Farmers’ Protest 2.0 Explainer: Minimum Support Price

The Swaminathan commission (2004-06) had advised the central Indian government to raise the Minimum Support Price (MSP) to at least 50% above the weighted average cost of production. Also known as the C2+50% formula, it includes the input cost of capital and the rent on the land (called ‘C2’) to give the farmers 50% returns. Current PM Modi also recommended this when he was CM of Gujarat in 2011, heading a working committee. Modi in his election 2014 campaign speeches repeatedly said by 2022 the farmers would double their income. Once in power, the Central govt. proposed a new formula: A2+FL that lowers the MSP significantly. A2+FL is the cost incurred by the farmer and the value of family labor. For example, the price of grams by the A2 method is ₹2,651, by A2+FL it is ₹3,400, by C2 it is ₹4,547; plus 50% of the cost of production. A difference of about 40% between A2 and C2. The MSP announced this year on grams is ₹5,440 when it should be ₹6,820 - 25% less. The reason the government wants to keep prices suppressed is because a rise in prices would cause inflation. This is where the government needs to step in, and pay for the difference to satisfy farmers and consumers. On 14 Feb, estimating the real cost of MSP in the agriculture Marketing Year (MY) 2023, CRISIL Market Intelligence & Analytics placed it at around ₹21,000 crore ($2573M). Noting that MSP-based procurement is currently only done in a few States — Uttar Pradesh, Panjab, Telangana, Madhya Pradesh, Haryana, and Chhattisgarh — the firm said an MSP guarantee will percolate the benefit to farmers across the country and boost the rural economy.