At the beginning of every sowing season, the Government of India declares Minimum Support Price for 22 crops at which the government purchases from farmers/producers. It gives a guaranteed price and assured market to the farmers by protecting them from Market fluctuations and imperfections.
Minimum Support Price :
During the mid-1960 when the Green revolution was helping the government was fighting against the food deficit that India faced, the government realised that unless the crops were guaranteed a minimum support price the farmers won't be motivated to plant high-yielding varieties of Paddy and Wheat crops. MSP was fixed beginning with Wheat.
The government of India sets MSP twice a year. It is recommended by the Commission of Agricultural Costs & Prices which is under the Ministry of Agriculture and Farmers Welfare. The recommendations are of advisory nature and it is not binding on the government.
Calculation of MSP:
The commission takes various factors while calculating the MSP like
- Cost of Production
- Trends in Market Prices
- Changes in Input prices
- Input-output Price Parity
- Effect on the cost of living
- International price situation
- Demand & Supply
- Effect on issue prices & Implications of subsidy