---
title: "MSP, APMC Reform, Subsidies & Allied Sectors"
description: "Learn MSP mechanics, the CACP, APMC markets and the 2020-21 farm-law reform episode, plus agricultural subsidies, PM-KISAN and allied sectors for UPSC GS-3."
url: "https://modeldiplomat.com/learn/lessons/upsc-indian-economy-agriculture-msp-apmc-reform-subsidies-allied-sectors"
---

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Agriculture: MSP, APMC reform, subsidies & allied sectors

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# Agriculture: MSP, APMC reform, subsidies & allied sectors

UPSC lesson on MSP mechanics, CACP, APMC and the 2020-21 farm-law reform episode, agricultural subsidies, PM-KISAN and allied sectors for GS-3.

## What MSP is and who sets it

The Minimum Support Price (MSP) is the floor price at which government agencies stand ready to purchase notified crops, insulating farmers against a price crash in a glut year. MSP is **not a statutory entitlement**; it is an administrative policy instrument with no backing in any Act of Parliament. It is announced by the Cabinet Committee on Economic Affairs on the recommendation of the **Commission for Agricultural Costs and Prices (CACP)**, an attached office of the Ministry of Agriculture set up in 1965 (originally the Agricultural Prices Commission, renamed 1985).

CACP recommends MSP for **23 crops**: 7 cereals (paddy, wheat, maize, bajra, jowar, ragi, barley), 5 pulses (gram, tur/arhar, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soybean, sunflower, sesamum, safflower, nigerseed) and 4 commercial crops (copra, raw cotton, raw jute and de-husked coconut). Sugarcane is covered separately by the **Fair and Remunerative Price (FRP)** under the Sugarcane (Control) Order, 1966 — the only statutorily-backed support price.

## How MSP is computed

CACP weighs several cost concepts: **A2** (paid-out costs — seed, fertiliser, fuel, hired labour), **A2+FL** (A2 plus imputed value of family labour), and **C2** (comprehensive cost including rental value of owned land and interest on fixed capital). The **M.S. Swaminathan-led National Commission on Farmers (2004-06)** recommended MSP at C2 + 50%. The Union Budget 2018-19 announced MSP at **at least 1.5 times the A2+FL cost** — a politically significant but methodologically weaker benchmark than C2+50%, a distinction examiners probe.

## Procurement and its skew

MSP becomes effective only through procurement by the **Food Corporation of India (FCI)** and state agencies. Procurement is heavily skewed: paddy and wheat dominate, and Punjab, Haryana, Madhya Pradesh and Chhattisgarh capture a disproportionate share. The **Shanta Kumar Committee (2015)** found that only about **6% of farmers** actually sell at MSP, exposing the gap between announced support and realised benefit. The same committee recommended reorienting FCI, deploying cash transfers and trimming the National Food Security Act coverage from 67% to 40%.

This procurement skew drives second-order distortions: the **water-intensive paddy-wheat cycle** in north-west India, falling water tables, stubble burning, mounting FCI buffer stocks far above norms, and neglected pulses and oilseeds (sustaining India's edible-oil import dependence of over half of demand). The **Decentralised Procurement Scheme (DCP)** and the **PM-AASHA** umbrella (Price Support, Price Deficiency Payment and Private Procurement-Stockist pilots, 2018) attempt to widen MSP's reach beyond cereals. Retain these levers; they recur in Mains answers on reforming agricultural marketing.

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