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Home / IAS Preparation / Minimum Support Price

Minimum Support Price in India (MSP): Critical Analysis for UPSC Preparation

Last Updated on Apr 14, 2025
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The Minimum Support Price (MSP) based procurement system aims to protect crops from price volatility caused by uncontrollable variables such as the monsoon, a lack of market integration, information asymmetry, and other market imperfections afflicting Indian agriculture.

The MSP is set after the government properly investigates the major problems identified by the Commission on Agricultural Costs and Prices.

The government presently establishes MSPs for 23 crops but is not legally required to pay them even if open market rates for those products are lower than their declared floor prices.

This article will help you understand the significance and determinants of the Minimum Support price in India. Besides, it will also help you to critically analyse the structure of MSP in agriculture. Study major topics of the Indian Economy from the perspective of UPSC Exams.

Also, read about Consumer Price Index (CPI) here.

Check out in detail here.

https://youtu.be/6YWebDHrAGQ

What is the Minimum Support Price?

The MSP (Minimum Support Price) is a minimum price that the central government sets for any crop it deems remunerative for farmers. MSP is a kind of market intervention utilized by the Indian government to safeguard farmers against a sharp decline in farm prices. Government agencies will purchase the whole quantity produced by farmers at the stated minimum price if the market price for the commodity falls below the declared minimum price due to bumper production and market excess. It is also the amount paid by government entities when they purchase a certain crop. The procurement price is the price at which the crops are purchased. The MSP is announced prior to planting, whereas the Procurement Price is issued after the crops have been harvested.

Also, read New Economic Policy 1991 here.

When was the Minimum Support Price first implemented in India?

At the time of independence, India had a significant shortfall in cereal output. After a difficult first decade, India chose to implement major agricultural reforms. The Minimum Support Price was established for the first time by the Centre in 1966-67. For the first time, the MSP for wheat was established at Rs 54 per quintal.

What was the Need for Introducing MSP?

  • On the route of the Green Revolution, Indian authorities recognized the necessity for farmers to be rewarded for growing food crops.
  • Otherwise, they will not choose crops such as wheat and paddy since they are labour-intensive and do not yield high returns.
  • As a result, the Minimum Support Price was created in the 1960s to incentivize farmers and improve output.

Check out the Wholesale Price Index (WPI) here.

How Many Crops are Under MSP?

Currently, the Centre offers MSP for 23 crops. Check the list of crops under MSP in the below table!

Cereals
  • Wheat
  • Maize
  • Paddy
  • Jowar
  • Rice Barley
  • Bajra
  • Ragi

Pulses
  • Arhar/tur
  • Chana
  • Masoor
  • Gram
  • Moong
  • Urad

Oilseeds
  • Groundnut
  • Soybean
  • Rapeseed/Mustard
  • Sesamum
  • Toria
  • Nigerseed
  • Sunflower seed
  • Safflower seed

Raw cotton

–

Raw jute

–

Copra

–

De-husked coconut

–

Sugarcane (fair and remunerative price)

–

Virginia flu cured (VFC) tobacco

–

Also, check out High Yield Crops here.

How Does the Government Decide on the MSP in Agriculture?
  • There are two primary agricultural seasons in India: Rabi and Kharif. The Minimum Support Price is announced by the government at the start of each planting season.
  • The Minimum Support Price is recommended by the Commission on Agricultural Costs and Prices. Considering these recommendations the government decided on MSP.
  • These suggestions are based on some equations that have been set in stone. This covers the actual costs incurred, as well as the value of fixed assets or rent paid by the farmers.
  • At the outset of each cropping season, the government publishes the MSP. A2, FL, and C2 are the techniques that the government uses to determine the MSP for various crops.

Also, check out the article on Crop Diversification here.

