What is the Minimum Support Price?
                     What is the 
Minimum 
Support Price?
Introduction
Minimum Support Price (MSP) is a form of market 
intervention by the Government of India to insure 
agricultural producers against any sharp fall in farm 
prices. 
2 Source: vikaspedia.in
Announced by the 
Government of 
India
The minimum support prices are announced by the 
Government of India at the beginning of the sowing 
season for certain crops on the basis of the 
recommendations of the Commission for Agricultural 
Costs and Prices (CACP).
3 Source: vikaspedia.in
Historical 
perspective of MSP
The Price Support Policy of the Government is directed 
at providing insurance to agricultural producers against 
any sharp fall in farm prices. The minimum guaranteed 
prices are fixed to set a floor below which market prices 
cannot fall. Till the mid 1970s, Government announced 
two types of administered prices :
• Minimum Support Prices (MSP)
• Procurement Prices
4 Source: vikaspedia.in
Historical 
perspective of MSP 
Cont.
The MSPs served as the floor prices and were fixed by 
the Government in the nature of a long-term guarantee 
for investment decisions of producers, with the 
assurance that prices of their commodities would not 
be allowed to fall below the level fixed by the 
Government, even in the case of a bumper crop. 
Procurement prices were the prices of kharif and rabi 
cereals at which the grain was to be domestically 
procured by public agencies (like the FCI) for release 
through PDS.
5 Source: vikaspedia.in
Determination of 
MSP
• Cost of production
• Changes in input prices
• Input-output price parity
• Trends in market prices
• Demand and supply
• Inter-crop price parity
• Effect on industrial cost structure
• Effect on cost of living
• Effect on general price level
• International price situation
6 Source: vikaspedia.in
MSP for MFP
This latest scheme has been introduced by the Ministry 
of Tribal Affairs. It seeks to fix MSP for certain Minor 
Forest Produce in all states. TRIFED is the nodal 
implementing agency for the same.
7 Source: cleartax.in
What was the need 
of introducing 
MSP?
On the path of the Green Revolution, Indian 
policymakers realized that the farmers needed 
incentives to grow food crops. 
Otherwise, they won’t opt for crops such as wheat and 
paddy as they were labor-intensive and didn’t fetch 
lucrative prices. Hence, to incentivize the farmers and 
boost production, the MSP was introduced in the 1960s.
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How many crops are 
covered under the 
MSP?
At present, the Centre provides the MSP for 23 crops. 
These include cereals such as bajra, wheat, maize, 
paddy barley, ragi and jowar; pulses like tur, chana, 
masur, urad and moong; oilseeds such as safflower, 
mustard, niger seed, soyabean, groundnut, sesame and 
sunflower. 
The MSP also covers commercial crops of raw jute, 
cotton, copra and sugarcane.
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How the govt decides 
on the MSP?
• The government announces the MSP at the start of each 
cropping season.
• The MSP is decided after the government exhaustively 
studies the major points made by the Commission for 
Agricultural Costs and Prices.
• These recommendations are based on some pre-fixed 
formulae. This includes the actual cost incurred, implicit 
family labour as well as the sot of fixed assets or rent paid 
by the farmers.
• In technical terms, these variables are called A2, FL and 
C2. The MSP is calculated by the government by often 
adding all these.
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Is MSP legal?
• No. While Centre has been providing the MSP to the 
wheat and paddy farmers since mid-60s to tide over 
the food crisis, the fact remains that the MSP 
doesn’t have any legal stature.
11 Source: www.financialexpress.com