The Minimum Support Price (MSP) Policy: A Good Idea Gone Bad and Too Far

In this paper, I study the impact of India’s MSP policy on farmers’ incomes. I note that the current formula for determining the MSPs for the mandated food crops is problematic because it does not take into account market forces, i.e., demand and supply for the mandated food crops. Using a demand–supply analysis, I argue that the current MSP policy may lower the incomes of small and marginal farmers, though it may raise the incomes of large and medium farmers. Thus, the current MSP policy needs to be either modified or replaced with an alternative policy. As raising the incomes of small and marginal farmers is an important policy goal of the government, I propose three alternative policies to raise their incomes.