Minimum Support Price (MSP) is the price at which the government purchases crops from farmers to provide them with a safety net against price fluctuations in the market. The MSP is announced by the government before the start of the sowing season and is based on the cost of production, market price trends, and other factors. MSP is fixed for major crops like wheat, rice, pulses, and oilseeds, and its purpose is to ensure that farmers get a fair price for their crops.
MSP is crucial in rescuing farmers from the low-income traps. It assures farmers of a minimum price for their crops, which helps them recover their costs and earn a profit. When market prices fall below the MSP, farmers can sell their produce to the government at the fixed price, which prevents them from suffering losses. MSP also encourages farmers to produce more, as they have the assurance of getting a good price for their crops, which leads to an increase in agricultural output.
Moreover, MSP has a positive impact on rural incomes, as it boosts the purchasing power of farmers, and stimulates the rural economy. This, in turn, creates a demand for goods and services, leading to increased economic activity and employment opportunities in the rural areas. Therefore, MSP plays a critical role in ensuring food security, protecting farmers from market fluctuations, and promoting rural development.