Economics

What are the objectives behind announcing minimum support prices by the Government?


SOLUTION

Minimum Support Price (MSP) is a form of market intervention by the Government of India to ensure agricultural producers against any sharp fall in farm prices. The MSPs 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). MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in prices during bumper production years. The MSP is a guarantee price for their produce. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced MSP due to bumper production and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price.

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