why is the issue price kept below the procurement cost ?
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Home / UPSC / UPSC Preparation / IAS Study Material / Economy Study Material / Minimum Support Price, Procurement Price and Issue Price
Minimum Support Price, Procurement Price and Issue Price
To ensure agricultural producers against any sharp fall in farm prices and in the backdrop of food scarcity and price fluctuations provoked by drought, floods and international prices for exports and imports, Minimum Support Price was introduced in 1966-67, by Govt of India as a market intervention. For the first time, MSP was introduced for wheat on the wake of Green Revolution.
Minimum Support Price
Minimum Support Price is the price at which government purchases crops for the farmers, to safeguard the interests of the farmers and MSPs are announced at the beginning of the sowing season for certain crops based on the recommendations of the Commission for Agricultural Costs and Prices (CACP).
How MSP is calculated?
MSP for various agricultural commodities is decided by the govt after taking into account the recommendations of CACP, views of state Govts, views of Ministries etc and various factors like Cost of Production, Input-Output Price Parity, Inter-crop price parity, an effect on cost of living, international price situations etc are also taken into consideration.
Recent Developments (Budget 2018-19)
In order to address the rural distress, the Govt has decided to fix the MSP to 1.5 times the cost of production for various crops.
Merits of MSP
Controlling price volatility-MSP system acts as a tool for the government to control sharp fall and rise in the prices of crops thus help in the situation of agriculture distress.
Reduces the debt burden -Farmers get a fair amount for their produce which helps them to sustain their losses, thus they do not get affected drastically due to the debt burden.
Increased income- Farmer's income gets increased and it can be used as a tool to bring them out of their poverty levels
Eliminates middlemen - Farmers can directly sell their produce to the government at fixed prices and save themselves from the wrath of traders and dealers who generally cheat farmers by offering them