Question

Minimum Support Price (MSP) of the agricultural crops in India is fixed by the government on the recommendations of the:

1. Food Corporation of India (FCI)
2. Reserve Bank of India
3. Commission for Agricultural Costs and Prices (CACP)
4. None of the above. 

Answer 1

Correct Answer - Option 3 : Commission for Agricultural Costs and Prices (CACP)

The correct answer is the Commission for Agricultural Costs and Prices (CACP).

• MSP is fixed on the recommendations of the Commission for Agricultural Costs and Prices (CACP) since 2009.
  • During the 2018-19 Union Budget, the government announced that MSP would be kept at 1.5 times the cost of production (as per recommendations from the M S Swaminathan chaired National Commission for Farmers).

• Minimum Support Price is a safety net given to the farmers to ensure guaranteed prices and assured markets.
  • The MSP-based procurement system is aimed to save the crops from price fluctuations due to various unwarranted factors such as the monsoon, lack of market integration, information asymmetry, and other elements of market imperfection plaguing Indian agriculture.
• The prices of agricultural commodities often vary due to various factors. If a crop has seen a good harvest season during a particular year, it may see a sharp fall in its prices.
  • This will lead to farmers withdrawing from sowing the crop in the next year which will affect the supply. 
  • MSP is fixed by the government which is supposed to encourage higher investments and production of crops.