IMPACT OF MSP ON AREA UNDER CULTIVATION AND LEVEL OF PRODUCTION:

A STUDY OF SELECTED CROPS IN INDIA

Prof. Vijay Kumbhar*

Research Scholar, Dept. Of Economics,
Shivaji University, Kolhapur (Maharashtra) India
vijay.kumbhar9@gmail.com

Abstract
This article focused on Minimum Support Price (MSP) policy and it impact on important crops in
India. In this study tested the hypothesis of “MSP has positively affects and correlates with area under
cultivation and production of those crops” after examination of this hypothesis. It is found that, this
hypothesis is not matching set to production of each crops and their area under cultivation. While the study
concludes that, MSP is not affecting positively on agricultural production.

Keywords: - MSP, SMP, Area under Cultivation, Production, Correlation

* Author is assistant professor in economics and business economics, Dept. of Economics &
Business Economics, Rayat Shikshan Sanstha Satara‟s, Abasaheb Marathe College, Rajapur
(Maharashtra) India 416702

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Introduction
India is world's second largest producer of food and one of the best agro based economy in the
world also. In India about 56 per cent peoples are depends up on agriculture and most of rural peoples
getting employment from agriculture. Even Indian agro-based industry expect as a resource to their
development. However, Indian agriculture sector having numerous problems due to natural and market
uncertainty. The government has made provision for tackle the market risk by Minimum Support Price
(MSP) policy. The government has using MSP policy as an instrument to control the important agricultural
production and cropping pattern also.
Term ‘MSP’
Minimum Support Price (MSP) is average price of selected agricultural products recommended by
the Commission for Agricultural Costs and Prices (CACP) and fixed by the government of India. These
prices are determined on the basis of cots of production, expenses and other charges given by the farmers
for production of agricultural product. For sugarcane production CACP recommends Statutory Minimum
Price (SMP) it is minimum statutory price of sugarcane the state government can offer more than SMP. In
India MSP recommended by Commission for Agricultural Costs and Prices (CACP) for major agricultural
products by various types of methods given in the chart:
Sr.
Types Particulars
No.
1 Cost A1 =Value of purchased material inputs (seed, insecticides and
pesticides, manure, fertilizer), hired human labour, animal labour
(hired and owned), hired farm machinery, depreciation on farm
implements and farm buildings, irrigation charges, land revenue
cesses and other taxes, and interest on working capital.
2 Cost A2 = Cost A1 + rent paid for leased-in Land.
3 Cost A2+FL = Cost A2 + imputed value of Family Labour
4 Cost B1 = Cost A1+ interest on value of owned capital assets (excluding
land)
5 Cost B2 = Cost B1+ rental value of owned land (net of land revenue) and
rent paid for leased-in land.
6 Cost C1 = Cost B1 + Imputed value of Family Labour.
7 Cost C2 = Cost B2 + Imputed value of Family Labour.
8 Cost C2* = Cost C2 estimated by taking into account statutory minimum
or actual wage whichever is higher.
9 Cost C3 = Cost C2* + 10% of Cost C2+ on account of managerial
functions performed by farmer.
Source- CACP India
Rational of the Study
In Indian economy agriculture is main occupation their growth or problems affects on level of
income, consumption and employment of rural peoples. Even declining growth of agriculture affects on
agro based industries and industries who providing agro-input (agro equipment, fertilizers, pesticides,
machines etc.) In India CACP and the ministry of agriculture has defined some crops as important crops
and supporting those farmers who are producing these crops via MSP. The ministry of agriculture has
declares the MSP of various crops time to time as purchasing those crops on that MSP to encourage the

