Agriculture and Rural Development Agriculture and Cooperation

Ensure a minimum of 50% profits over the cost of production.

In Progress
Last Updated: Wednesday 07 March 2018
Tuesday 06 February 2018Lok Sabha

The Government fixes Minimum Support Prices (MSPs) for 22 major agricultural crops to ensure remunerative prices for farmers on the recommendation of Commission for Agricultural Costs and Prices (CACP), and in addition, MSP for toria and de-husked coconut is also fixed on the basis of MSPs of rapeseed / mustard and copra respectively. While formulating its recommendations on price policy, CACP considers cost of production, trend in market prices, demand and supply situation, effect on general price level, effect on cost of living etc. However, farmers are free to sell their produce to the Government Procurement Agencies at MSP or in the open market as is advantageous to them.

The Government also undertakes procurement of paddy and wheat at Minimum Support Price (MSP) through Food Corporation of India (FCI). In addition, procurement of oilseeds, pulses and cotton are undertaken by central agencies at MSP under Price Support Scheme (PSS) at the request of the concerned State Government which agrees to exempt the  procured commodities from levy of mandi tax and assist central nodal agencies in logistic arrangements.

On February 21, 2015, The Tribune reported that the Government informed the Supreme Court that it would no longer provide minimum support price for food grains using the cost plus 50% pricing method, due to the ensuing market distortions. Minimum support price was recommended by the Commission on Agricultural Costs and Prices for 22 commodities. Currently, the Government is focused on revamping the procurement system of food grains and incentives provided for the same, in the economy. Highly skewed incentive structures (MSPs) in favour of wheat and rice, was recommended by an FCI review committee, along with abetting states where farmers are under duress. Some of these states include Eastern Uttar Pradesh, Bihar, West Bengal, and Assam. However, due to the excessive MSPs of wheat and rice, farmers are enticed to grow these grains in abundance, thereby, hindering the procurement process in the country due to limited storage space.

On February 1, 2018, while presenting the Union Budget 2018-19, the Union Minister of Finance, Shri Arun Jaitley, said: "[...]in our party's manifesto it has been stated that the farmers should realize at least 50 per cent more than the cost of their produce, in other words, one and a half times of the cost of their production. [Our] Government have [sic] been very much sensitive to this resolutions [sic] and it has declared Minimum Support Price (MSP) for the majority of rabi crops at least at one and a half times the cost involved. Now, we have decided to implement this resolution as a principle for the rest of crops. I am pleased to announce that as per pre-determined principle, Government has decided to keep MSP for the all unannounced crops of kharif at least at one and half times of their production cost. I am confident that this historic decision will prove an important step towards doubling the income of our farmers."

The MSPs of rabi crops for 2017-18 fixed by the Government on the basis of recommendation of CACP provides adequate return over weighted average cost of production (A2+FL) for most crops. The return over cost of production (A2+FL) of MSP fixed by Government for rabi crops for 2017-18 has been in excess of 50% with return of 112.4% for wheat, 88.4% for rapeseed / mustard, 79.6% for masur, 78.8% for gram, and 66.9% for barley.

From time to time, expert committees were constituted by Government to review the methodology and system of calculation of the MSPs. A Committee constituted in 2013 by the UPA-2 Government under the Chairmanship of Prof. Ramesh Chand, then Director, National Institute of Agricultural Economics and Policy (NIAP), and present Member of NITI Aayog, with a view to examine the methodological issues in fixing MSP. The Committee, while submitting its Report, had made the follwing major recommendations:

  • the value of the labour of the head of the family be imputed at skilled labour rates and the entire paid-out costs including family labour i.e. A2+FL be increased by 10% to account for risk related to farming and managerial charges of farmers;

  • the interest on working capital be computed for the full period of the crop season at 12.5 per cent per annum;

  • the rental value of the owned land be imputed on the basis of actual rates prevailing in the area, for similar land, without any ceiling as per state laws; and

  • the post harvest costs incurred like cleaning, grading, packaging and transportation etc. be estimated and reported to CACP separately for its consideration in making MSP recommendations.

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