Minimum Support Price-- Impacts on Indian Government - Seeker's Thoughts

Recent Posts

Seeker's Thoughts

For Clearing the Blur Spot.

Follow by Email

Minimum Support Price-- Impacts on Indian Government



Introduction -  Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops. Minimum Support Price is an important part of India’s agricultural price policy.

When is it announced? -The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). Government’s agricultural policy has three important components- the MSP, Buffer Stocks and issue of food grains through the PDS.

Why is it announced?- MSP is price fixed by Government of India to protect the farmers against excessive fall in price during bumper production years. While rural incomes may rise from this farm-friendly gesture, concomitant reforms to free agricultural markets are vital to prevent a distortionary effect on farmers’ choices on account of MSPs. Easing onerous stockholding limits under the Essential Commodities Act and avoiding frequent curbs on farm exports are key.
Impact on Inflation and fiscal deficit- The impact of these hikes on consumer price inflation is expected to vary between 0.5% and 1% by the end of 2018-19. Food prices will be up but overall impact will be marginalized. Final prize of what consumer pays will not have much impact but it may impact upon the fiscal deficit.  Total size of Indian budget is high, so the hike in MSP will hardly be a minor portion of budget which will again will not have much impact on budget deficit. 
However, rise in oil prices, trade war, and rising prices of dollar may have impact upon fiscal deficit.