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Indian Economy

Minimum Support Price

  • 25 Oct 2019
  • 5 min read

The Government has hiked the Minimum Support Price (MSP) for Rabi crops for the marketing season 2020-21, after decision was taken at a meeting of the Cabinet Committee on Economic Affairs (CCEA), headed by the Prime Minister.

The increase in MSP for Rabi Crops is in line with the principle of fixing the MSPs at a level of at least 1.5 times of the all India weighted average cost of production [CoP], which was announced in the Union Budget 2018-19.

Minimum Support Price

  • The MSP is the rate at which the government buys grains from farmers.
  • Reason behind the idea of MSP is to counter price volatility of agricultural commodities due to the factors like variation in their supply, lack of market integration and information asymmetry.

Fixation of MSP

  • The MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
  • Factors taken into consideration for fixing MSP include:
    • Demand and supply;
    • Cost of production (A2 + FL method)
    • Price trends in the market, both domestic and international;
    • Inter-crop price parity;
    • Terms of trade between agriculture and non-agriculture;
    • A minimum of 50% as the margin over cost of production; and
    • Likely implications of MSP on consumers of that product.
  • The Commission also makes visits to states for on-the-spot assessment of the various constraints that farmers face in marketing their produce, or even raising the productivity levels of their crops.
  • Based on all these inputs, the Commission then finalizes its recommendations/reports, which are then submitted to the government.
  • The government, in turn, circulates the CACP reports to state governments and concerned Central Ministries for their comments.
  • After receiving the feed-back from them, the Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs and other recommendations made by the CACP.
  • Procurement: The Food Corporation of India (FCI), the nodal central agency of the Government of India, along with other State Agencies undertakes procurement of crops.

The CACP is an attached office of the Ministry of Agriculture and Farmers Welfare, formed in 1965. It is a statutory body that submits separate reports recommending prices for Kharif and Rabi seasons.

National Commission on Farmers: Swaminathan Committee

  • On 18th November, 2004, the Union government formed the National Commission on Farmers (NCF) with MS Swaminathan as its chairman.
    • The main aim of the committee was to come up with a sustainable farming system, make farm commodities cost-competitive and more profitable.
  • It, in 2006, recommended that MSPs must be at least 50% more than the cost of production.
  • It talked about the cost of farming at three levels:
    • A2: All the types of cash expenditure to generate the crop like seeds, manure, chemicals, labour costs, fuel costs and irrigation costs.
    • A2+FL: It includes A2 plus an imputed value of unpaid family labour.
    • C2: Under C2, the estimated land rent and the cost of interest on the money taken for farming are added to A2 and FL.

Rabi Crops

  • Rabi crops are sown in winter from October to December and harvested in summer from April to June.
  • Some of the important rabi crops are wheat, barley, peas, gram and mustard.
  • Though, these crops are grown in large parts of India, states from the north and northwestern parts such as Punjab, Haryana, Himachal Pradesh, Jammu and Kashmir, Uttarakhand and Uttar Pradesh are important for the production of wheat and other rabi crops.

Source: TH

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