How is the Minimum Support Price (MSP) calculated?

Farmers all over India are protesting right after the three agricultural bills were passed by the Parliament of India on 27 September 2020. The demand of farmers is that they want the government to guarantee in writing that the Minimum Support Price (MSP) system should continue to exist and that it should be 1.5 times the cost of production.

Before moving forward it is important to know about the concept of MSP. After the independence of India, the government recognized the exploitation farmers were facing and proposed to set up the APMC, i.e. the Agricultural Produce Market Committee, to reduce the extent of hardship faced by farmers under the pressure and oppression of creditors and other intermediaries. Several trading centers known as APMC mandis were set up in several states of India. Thereafter minimum sale price i.e. MSP was fixed in each of these AMPC mandis according to which traders cannot purchase goods from farmers beyond the MSP. These MSP system guarantees farmers a fixed price for their crops, much above their cost of production.

The Union budget for 2018-19 announced that MSP will be held at a rate of one and a half times the cost of production. As per a government release in March, 2020, “accordingly, the Government has increased the MSP for all mandated Kharif, Rabi and other commercial crops with a return of at least 50 per cent of cost of production for the agricultural year 2018-19 and 2019-20.”

For more information on how the 1.5-times formula for crops MSP is calculated, please click below: