The Minimum Support Price (MSP) is a government-supported agricultural price policy, acting as a concept and a mechanism to provide a minimum guaranteed price to farmers for their produce. It was formalized during the Green Revolution era in the 1960s to solve the problem of food shortages and incentivize farmers to adopt high-yielding varieties and technology. The policy was first implemented for wheat in 1965.
The mechanism involves the government announcing the MSP for 22 mandated crops (plus the Fair and Remunerative Price for sugarcane) twice a year, before the Kharif and Rabi sowing seasons. The price is fixed by the Central government based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), an advisory body under the Ministry of Agriculture and Farmers Welfare, which was established in 1965 as the Agricultural Prices Commission and renamed in 1985. The CACP considers factors like the cost of production (A2+FL), demand-supply dynamics, and market price trends. When market prices fall below the announced MSP, government agencies like the Food Corporation of India (FCI) and NAFED procure the crops from farmers at the MSP, preventing distress sales and supporting the Public Distribution System (PDS).
A significant recent change, announced in the Union Budget 2018-19, mandated that the MSP for all crops be fixed at a level of at least 1.5 times the All-India weighted average Cost of Production (CoP), ensuring a minimum 50% profit margin for farmers. However, the MSP mechanism currently lacks statutory backing, meaning the government is not legally bound to enforce it, which remains a key demand of farmers. The MSP policy is closely connected to the broader goal of food security and the various procurement schemes like the Price Support Scheme (PSS) and PM-AASHA.