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farmers and protecting them from market risk. However, many times MSP is not adequate to satisfy the
expectations of farmers and does not encourage to more production. Mistakes and queries in the MSP
strategy have adversely affecting on area under crops (AUC) and production of some crops in India.
Literature Review
The Government of India using MSP policy to intervene in produce markets and regulate agro-
market in India. The minimum support prices (MSP) covers 23 commodities i.e. 7 cereals, 4 pulses, 8
oilseeds, copra, raw cotton, raw jute and tobacco; statutory minimum prices for sugarcane. Many
researchers have studied the problems of agriculture pricing, marketing, factors affecting production and
pricing etc. According to Dr. Gursharan Singh Kainth (2008), CACP recommends MSP with no guarantee
that farmers will get that price. Generally, MSP acts as the maximum price that is paid to farmers. In Indian
CACP recommends MSP to the government but the government ha decides separately about MSP there are
no completion about acceptance of recommended MSP. According to Acharya S.S. (1997) the most
important aspect of the agricultural marketing system in Asian countries is the instrument of government
intervention in the form of MSP and issue prices for the distribution of food grains to peoples. According
to Deshpande and Naika MSP is now viewed as a form of market intervention on the part of the State and
also as one of the supportive measures to the agricultural producers. In India there is very positive impact
on wheat and paddy production detected. According to the study of Dr. Kamat, Tupe and Kamat, (2007),
before and after the introduction of the New Economic Policy, Indian agriculture sector is in the decreasing
returns to scale phase and cropping pattern has totally changed. According to A. Amarender Reddy (2004),
the lack of an assured market price is one factor in the poor performance of pulses than foodgrains in India.
Market price is always greater than the MSP announced by the government for pulses. According to Iqbal
and Merwe (2009), production of wheat and rice were increased due to rise in MSP by the Government.
All available literature clears that, there are positive relationship between MSP and Production of related
crops up to some extent.
Objectives, Data and Methodology
This study depends upon an assumption of “The Minimum Support Price (MSP) offered to
important crops by the government is affects on AUC and their volume of production in India. Main
objectives of the study are; to review trend of change in MSP of selected crops, AUC and production, to
asses‟ relationship between changes in MSP and AUC as well as production of selected crops in India.
Here researcher has considered MSP is independent variable and AUC and volume of production are
dependant variables‟ are depends upon MSP. The data needed has been gathered from reports of the
ministry of agriculture, Economic survey of India, Statistical Handbook of Indian Economy and other
secondary sources. All the statistical data has analysed by MS excel and SPSS 8.0, CGR and Pearson
correlation statistical tools
Limitations of the Study
Basically the agriculture occupation having several uncertainties due to uncontrollable factors like
rainfall, temperature, climate, changing productivity of land, land degradation, natural disasters etc. These

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factors may affects productivity and production of the crops. Sometimes, the demand of the particular crop
and prior supply of the product in market (stock), demand forecasting, past experiences of farmers also
affects on AUC and production volume of the crops. However, in this study researcher has only focused
interdependency of MSP to AUC and production volume of selected crops.
MSP of Selected Crops in India
Since 1965, CACP is direct to the ministry of agriculture in India to adopt proper MSP policy to
control cropping pattern and encourage to farmers as well as price stabilisation of agricultural commodities.
AS per changing level of prices of agricultural input and expenses occurred in agricultural production in
various states of India CACP has recommended higher prices than last years and the ministry of agriculture
has been accepted these prices of different crops.

According to increasing level of inflation and relative prices of agricultural inputs MSP increased
in changing scenario also. MSP of rice has been increased from Rs. 105 to 645 per quintal in 1980-81 to
2007-08 at 7.6 per cent; MSP of wheat increased from Rs. 130 to 1080 at 7.9 per cent, average MSP of
oilseeds has increased from Rs. 128.33 to 1411.67 at 8.57 per cent in 1981-82 to 2007-08, average MSP of
Rs. 230 to 1637.50 at 7.11 per cent in 1982-83 to 2007-08, MSP of cotton increased Rs. 527 to 2030 in
1983-84 to 2007-08, MSP of Jute and Mesta has increased from Rs. 160 to 1055 at 7.87 percent and MSP
of sugarcane has increased from Rs. 13 to 81.18 at 8.3 per cent in 1980-81 to 2007-08. (See table no. 1)
Area Under Cultivation (Selected Crops) in India
In Indian agriculture sector green revolution has been changed cropping pattern since 1965. Indian
farmers have been considering the agriculture as occupation to make profit and generate revenues than
only mean producing food grains. After green revolution Indian farmers are producing more and more cash
crops in their farms using modern technology, methods and equipments.

