What is a Minimum Support Price (MSP)? Why is an MSP needed?

Minimum support price is the price at which the government purchases crops from the farmers. It's an important part of India's agricultural price policy. It was declared in 1965 as a tool for agricultural price policy to meet many objectives. The Cabinet Committee on Economic Affairs (CCEA), Government of India, and Commission for Agricultural Cost and Prices (CACP) decides the MSP of different agricultural goods in India.

MSP is needed for the following reasons:

1. It helps to improve economic access to food to people.

2. It ensures price stability for the farmers by inducing them to increase production, which will ensure the availability of food grains.

3. It introduces a pattern of production which is in correspondence to the overall economic needs.

It is announced by the government at the beginning of the sowing seeds for certain crops. It affects the farmer's decision indirectly, allocation of land to different crops, the number of crops to be produced, etc. Currently it includes 24 crops- seven kinds of cereal (paddy, wheat, barley, jowar, bajra, maize and ragi); five pulses (gram, arhar, moong, urad and lentil); eight oilseeds (groundnut, mustard, toria, soybean, sunflower seed, sesamum, safflower seed and niger seed); copra, raw cotton, raw jute, and Virginia flu cured (VFC) tobacco.