MINIMUM SUPPORT PRICE (MSP)

What do you mean by MSP ?

The concept of MSP was introduced by the centre in 1965. For this purpose Agricultural Price Commission was the set up in the same year. It was later renamed as Commission for Agricultural Cost and Prices (CACP) in the year 1985. Under MSP, the minimum price at which a particular agricultural product will be procured is decided even before the sowing season.

This minimum price has to be paid by the government agencies as well as the private agencies, while procuring that particular agricultural product. The cost at which the product has to be procured can be equal to the MSP or can be higher than the MSP but it cannot be lower than the MSP. It is the CACP which recommends MSP, but it is implemented by the Cabinet Committee on Economic Affairs (CCEA).

MSP serves as a kind of economic security for the farmers. Even if production is high the price may not fall below the MSP. It encourages the farmers to produce more and more.

In the budget 2018-19 it was declared by the government that the MSP over agricultural products will be 50% higher than the cost of production. At the same time it was also decided that the cost of production will be calculated on the basis of A2 + FL. There are three different ways in which cost of production can be calculated. It can be A2, A2 + FL or C2. A2 includes all the direct expenses such as cost of seeds, fertilizers, pesticides, labour, fuel, transportation etc.

However it is a possibility that the marginal and the small farmers may not be able to hire labour and may use their family labour. A monetary value of family labour is derived and is termed as FL. Hence A2 + FL also include the cost of family labour. C2 is known as comprehensive cost. It includes A2, FL and even the burden of interest payment over the farmers. Out of the three at present A2 + FL is taken as the basis.

However, MSP also has a certain drawbacks. Even if the production remains high the price may not come down. Due to continuously increase in MSP the inflation will remain high as well. It affects the consumers. At the same time if government agencies buy the agricultural products at an increased MSP to distribute at a subsidized price through Public Distribution System then the financial health of the government gets affected. It increases the fiscal deficit. The benefit of MSP is generally taken by big farmers of sates like Punjab, Haryana, Western UP. So it leads to economic and regional disparity. Political influence is also witnessed in estimation and

declaration of MSP.

How many crops are in MSP 2023 ?

 MSP also has other negative consequences. The government implements MSP over 23 agricultural products. It comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, seasmum, sunflower, safflower, nigerseed), and 4 commercial crops (copra,

sugarcane, cotton and raw jute). The perishable items such as fruits and vegetables are not included in it. So the farmers may resort to production of only those agricultural products over which MSP is applicable. The other agricultural products are completely ignored due to this.

Over sugarcane MSP is not applicable. In case of sugarcane State Advised Price- SAP is applicable. It is decided by the states where sugarcane is produced. This price has to be paid to the farmers buy this Sugar Mills, while procuring sugarcane. However during election season in order to please the farmers SAP has been increased continuously. This affects the financial

health of sugar producers. Hence in 2009, the central government introduced the concept of Fair and Remunerative Price- FRP. If the SAP is higher than FRP, the sugar mills had to pay FRP to the farmers whereas the difference between SAP and FRP was to be paid to the farmers by the state government. However it was protested by the state governments and the centre made it optional. Now the FRP is announced but its implementation is optional for the states. They may

or may not implement it.

In her budget speech, the Finance Minister told that in the financial year 2021-22, wheat and paddy were bought from 163 lakh farmers under the MSP. For which direct payment of 2.37 lakh crores has been made to the farmers’ account.