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 After implementation of MSP policy in India for selected crops the cropping pattern has been
changed in Indian agriculture. The data shows that, there are 43.77 million hectares area come under rice
cultivation till 2007-08 at 0.35 per cent growth rate since 1975 to 2008. In the same period area under
wheat cultivation has grow from 20.45 to 28.15 million hectares (at 0.75 per cent) but area under pulses
has dose not increases it has been decreases from 24.45 to 23.86 million hectares it has not increasing
significantly even it is declines at -0.14 per cent. Area under oilseeds in India is increasing continually
since 1975, it has growing at 1.43 per cent during the 1975 to 2008 and area has increased from 16.92 to
26.54 million hectares.

Other than foodgrains crops area under sugarcane and cotton crops also increasing area under
sugarcane has increased from 2.76 million hectares to 5.04 million hectares at 1.80 per cent in same year,
area under cotton crop has increased 7.35 million hectares to 9.43 million hectares at 0.77 per cent.
However, area under Jute and Mesta production is not increased at significant manner in India it is
fluctuate within 0.91 million hectares to 1.00 million hectares. Their growth rate is -0.65 per cent in same
period. (See table no. 1)
Production of Important Crops in India
Generally it is found that, the price offered for agricultural product in market has affects
significantly on level of production of those crops. In India, the ministry of agriculture has trying to offer
optimum price to important agricultural products by MSP to increase the production of identified crops in
India. If we overlook the past trend of rice, wheat, oilseeds, pulses, sugarcane, cotton, Jute and Mesta it
shows that, after implementation of MSP policy their level of production increasing gradually since 1980-
81. Production of rice has increased from 53.63M.T. to 96.69 M.T., wheat production increased from 36.31
M.T. to 78.57 M.T, pulses has increased from 10.63M.T. to 14.76M.T., Oilseeds production increased
from 9.37M.T. to 29.76M.T., cotton production increased from 7.01M.B. to 25.88M.B. Jute and Mesta
production increased from 8.16M.B. to 11.21M.B. and sugarcane production increased from 154.25M.T. to

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348.19M.T. in 1980-81 to 2007-08. There are high growth rate recorded of oilseeds and cotton production
it is 3.49 and 3.58 per cent but growth rate of pulses production is too low of 0.60 per cent in same period.
(See table no. 1)

Findings and Discussions

According to the assumption of the study (MSP positively affects on area under crops and
production in agriculture sector) is tested by the Pearson correlation. It shows that;
I. Relation between MSP of rice and area under rice crop is significant in India there correlation
is .716 and Correlation between MSP of rice and Production of rice in India is .790. It clears that,
MSP has positively affects on AUC rice and overall production of rice. MSP offered for wheat in
India also positively affects on area under wheat and its production. There is significant correlation
between MSP of wheat and area under wheat production is .895 and .726 with overall production
of wheat in India. If MSP of rice and wheat increased more a production of rice and wheat can be
increase more and it support to food security measures in India
II. To tackle the problem of lack of pulses in India, the government of India has increased MSP of
pulses at 9.00 per cent per each year. But it found that, there is negative correlationship (-.228)
between MSP and area under pulses and moderate significant (.462) to the production of pulses in
India. There is need to increase the MSP of pulses optimum level for increase the production level
of pulses and solve the problem of lacking pulses as well as reduce the import cost of pulses.
III. MSP of oilseeds is also affecting positively in India agriculture sector. There is very significant
relationship found in MSP with area under oilseeds and production of oilseeds it .754 and .897
respectively. While there is need to more increase in production of oilseeds in India. Hence, the
government should offer more rate of MSP along with other measure to increase the area under
oilseeds and it production.

