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