“The Knowledge Library”

Knowledge for All, without Barriers…

An Initiative by: Kausik Chakraborty.
03/10/2023 6:31 AM

“The Knowledge Library”

Knowledge for All, without Barriers……….
An Initiative by: Kausik Chakraborty.

The Knowledge Library

Minimum support price (MSP)

  • MSP is the price at which the government procures crops directly from farmers. It is calculated to be at least one-and-a-half times the cost of production incurred by the farmers.
  • The MSP serves as a minimum guaranteed price for specific crops that the government considers remunerative and deserving of support for farmers.

Agriculture’s Role in the National Economy

  • Employment and Livelihood: Agriculture is the largest source of employment and livelihood for about 50 percent of the country’s population, especially in rural areas. It provides direct and indirect employment for millions of people.
  • Contribution to GDP: Agriculture contributes around 17–18 percent to India’s Gross Domestic Product (GDP). Although the share of agriculture in the overall GDP has been declining over the years due to the growth of other sectors, it remains a crucial component of the economy.
  • Food Security: The agricultural sector plays a critical role in ensuring food security for the nation. By producing a variety of food crops like rice, wheat, pulses, fruits, and vegetables, it caters to the dietary needs of the population and helps manage food inflation.
  • Source of Raw Materials: Agriculture is the primary source of raw materials for various industries, including textiles, sugar, jute, and vegetable oil. It provides the necessary inputs for industrial production, contributing to the overall industrial growth of the country.
  • Export Earnings: Agricultural exports, such as rice, spices, tea, coffee, and cotton, generate foreign exchange earnings for the country. This helps improve the balance of trade and supports economic growth.
  • Rural Development: The growth of agriculture has a significant impact on rural development. It improves rural infrastructure, raises the standard of living, and creates opportunities for the development of allied industries and services in rural areas.
  • Poverty Alleviation: Agriculture remains an essential tool in poverty alleviation as it provides income and employment opportunities to the rural population, which is often more susceptible to poverty.

Important role of MSP

  • Ensuring Income Security: MSP provides a minimum guaranteed price for farmers’ produce. It protects them from price fluctuations and market risks, ensuring a stable income for their efforts and investment in farming.
  • Preventing Distress Sales: With MSP in place, farmers are less likely to resort to distress sales of their crops during times of market downturns.
  • Encouraging Crop Diversification: The MSP system covers a range of crops, including cereals, pulses, oil seeds, and more. By providing a remunerative price for diverse crops, it encourages farmers to adopt crop diversification, contributing to agricultural sustainability and food security.
  • Government Procurement: MSP sets a benchmark for government procurement of crops. The government procures crops at MSP through various agencies like FCI and state agencies, thereby supporting farmers and maintaining buffer stocks for food distribution.
  • Addressing Regional Imbalances: MSP implementation considers regional variations in production costs and helps bridge the income gap between farmers in different regions. It addresses regional imbalances and ensures equitable growth in the agriculture sector.

Inadequacies of the MSP

  • Limited Coverage: The current MSP system leaves the majority of farmers without much-needed support. Only around 6% of farmers in the country benefit from MSP, while the remaining face challenges in accessing remunerative prices for their produce.
  • Debt and Bankruptcy: Despite MSP being introduced as a safety net, farmers still struggle with debt and bankruptcy. The average debt burden on a farmer’s family is over Rs 1 lakh, despite the subsidies provided by the government.
  • Natural Disasters and Market Risks: Farmers remain vulnerable to natural disasters and market forces, making their income uncertain and apprehensive. Climate change adds complexity to farming, and farmers cannot be left at the mercy of such unpredictable factors.
  • Insufficient Market Regulation: Middlemen exploit farmers, leading to a significant difference between the price at which farmers sell their produce and the price at which consumers buy the same produce. This lack of market regulation affects farmers’ income adversely.
  • Inadequate MSP Calculation: The MSP calculation method may not fully reflect the input costs, market trends, and other economic factors, leading to an ineffective MSP for farmers.
  • Rising Debt: The outstanding loan on farmers has increased significantly over the years, indicating the insufficiency of MSP and minimal increases in support prices.

Swaminathan Commission Recommendations

  • Calculation of MSP: The Swaminathan Commission recommended that MSP be calculated by adding 50 percent profit to the C2 cost (comprehensive cost including imputed value of family labor) for crops. This method takes into account various input costs incurred by farmers, including labor, seeds, fertilizers, and other expenses.
  • Expanded Coverage: The Commission suggested expanding the scope of MSP to cover a wide range of agricultural produce, including crops like ginger, garlic, turmeric, chili, and all agricultural produce and horticulture.

The Call for a Legal Guarantee of MSP

  • Addressing Rising Debts: The outstanding loan to farmers has significantly increased over the years, reaching Rs 23.44 lakh crore in 2021–22. Legalizing MSP would offer a sustainable solution, reducing farmers’ dependence on debt.
  • Fulfilling Promises: A legal guarantee makes MSP a binding obligation, ensuring farmers receive the promised prices for their crops and avoiding selling at lower rates.
  • Empowering Farmers: Legalized MSP enhances farmers’ bargaining power and enables informed decisions in cropping and marketing.
  • Supporting Sustainable Agriculture: MSP legislation promotes sustainable agriculture, diversification, and resilience against climate change.
  • Promoting Farmer-Centric Policy: A Legal Guarantee of MSP emphasizes a farmer-centric approach, safeguarding their rights, interests, and livelihoods.

Way forward

  • Reforming Agribusiness and Ensuring Fair Compensation:
    1. Promote farmer producer organizations (FPO’s) and cooperatives.
    2. Facilitate direct market access to reduce dependence on intermediaries.
  • Adhering to the Swaminathan Commission’s Guidelines:
    1. Follow the MSP calculation as per the Swaminathan Commission’s recommendations.
    2. Consider comprehensive costs, including labor and input expenses.
  • Promoting Sustainable Agriculture Practices:
    1. Encourage the adoption of sustainable farming practices and climate-resilient crop varieties.
    2. Invest in agricultural research and extension services for modern technologies.
  • Ensuring Access to Credit and Insurance:
    1. Strengthen credit facilities for farmers.
    2. Provide insurance coverage to manage risks effectively.
  • Investing in Rural Infrastructure:
    1. Improve irrigation facilities, storage, and transportation networks.
    2. Reduce post-harvest losses and improve market access.
  • Promoting Agro-tourism and Direct Marketing:
    1. Encourage agro-tourism for additional income.
    2. Establish farmers’ markets and e-commerce platforms for direct marketing.


  • The demand for a legal guarantee of MSP is a just and crucial step towards safeguarding the livelihoods of farmers. Providing farmers with a dignified life is not just a moral obligation but an economic imperative, as the growth of the agricultural sector directly impacts the nation’s prosperity.

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