Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops. Commission for Agricultural Costs & Prices (CACP) in the Ministry of Agriculture recommends MSPs for 23 crops. These include 14 grown during the kharif/post-monsoon season (see table) and six in rabi/winter (wheat, barley, chana, masur, mustard and safflower), apart from sugarcane, jute and copra. CACP consider various factors while recommending the MSP for a commodity like cost of cultivation, supply and demand situation for the commodity; market price trends (domestic and global) and parity vis- à-vis other crops etc.

MSP seeks to:

1. Assured Value: To give guaranteed prices and assured market to the farmers and save them from the price fluctuations (National or International).
2. Improving Productivity: By encouraging higher investment and adoption of modern technologies in agricultural activities.
3. Consumer Interest: To safeguard the interests of consumers by making available supplies at reasonable prices.

Issues

• Poor Awareness: NITI Aayog found that a low proportion of farmers (10%) was aware of MSPs before the sowing season. 62% of the farmers were informed of MSPs after sowing their crops.
• Non remunerative Price: It was found in many States that farmers were unable to get cost of cultivation from MSP announced by govt.
• Distorted Cropping Pattern: MSP has put excessive focus on Wheat, Rice and Sugarcane in the procurement at the expense of pulses, oilseeds, coarse grains etc.
• It has resulted in depletion of water resources, soil degradation and deterioration in water quality in some states, especially in the north-western region.
• Regional Discrimination: It has discriminated against eastern states where procurement at the MSP is minimal or non-existent.
• Fiscal Cost: Subsidy burden of MSP has substantial bearing on Fiscal health and inflationary trend in economy. A recent hike in MSP has also raised question about India subsidy limit defined by WTO.

Way Forward

• Increasing Awareness: Awareness level of farmers regarding MSPs must be increased and the mediums of dissemination of this information must be strengthened.
• Timely Payment: Delays in MSP payments have negative effects on the framers which needs to be corrected and timely payment should be ensured.
• Advance Announcement: As intended by the policy makers, MSP should be announced well in advance of the sowing season so as to enable the farmers to plan their cropping.
• Improved facilities at procurement centres, such as drying yards, weighing bridges, toilets, etc. should be provided to the farmers. More godowns should be set up and maintained properly for better storage and reduction of wastage.
• The small and marginal farmers can be provided with some exemption in Fair Average Quality (FAQ) norms to provide them with a source of income. The Procurement Centers should be in the village itself to avoid transportation costs. National Commission of farmer also recommended mandi to be in 5km Radius for producer.                                                                                                                                                                                                    
• Reviewing Method of MSP: There should be meaningful consultations with the State Government, both on the methodology of computation of MSP as well as on the implementation mechanism. The criteria for fixing MSP should be current year’s data and based on more meaningful criteria rather than the historical costs. In light of this, the NITI Aayog has come out with three models.
• The market assurance scheme: It proposes procurement by States and compensation of losses up to certain extent of MSP after the procurement and price realisation out of sale of the procured produce.
• The price deficiency procurement scheme: Under this, if the sale price is below a modal price then the farmers may be compensated to the difference between MSP and actual price subject to a ceiling which would not exceed 25 % of the MSP. Eg: Bhavantar Bhugtan Yojana (BBY) in MP.
• Private procurement and stockist scheme: Under this, procurement would be done by private entrepreneurs at MSP. The government would provide some policy and tax incentives to these entrepreneurs. The private player is nominated through a transparent bidding process by the state government.
• States can adopt one or more options depending on their requirements. However, all the three options may not be implemented for the same crop.
• Before finalizing any model, the government must also consider report of National Commission for Farmers (NCF) which had recommended that MSP should be at least 50% more than the weighted average cost of production.