The Cabinet Committee on Economic Affairs (CCEA) has increased the Minimum Support Price for six Rabi crops (wheat, barley, gram, lentil, rapeseed, mustard and safflower) for the next marketing season (2025-26).The increase in MSP has given rise to discussions on its impact on the agro-ecosystem along with the demand of farmers to make MSP statutory.
Cabinet Committee on Economic Affairs
- It is chaired by the Prime Minister and sets priorities for public sector investment.
- It continuously reviews economic trends to develop an integrated economic policy framework and oversees policies and activities in the economic sector (which require high level decision making), including foreign investment
Minimum Support Price
- MSP was introduced in the year 1965 with the establishment of the Agricultural Prices Commission (APC), later named CACP. It was a form of market intervention to enhance national food security and protect farmers from falling market prices.
Calculation of MSP
- The Commission for Agricultural Costs & Prices (CACP) calculates three types of production costs for each crop at the state and all India average level.
- A2: It includes all direct costs payable by the farmer in cash and kind on seeds, fertilizers, pesticides, labour, leased land, fuel, irrigation etc.
- A2+FL: It includes A2 plus the estimated value of unpaid family labour.
- C2: It is a comprehensive cost that includes A2+FL cost plus estimated rental value of owned land, interest on fixed capital, rent paid for leased land
- The government says that MSP is fixed at a level of at least 1.5 times the all-India weighted average cost of production (CoP), but this cost is calculated as 1.5 times the A2+FL cost.
Concerns related to MSP in India
- Limited coverage: According to the 2015 report of the Shanta Kumar Committee, only 6% of farmers benefit from MSP. Mainly farmers who live in areas with access to better infrastructure (such as Punjab and Haryana), while a large number of farmers from other states are deprived of it.
- Unbalanced focus on crops: The MSP system focuses primarily on a few crops (particularly rice and wheat) which does not incentivise farmers to grow other crops, which may lead to overproduction of these crops, affecting crop diversification.
- Excessive burden on the procurement system: MSP often leads to large-scale government procurement (particularly of rice and wheat) which leads to wastage of grain, storage challenges and strain on the resources of the Food Corporation of India (FCI).
- Environmental impact: The focus on a few water-intensive crops like rice (supported by MSP) leads to environmental concerns (such as groundwater depletion – especially in regions like Punjab).
- Dependence on middlemen: In some cases, even when MSP is declared, farmers face difficulties in accessing procurement agencies directly, increasing their dependence on middlemen, leading to exploitation.