Agricultural Pricing in India is a core economic policy concept and a mechanism, primarily implemented through the Minimum Support Price (MSP) scheme. The MSP is the guaranteed price at which the government purchases select crops from farmers, acting as a price floor to protect them from market volatility and distress sales.
The policy originated with the establishment of the Agricultural Prices Commission in January 1965, which was renamed the Commission for Agricultural Costs and Prices (CACP) in 1985. The MSP scheme was operationalized in 1966–67 during the Green Revolution to incentivize farmers to adopt new technology and increase food grain production, solving the problem of food scarcity.
The mechanism involves the CACP, an advisory body under the Ministry of Agriculture & Farmers Welfare, recommending MSPs for 22 mandated crops (plus Fair and Remunerative Price for sugarcane) before each sowing season. The final price is approved by the Cabinet Committee on Economic Affairs (CCEA). The MSP is calculated using a cost-plus approach, which, since 2018-19, has been set at a minimum of 1.5 times the A2+FL cost (Actual paid-out costs plus imputed value of family labour). Government agencies like the Food Corporation of India (FCI) procure the produce at the announced MSP.
This policy connects directly to the Public Distribution System (PDS), as the procured grains are used for food security programs. It is also linked to the Essential Commodities Act, 1955 (ECA), which allows the government to regulate the supply and distribution of essential foodstuffs. A recent change was the Essential Commodities (Amendment) Act, 2020, which inserted subsection 3(1A) into the ECA, limiting the government's power to impose stock limits on agricultural foodstuffs to "extraordinary circumstances," such as a 50% retail price increase for non-perishable items.