CACP – Commission for Agricultural Costs and Prices: How does CACP decide MSP?
  • The commission on Agricultural Costs and Prices is responsible for the complete assessment of the overall structure of the economy of a specific product or set of commodities.
  • Besides, the Commission considers the following criteria in developing recommendations on the level of minimum support prices and other non-price measures:-
    • Production costs.
    • Changes in the cost of raw materials.
    • Price parity between inputs and outputs.
    • Price trends in the market.
    • Supply and demand.
    • Price parity between crops.
    • The impact on the cost structure of the manufacturing sector.
    • The impact on the expense of living.
    • The impact on the overall price level.
    • Price condition on a global scale.
    • Farmers are paid the same amount that they are paid by the government.
    • Effect on issue pricing and subsidy implications

Also, check out the Golden Fibre Revolution here.

Commission for Agricultural Costs & Prices (CACP)

The Commission for Agricultural Costs and Prices is a decentralized government agency in India. It was founded in 1965 as the Agricultural Prices Commission, and its current name was given to it in 1985. It is a statutory panel of the Government of India’s Ministry of Agriculture and Farmers’ Welfare.

The CACP is an expert body that recommends to the Cabinet Committee on Economic Affairs the MSPs for the notified Kharif and Rabi crops (CCEA).

The Commission’s goal is to: The Commission was formed to recommend Minimum Support Prices (MSPs) in order to encourage cultivators and farmers to adopt cutting-edge technology in order to optimise resource use and increase productivity. However, its recommendations are not legally binding on the government.

Read about the Rabi and Kharif Crops in India here.

What is the Significance of MSP for farmers in India?
  • Farmers are protected from price volatility and market flaws by MSP.
  • Agricultural commodity prices are naturally volatile, thus a very strong harvest in any year results in a dramatic drop in the price of that commodity during that year.
  • The fixed crop price and stable markets promote increased investment and the use of advanced farming methods.
  • Minimum Support Price gives a price signal to the market, indicating that if merchants do not offer higher prices than MSP, the farmer may not be able to sell his goods.
  • As a result, the Minimum Support Price acts as an agro-commodity market anchor or benchmark.
  • While MSP does not guarantee that market prices will always be higher than MSP, it does guarantee that they will not be much lower.

Also, read Agricultural Pricing and Crop Insurance Issues here.

What Are the Drawbacks of MSP in India?
  • The main issue with the Minimum Support Price is a lack of government procurement apparatus for all products except wheat and rice, which are actively procured under the PDS by the Food Corporation of India.
  • Even though it has been present for decades, the notion of minimum support price is not mentioned in any law. While the government declares Minimum Support Price twice a year, there is no law requiring MSP.
  • In 2018, the CACP suggested legislation that would allow farmers to sell their crops at a Minimum Support Price. The Centre, on the other hand, did not accept this proposal.
  • Middlemen, commission agents, and APMC officials all play a role in the MSP-based procurement system. Smaller farmers have a hard time getting access to these stakeholders.
  • MSPs are only specified for specific crops. Farmers are encouraged to produce crops for which MSP has been declared.
  • There is no legal requirement for the government to purchase crops at a Minimum Support Price, and private traders cannot be forced to do so either.

Practice the PM Kisan Samman Nidhi Yojna here!

Legalizing MSP in India
  • MSP has no legal standing in India, despite the fact that it has been a government policy since 1966-67.
  • Farmer’s unions have been clamouring for MSP to be made legal for a long time.
  • Minimum Support Price was also suggested by CACP a few years ago to be made legal.

Advantages of Legalising MSP in India

  • If MSP is made legal, the government must ensure that farmers’ produce is purchased at the declared MSP, either directly or through private parties.
  • The legal status of MSP will have to encompass 100% of farmers, as opposed to the existing 6%.
  • If the government makes the MSP a legal body, it will be required to cover all crops, and all producers, and to lift these crops if the market price falls below the MSP.
  • Even if only small and marginal farmers are included in the MSP programme, 85 per cent of small and marginal farmers will profit.

Also, read Kisan Credit Card Scheme here.

Disadvantages of Legalising the MSP

  • When MSP becomes a legal entitlement, procurement will only grow in terms of quantity, but it will still fall short of reaching any significant portion of the farmer population.
  • With even more supplies built up, FCI will be compelled to slash prices even further.
  • When such sales of agricultural produce are paired with the prohibition on purchasing below the MSP directly from farmers, all channels for selling by farmers are effectively closed.
  • Traders and other purchasers will find it cheaper to acquire grains directly from FCI at lower rates than the MSP since FCI dumps more at lower prices than the procurement price.
  • Another possible outcome is the emergence of a huge black market, in which tiny dealers buy grains from farmers in informal marketplaces for a fraction of the MSP.
  • For crops purchased at MSP, a standard of “fair average quality” has been established. Traders would face significant challenges if the harvest fails to fulfil quality requirements.
  • Legalizing MSP will have an impact on free-market principles, resulting in a disparity between producers and consumers.
  • One of the main reasons against legalising MSP is that it may have a negative influence on the country’s macroeconomic prospects by causing an unexpected spike in inflation.
  • MSP is classified as a harmful subsidy by the WTO since it has an impact on the market. India’s subsidising programmes have sparked outrage among industrialised countries.

Food Corporation of India-FCI)

Food Corporation of India (FCI) is a Public Sector Undertaking under the Ministry of Consumer Affairs, Food and Public Distribution.

The Food Corporation of India is a statutory body established and run by the Indian government. It is owned by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, and was established by the passage of the Food Corporation Act, 1964 by the Indian Parliament.

Also, read Kisan Sampada Yojna for UPSC here.

Recent Farm Laws and MSP Issues in India

Recently adopted Farm Laws break the APMC mandis’ monopoly, allowing for the selling and purchase of commodities outside of these state-run market yards.

Farm Laws: –

  • The Farmers (Empowerment and Protection) Arrangement on Price Assurance and Farm Services Bill, 2020, permits farmers to enter into a contract farming agreement with a buyer for the purchase of commodities at predetermined rates.
  • Farmers can sell their product outside of APMC mandis to whoever provides a better price, including the final buyer, under the Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020.
  • The Essential Commodities (Amendment) Bill, which declassifies onions, grains, pulses, potatoes, edible oilseeds, and oils as essential commodities under normal situations, is the third bill.

These laws faced serious opposition from farmers.

Also read: Agriculture Produce Market Committee (APMC) for UPSC here.

Why are the Farmers Protesting?
  • Farmers are dissatisfied with the three agricultural bills because none of them includes MSP.
  • They are having difficulty trusting the government, despite Prime Minister Narendra Modi and his cabinet orally promising farmers that the MSP system will remain.
  • The three agriculture legislation proposed by the government, on the other hand, have little to do with MSP.
  • The government benefited from the fact that MSP is not protected by legislation. Farmers have been free to sell their products to any organisation, including private corporations, but they have sought a formal commitment from the government on MSP because they are concerned that without one, corporations would begin abusing them.

World Trade Organization (WTO)

The World Trade Organization (WTO) is the only global international organization that deals with international trade rules. Its primary functions are to maintain global trade smoothness and to resolve issues or disputes that may affect global trade.

Since the beginning of 1995, India has been a member of the World Trade Organization. Since 1948, India has also been a member of the General Agreement Of Tariffs And Trade (GATT). The World Trade Organization (WTO) is also an administrative organization that allows trade under certain conditions for global ease.

In this article, we analyse the structure of MSP in India. We also tried to understand the significance and drawbacks of the Minimum Support Price provided by the Indian Government. Besides, we also analysed the farmers’ concerns associated with recent Farms Laws and their impact on MSP. To study more topics from the Indian Economy for UPSC, download the Testbook App now!

More Articles for IAS Preparation

Minimum Support Price FAQs

Minimum Support Price (MSP) is a government intervention designed to safeguard agricultural farmers.

The Minimum Support Price was implemented in India by the Centre in 1966-67.

MSPs are provided by the government for 23 crops.

The CACP incorporates both C2 and A2+FL expenses when determining the MSP.

The MSP prices are set by the central government based on the CACP's recommendations (Commission on Agricultural Costs and Prices).

Instead of a narrower measure that takes into account all paid-out expenditures spent by a farmer and the value of family labour (A2+FL), the C2 formula for determining cost of cultivation adds the imputed cost of capital and the rent on the land to offer farmers 50% returns.

MSP covers a wide range of expenses, from sowing (A2) to labour (FL).

The prices are released twice a year, before each crop cycle, during the Rabi and Kharif crop seasons.
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