Key Terms & Concepts — UPSC Mains
Minimum Support Price (MSP)
"Government-announced floor price at which it pledges to procure specified agricultural commodities from farmers"
Minimum Support Price (MSP) is the price at which the government guarantees to purchase agricultural commodities from farmers, regardless of market prices, to protect them from distress selling. It is announced by the Union Cabinet on the recommendation of the Commission for Agricultural Costs and Prices (CACP). Currently covers 23 commodities: 14 kharif crops, 6 rabi crops, and 2 commercial crops (cotton, jute) and one other. MSP is NOT a legal right — it is an administrative decision, and procurement is primarily done by FCI and state agencies, not across all commodities or all states equally.
High political and policy sensitivity — demands for C2+50% formula MSP and legal guarantee were central to farm protests (2020-21). UPSC tests: How MSP is fixed, which crops, who recommends (CACP), who procures (FCI), fiscal implications, and policy debate on legal guarantee.
- 1 CACP (Commission for Agricultural Costs and Prices) recommends MSP — advisory body under Ministry of Agriculture
- 2 MSP calculation methods: A2 (paid-out costs) + FL (family labour) = A2+FL method; C2 method adds imputed land rent and capital interest
- 3 Swaminathan Committee recommended C2+50% — government claims A2+FL+50% achieves similar result in practice
- 4 MSP is NOT legally mandated — government can revise or not procure (fiscal constraints)
- 5 Effective procurement: Only wheat, rice, pulses (partially) are procured at scale via FCI
- 6 Rs 15.18 lakh crore MSP for kharif 2025-26 (total value of production at MSP rates)
- 7 Criticism: (1) Fiscal burden; (2) Distorts crop diversification (focus on wheat/rice); (3) Benefits large farmers more; (4) Not implemented uniformly
- 8 FCI (Food Corporation of India): Government procurement and buffer stock management agency
- 9 PMGKAY (Pradhan Mantri Garib Kalyan Anna Yojana): Free food grain to 80 crore beneficiaries — funded by FCI procurement
If a farmer grows paddy in Punjab and the market price falls below MSP, state procurement agencies buy at MSP through designated purchase centres — a system that works well in Punjab/Haryana but barely exists in most other states.