MSP is a form of government intervention to insure the farmers against a steep decline in the prices of their goods and to help them prevent losses. The government of India sets the MSP twice a year for 24 commodities. This is done by the government to protect the farmers against a fall in prices in a year of bumper production. When the market price falls below the declared MSP, the government would purchase the entire quantity from the farmers at MSP.
The chief objectives of setting up MSP are:
- Support farmers from distress sales
- To procure food grains for public distribution
MSP is decided on the basis of recommendation by CACP( Commission for agriculture cost and price)
Prevention from low income trap:
- MSP is linked with input price. So effect of high input prices is compensated and hence secure farmers.
- It is announced before sowing season and hence it help farmers to make rational choice about sowing of types of crops.
- It prevent distress sale by farmers.