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Governance Bytes: Rabi Crop MSP Hike

Rabi crop MSP to be hiked for next season – (Rabi Crop MSP Hike)

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In News: (Rabi Crop MSP Hike)

  • The Cabinet Committee on Economic Affairs (CCEA) decided to increase to the minimum support price for winter crops for the forthcoming rabi marketing season (2020-21).
  • The increase in MSP for rabi crops is in line with the principle of fixing MSPs at a level of at least 1.5 times of the all India weighted average cost of production.
  • In the case of cereals, the Food Corporation of India and other designated State agencies would continue to provide price support to the farmers.
  • State governments will undertake procurement of coarse grains with the prior approval of the Government and would distribute the entire procured quantity under National Food Security Act (NFSA).
Rabi Crop MSP Hike
MSP Infographics

MSP announcements:

  • The highest increase has been recommended for lentils (increase of ₹325 to ₹4,800 a quintal) followed by safflower (increase of ₹270 to ₹5215 a quintal) and gram (an increase of ₹255 to ₹4875).
  • For both wheat and barley, it has been increased by ₹85 to ₹1925 and ₹1525 per quintal, respectively.
  • The MSP of rapeseed & mustard has been increased by ₹225 to ₹4,425.


  • MSPs are one of the most important determinants of cropping patterns and overall production in India, as they signal the benchmark for farm prices across several commodities.
  • The bigger increase in the MSP for pulses shows the Centre’s focus on encouraging farmers to grow protein-rich food grains, while discouraging cultivation of water and chemical fertilizers intensive crops like paddy and wheat.

Consumer’s point of view:

  • Seen from the consumer’s point of view, a modest increase in MSPs would be a welcome sign. That is because, according to the latest data, retail food inflation in September jumped from 3% to 4.7%.
  • Since food items account for over 54% of retail inflation, the headline inflation too shot up to a 14-month high.
  • So, modest MSP increases suggest that food prices will perhaps not rise too high.

Farmer’s point of view:

  • However, the farmer’s point of view is very different. Modest increases have been blamed for the stagnation in farm wages and an overall decline in rural demand.
  • The most recent criticism on this count came from 2019 Economics Nobel winner Abhijit Banerjee, who pointed to low MSPs as a reason for depressed rural demand.
  • Should the government have increased the MSPs by a bigger quantum to boost rural incomes and demand is an open question.
  • Especially because doing so would entail the risk of heightened inflationary pressures, which can then force the RBI to reverse the cycle of cutting interest rates.

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