an MSP regime is that it wants to influence sowing decisions of the farmer to maintain a favourable food stock situation in the country. MSP ensures that depressed prices in one year do not influence the farmer enough to change his sowing practices. For example, low wheat prices in one year might cause a farmer to go for a cash crop in the next sowing season. If enough wheat farmers do the same, it might reduce the wheat output substantially next season. MSP mitigates such scenarios to a large extent.

  • Nandan
    Reply

    The explanation of MSP has been given in a very comprehensive and elucidating way helping the aspirants improve their interests to know about the agricultural topics and provide an additional attention for understanding the privileges of hardworking farmers of our nation…..
    ……thanx alot

  • Dinesh Sharma
    Reply

    Is Sugarcane Alse comes under MSP.?????

  • Manoj kumar Pradhan
    Reply

    my doubt is when 1st time introduce minimum support price in India.

  • Govind choudhary
    Reply

    The Minimum Support Prices were announced by the Government of India for the first time in 1966-67 for Wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits. Since then, the MSP regime has been expanded to many crops. Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops. The MSP is announced by the Government of India for 25 crops currently at the beginning of each season viz. Rabi and Kharif. Following are the 25 crops covered by MSP.

  • Suresh Motikhaye
    Reply

    What Factors has been into consideration while deciding the MSP .Whehter farmers are aware of these factors.

  • Dayakar
    Reply

    Sir,I am a farmer from nellore.the dalari (rice brokers) purchased paddy1010 for rs11600 per putty(918 KGS).but today they are purchasing for rs11200 per putty(918kgs).the farmers r losing rs400 per putty….whom to complaint…if such situation persists the farmers will be depressed…the selling has been decided by mill owners and dalari…they r getting profit and the poor farmers has to be on the loosing side.my humble suggestion is that the daily price of paddy can be displayed on the respective MRO office so that the poor farmers can at least know the paddy price….please save the farmers from the cheaters

  • ajith
    Reply

    But if the cost Incurred is more than map how would farmers benefit from that?

  • ajith
    Reply

    But if the cost Incurred is more than msp how would farmers benefit from that?

  • KANNAN RK. KANNU
    Reply

    Sugercane is not given MSP .

  • KANNAN RK. KANNU
    Reply

    Sugercane is given MSP from 1st June 2016 . Please ignore the above comment.

  • KANNAN RK. KANNU
    Reply

    Here’s the link to it : http://eands.dacnet.nic.in/PDF/MSP01062016.pdf

    • KANNAN RK. KANNU

      Sorry , its not MSP , its Fair and Remunerative Price.

  • zacob
    Reply

    thanks for the information…..helped me a lot….
    this is the only website that helps to study well…