The Commission for Agricultural Costs & Prices (CACP) plays the central role in recommending MSPs. The Commission consults State Governments, farmers’ bodies, and Union Ministries, ensuring a comprehensive and evidence-based approach.
CACP evaluates multiple critical factors, including:
- Cost of production across major agricultural regions
- Demand–supply trends in domestic and global markets
- Price parity across different crops
- Terms of trade between agriculture and non-agricultural sectors
- Impact on consumers and the economy
- Optimal use of land, water, and natural resources
The government ensures a minimum 50% margin over production costs, providing farmers a predictable and assured income safety net.
Why Only Certain Crops Are Covered Under MSP
Not all crops qualify under the MSP system. The government considers several eligibility characteristics such as long shelf life, non-perishability, wide cultivation, and relevance to national food security.
Crops that are perishable or regionally concentrated may not meet the criteria, as large-scale centralized procurement becomes difficult or economically unviable.
Procurement Mechanisms Supporting MSP Implementation
To realize the MSP guarantee, the government procures agricultural produce through multiple designated agencies. Cereals and coarse grains are procured primarily by the Food Corporation of India (FCI) and various State agencies.
For pulses, oilseeds, and copra, procurement takes place under the Price Support Scheme (PSS) within the umbrella of Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA). National bodies including NAFED and NCCF handle purchases whenever market prices fall below MSP.
Support for Cotton and Jute Farmers
The Cotton Corporation of India (CCI) and the Jute Corporation of India (JCI) procure cotton and jute, respectively, at MSP to stabilize returns for farmers in these key sectors. This ensures steady income for growers in states such as Maharashtra, Telangana, Gujarat, West Bengal, and Assam.
Farmers Free to Choose Government or Open Market
The government emphasized that MSP procurement is an option, not a mandate. Farmers are free to sell their produce either to government agencies at MSP or in the open market whichever offers them better returns.
The flexibility ensures that MSP serves as a safety net without distorting market mechanisms.