MSP – UPSC Short Notes

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The Minimum Support Price (MSP) is the price at which the government guarantees to purchase crops from farmers, ensuring a minimum income and protecting them from price fluctuations in the market. Introduced in the 1960s, MSP is a key instrument of India’s agricultural policy to promote farmer welfare and food security.

MSP Crops List 2025

For the marketing season 2025-26, MSP has been announced for 23 crops, including:

  • Kharif crops: Paddy, Jowar, Bajra, Maize, Cotton, Moong, Urad, Groundnut
  • Rabi crops: Wheat, Barley, Gram, Masur, Rapeseed & Mustard, Sunflower
  • Commercial crops: Sugarcane, Copra, Cotton

MSP for common paddy: ₹2,369/quintal; Wheat: ₹2,515/quintal.

Key Issues Related to MSP

  1. Limited coverage – Only 23 crops are covered; majority of produce remains unprotected.
  2. Regional disparity – Procurement is concentrated in few states like Punjab and Haryana.
  3. Implementation gaps – Many farmers do not get MSP due to inadequate procurement infrastructure.
  4. Inflationary pressure – MSP hikes can increase input costs and indirectly raise retail prices.
  5. Non-legally binding – MSP is not mandatory; unlike FRP for sugarcane, market forces affect its effectiveness.

MSP Calculation

  • MSP is based on A2+FL formula:
    • A2: Actual paid-out costs (seeds, fertilizer, labor, etc.)
    • FL: Imputed value of family labor
  • Government ensures MSP ≥ 50% above cost of production.
  • Swaminathan Commission recommendation: MSP should be C2+50%, including all costs like rent, capital depreciation.

MSP and Swaminathan Formula

  • Swaminathan Formula: MSP should be set at C2+50%, where:
    • C2 = All costs including paid-out costs, imputed value of family labor, rent of owned land, and interest on capital.
    • +50% ensures a profit margin over comprehensive cost.
  • Current practice: Government often uses A2+FL (paid costs + family labor) for MSP calculation.
  • Significance: Swaminathan Formula aims for farmer welfare, profitability, and discouraging distress sales, making agriculture financially sustainable.

MSP vs FRP

  • MSP: Applicable to 23 crops; not legally binding; depends on procurement availability.
  • FRP (Fair & Remunerative Price): Specific to sugarcane; legally guaranteed to farmers; mills must pay.

Impact of MSP on Inflation

  • MSP increases production incentives but can raise food inflation.
  • Actual inflationary impact is muted due to buffer stocks and market dynamics.
  • Effective procurement and supply chain management are critical to limit retail price rise.

Effectiveness of MSP

  • MSP ensures income support for some farmers, particularly in Punjab and Haryana.
  • Limited coverage and poor awareness reduce overall impact.
  • Requires infrastructure improvement, wider crop coverage, and adoption of C2-based MSP for broader effectiveness.

Usefulness of MSP for Farmers

  1. Income security: Provides a guaranteed minimum price, protecting farmers from market fluctuations.
  2. Encourages cultivation: Incentivizes production of important crops, ensuring food security.
  3. Reduces distress sales: Farmers can avoid selling produce at very low market prices.
  4. Supports rural economy: Stable income improves purchasing power in rural areas.
  5. Credit repayment aid: Guaranteed prices help farmers repay loans on time, reducing indebtedness.
  6. Price signal for crops: MSP guides farmers on which crops are financially viable.

MSP for Minor Forest Produce (MFP)

  • MSP is not limited to crops; it also applies to Minor Forest Produce (MFP) like tendu leaves, mahua, bamboo, and sal seeds.
  • Ensures fair price for tribal and forest-dependent communities, preventing exploitation by middlemen.
  • Helps in sustainable forest management by incentivizing collection without overexploitation.

1.5 Times Formula for MSP

  • The 1.5 times formula refers to the government policy of ensuring MSP at 1.5 times the cost of production.
  • Cost is calculated based on A2+FL (paid-out costs + family labor).
  • Objective: Provide “profit over cost”, making farming remunerative and reducing farmer distress.
  • Sometimes referred to as Swaminathan Commission recommendation, though the Commission suggested using C2+50% for a more comprehensive cost assessment.

Market Intervention Scheme (MIS)

  • Purpose: MIS is a short-term procurement mechanism to protect farmers from price crashes in case of surplus production of perishable and non-perishable crops.
  • Scope: Primarily applied to crops not covered adequately by MSP or when market prices fall below MSP.
  • Mechanism: Government procures the crop at pre-determined price to stabilize the market, sometimes with private agencies’ support.
  • Benefit: Prevents distress sales, ensures minimum income, and maintains price stability in the market

PM-AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan)

  • Objective: To ensure remunerative prices to farmers and plug gaps in MSP implementation.
  • Components:
    1. MSP Operations: Direct procurement of crops at MSP.
    2. Price Support Scheme (PSS): Government procures crops not covered adequately by MSP.
    3. Private Procurement & Stockist Scheme (PPSS): Private players procured crops when government procurement is limited.
  • Significance: Addresses infrastructure and regional gaps in MSP procurement, reduces farmer distress, and increases reach of MSP benefits.

Shanta Kumar Committee on MSP

  • Formation: The Committee was constituted in 2015 under the chairmanship of Shanta Kumar to review MSP policy and procurement in India.
  • Objective: To make MSP more efficient, targeted, and financially sustainable while reducing fiscal burden on the government.

Key Recommendations:

  1. Limited MSP procurement: Focus MSP procurement on 5-6 major crops like wheat, rice, and pulses.
  2. Market-determined prices: Gradually allow market forces to determine prices for other crops.
  3. Reduce procurement costs: Optimize government spending by limiting procurement and storage of surplus crops.
  4. Promotion of private procurement: Encourage private players to buy directly from farmers at MSP to reduce government burden.
  5. Better targeting of beneficiaries: MSP should benefit actual farmers, reducing leakages to large traders or middlemen.
  6. Gradual MSP withdrawal for some crops: MSP should not distort market incentives for crops where procurement is low or non-existent.

Significance:

  • Aimed at fiscal prudence while safeguarding farmer incomes.
  • Controversial: Critics argue that limiting MSP could negatively impact small and marginal farmers.
  • Complemented by schemes like PM-AASHA, which aim to plug MSP gaps without full government procurement.

Conclusion:
MSP is a critical policy tool for farmer welfare and food security. To maximize effectiveness, India must address procurement gaps, regional disparities, and adopt more inclusive cost-based MSPs, ensuring fair remuneration and sustainable agriculture.

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