recommended by Commission for Agricultural Cost and Prices (CACP) (Ministry of Agri)
CACP takes into account factors like cost of production, change in input cost, input-output price parity, demand, supply and other micro/macro level data to determine MSP for the season
Benefits
stable income from farmers
stability of supply for next season
protects farmers from money lenders
insurance against price volatility
farmers use higher returns to invest in mechanization
Issues
Calculation issue
currently calculated using actual cost
MS Swaminathan and farmers want MSP to be calculated based on comprehensive cost
C2 includes imputed rent on land and interest on capital which makes cost of production much higher than current level used by CACP
only 6% farmers benefiting from MSP (NSSO report)
leads to overproduction and cereal centric production
reduces crop diversification
MSP becomes base price and causes inflation
distortions in market, affecting not just prices, but also cropping patters, deteriorations in soil quality, water table etc
distorts market because govt procurement agencies procure 70% of rice and wheat, forcing out private players
Way forward
Give farmer income support via PM-KISAN and remove subsidies.