GS SCORE- Centre Rules out MSP Law

 The ongoing farmer protests in India have once again brought the issue of Minimum Support Price (MSP) to the forefront. As farmers take to the streets demanding legal guarantees for MSP, the government faces a delicate balancing act.

What Is MSP?

  • Minimum Support Price (MSP) is the price set by the government at which it directly purchases agricultural products from farmers if the open market prices fall below this threshold.
  • The primary purpose of MSP is to protect farmers against drastic price fluctuations during market volatility.
  • It ensures a safety net for farmers, especially during bumper production years.
  • It covers 22 crops, including paddy, wheat, maize, arhar (pigeon pea), cotton, and mustard seeds and Fair and Remunerative Price for sugarcane.


The MSP is calculated based on different cost components:

  • A2 Cost: This includes actual paid-out expenses such as seeds, fertilizers, pesticides, labor, and other direct costs incurred during cultivation.
  • A2+FL Cost: In addition to A2, this covers the imputed value of family labor involved in farming. It recognizes the contribution of family members who work on the farm without receiving a direct wage.
  • C2 Cost: The most comprehensive, C2 encompasses A2+FL and adds rental value of owned land and interest on capital (including machinery and equipment). It represents the total cost of production and ensures a reasonable return on investment for farmers
  • The MSP is recommended by the Commission for Agricultural Costs and Prices (CACP) based on various factors:
    • Cost of Production: The CACP considers the cost incurred by farmers in cultivating a crop, including expenses on seeds, fertilizers, labor, and machinery.
    • Demand and Supply: The availability of a particular crop in the market influences its MSP. If there’s excess supply, the MSP may be adjusted accordingly.
    • Price Trends: Domestic and international price trends impact the MSP. The government aims to provide a price that covers production costs and ensures a reasonable profit for farmers.
    • Terms of Trade: The balance between agricultural and non-agricultural sectors affects the MSP. The government strives to maintain a fair exchange between these sectors.
  • Significance of MSP
    • Income Security: MSP assures farmers a minimum income for their produce. It encourages them to invest in agriculture without fear of losses.
    • Market Stability: By setting a floor price, MSP prevents drastic fluctuations in crop prices. This stability benefits both farmers and consumers.
    • Food Security: MSP ensures adequate food production. It incentivizes farmers to grow essential crops like wheat, rice, and pulses.

The Swaminathan Commission’s Recommendation

  • The MS Swaminathan Commission, in its report, recommended that the government should raise the MSP to at least 50% more than the weighted average cost of production (C2+ 50% formula).
  • This formula includes the imputed cost of capital and land rent, providing farmers with a fair return on their investment.

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