The Minimum Support Price (MSP) is a concept and a government-set price, functioning as a guaranteed floor price mechanism for select agricultural crops. It is announced by the Government of India before each sowing season to protect farmers from distress sales and sharp price falls due to market volatility. The MSP was formally introduced in 1966-67, initially for wheat, as a policy response to severe food shortages and reliance on imports during the Green Revolution. Its original purpose was to incentivize farmers to adopt new technology and boost domestic production to achieve food security.
The mechanism begins with the Commission for Agricultural Costs and Prices (CACP), an advisory body established in 1965 (initially as the Agricultural Prices Commission), which recommends the MSP for 22 mandated crops. The final price is approved by the Cabinet Committee on Economic Affairs (CCEA). A key provision, committed in the 2018-19 Union Budget, is to fix the MSP at a level of at least 1.5 times the all-India weighted average cost of production, specifically using the A2+FL cost formula. If market prices fall below the announced MSP, government agencies like the Food Corporation of India (FCI) and the National Agricultural Co-operative Marketing Federation (NAFED) procure the crops at the guaranteed price. This procurement is crucial as the grains are then distributed through welfare schemes like the Public Distribution System (PDS) and the National Food Security Act (NFSA), 2013. Recent changes include the consistent application of the 1.5 times cost formula, with the Union Cabinet approving substantial MSP hikes for Kharif crops for the 2026-27 marketing season based on this principle.