[Answered] What do you mean by Minimum Support Price (MSP)? How will MSP rescue the farmers from the low income trap?

Demand of the question
Introduction. What is MSP?
Body. How MSP help farmers from low income trap?
Conclusion. Way forward.

MSP is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices during bumper production years. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. It is the price at which government purchases crops for the farmers, to safeguard the interests of the farmers. It is an important part of India’s agricultural price policy. It supports the food security program through PDS and also gives sufficient remuneration to the farmers.

MSP help in rescuing farmers from low income trap in the following ways:

  1. Fixed Remunerations: The farmers are financially secured against the vagaries of price instability in the market.
  2. Diversification of crops: The MSP announced by the Government of India for the first time in 1966-67 for wheat has been extended to around 24 crops at the present. This will encourage the farmers to grow these diverse crops to maximise their income.
  3. Prevents Distress-Sale: Farmer rarely has surplus savings for buying inputs for the next cropping season. Access to credit (loans) is also difficult for small and marginal farmers. So, they are forced into distress-sale of produce at throw-away prices, and are not able to buy high quality seeds, fertilisers, pesticides & tractor-rent for next cropping season, which will further decrease their income from the next cycle. MSP prevents this phenomenon.
  4. Helps informed decision making: Government announces MSP before the sowing season for 23 crops including cereals, pulses, oilseeds & certain cash crops. This advance information helps the farmer to make an informed decision about which crop to sow for maximum economic benefit within the limitations of his farm size, climate and irrigation facilities.
  5. Acts as a benchmark for private buyers: MSP sends a price-signal to market that if merchants don’t offer higher than MSP prices the farmer may not sell them his produce. Thus it acts as an anchor or benchmark for agro-commodity market. While it doesn’t guarantee that market prices will also be higher than MSP, but atleast it ensures the market prices will not drastically lower than MSP.

However, a lot is yet to be done as far as MSPs for different crops are concerned. Besides increased quantum and diversification of MSPs, the procurement of food grains must also be streamlined in order to sustain investment in agriculture and ensure food security in the country.

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