What is MSP?

India is an agriculture dominated country. More than 50% of Indian workforce is employed by the agriculture. Farmers strive hard to produce high yield and quality products but their income is less than expenses. Market price is determined by supply and income demand. When there is large supply of crops but less demand , there is sharp fall in farm prices affecting farmers drastically. There is always price fluctuations in agricultural products while farmers get a decent return when there is shortage of supply,the same products fetch them poor price during bumper harvest season.
The government of India has introduced MSP (Minimum Support Price ) to protect producers against excessive fall in farm prices leading heavy loss suffered by the farmers.MSP is the minimum price a farmer must be paid for their agricultural produce as guaranteed by the government of India. If the market price falls below MSP, the government procures that crop from the farmers at MSP. MSP is announced for  22 major crops along with a Fair Remunerative Prices (FRP) for sugarcane. MSP is recommended by Commission for Agricultural Costs and Prices (CACP) but the final decision is taken by the Cabinet Committee on Economic Affairs(CCEA) of union government.

MSP ensures profit of atleast 50% over the cost of production for the farmers.It includes cost of production, domestic and international prices, demand-supply conditions, inter-crop price parity and the terms of trade between agricultural and non-agricultural sectors.
Farmers are free to sell their products to any non-governmental parties, if they get favorable terms to sell their products or better than MSP. The government mainly buys rice and wheat at guaranteed price.

Benefits of MSP:
• It acts as a surety to farmers so that their crops get the fair amount for their produce and helps them sustain their losses and does not affect them drastically
• It helps to keep a floor price which does not let the prices fall below a certain point.
• The government can use these crops to be sold at government fair price shops at a price lower than market rate that will also help the government recover some amount and reduce the losses of the government.
• It safeguard the interest of the consumer by ensuring supplies at a reasonable price.
• Government manages food scarcity by distribution of stored grains at affordable prices.

Drawback of MSP :
• It doesn’t increase in proportion to the increase in cost of production.
• There are a lot of farmers who don’t have adequate information about MSP and are exploited by middlemen.
• There are several regions in the country where farmers can’t access to the benefits through MSP.
• Open market workings , which works on supply and demand relations is detrimental for farmers , is disrupted by government intervention.
• Maintenance cost of procuring grains is raised by MSP which affects the investment in agri-infrastructure.