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IV. After green revolution period there has been evident that, area under cash crops and its production
have increasing continuously in India. The government of India has supporting to cotton
production through better MSP. MSP of cotton has significantly correlates at .763 with area under
cotton production and at .742 with production of cotton. SMP of sugarcane also positively
correlates with area under sugarcane and production of sugarcane; there correlation is .860 with
area under sugarcane and .740 with production of sugarcane in India.
V. Jute and Mesta is important crops in south east regions of the country, it provides employment
opportunities directly and indirectly. Hence, the government has trying to provide support via MSP
for Jute and Mesta. While it have not significant because, MSP of jute and Mesta has dose not
significantly correlates (is -.390) with area under jute and Mesta and .539 with production of jute
and Mesta in India. Hence, there is need to increase the level of MSP for it and provide support
than MSP also.
Conclusion
The government of India has providing support prices to selected important crops to increase the
production and area under crops of those crops in India. According to the various studies MSP has
positively affects on agricultural production where the policy adopted. While in India, it found not always
true. SMP has positively affected on rice, wheat, oilseeds, cotton and sugarcane. But SMP has not
significantly positive affecting on production as well as area under crops of pulses and Jute and Mesta.
There is not proportionate relationship in area under cultivation and production with MSP of particular
crop.

References

1. Desai R.G., Agricultural Economics, Himalaya Publishing House, Nagpur, 1998.

2. D. S Chauhan , Agricultural economics, L.N. Agarwal , Publication ,1953 , ISBN-10
3. H. Panda, Medicinal Plants Cultivation & Their Uses, ISBN: 8178330962, National
Institute of Industrial Research, New Delhi-110007.
4. K.P.M. Sundaram, Indian Economy -2007-08, Himalaya Publication, New Delhi
5. A Amarender Reddy, 2004, Consumption Pattern, Trade and Production Potential of
Pulses, Economic and Political Weekly October 30, 2004
6. Dr. Kamat , Tupe and Kamat, 2007, Indian Agriculture in the New Economic Regime,
1971-2003:
7. Empirics based on the Cobb Douglas Production Function.
8. Kushankur Dey, 2009, Collateral Management and Procurement of Agri Commodities by
NCMSL: Extending the Scope of Agri Business in the Emerging Economies,
indiastat.com August-Sept., 2009

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9. Ganesh-Kumar, Ashok Gulati, Ralph Cummings, 2007, Foodgrains Policy and
Management in India Responding to Today‟s Challenges and Opportunities, Indira Gandhi
Institute of Development Research Mumbai
10. Shovan Ray,2004, Recent Economic and Agriculture Policy Development in India, Indira
Gandhi Institute of Development Research Mumbai
11. Mathur, A. S., Das Surjit and et al (2006), „Status of Agriculture in India: Trends and
Prospects‟, Economic and Political Weekly, Pp 5327-5336.
12. Badar Alam Iqbal and Theo Van Der Merwe, 2009, Food Crisis in India (A Review
Article), Asian Journal of Agricultural Sciences 2(1): 18-21, 2010
13. Reserve Bank of India (2010), Statistical Hand Book on Indian Economy.
14. http://www.shvoong.com/authors/dr-gursharan-singh-kainth/
15. Fertiliser Statistics, 2006-07, The Fertiliser Association of India, New Delhi.

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 Appendix
Table No. 1 - MSP , Area Under Crops and Production
(MSP in Rs per Quintal, AUC in Million Hectares and Production in Million Tonnes)
Jute &
Year Rice Wheat Oilseeds Pulses Cotton Sugarcane
Mesta
Year MSP AUC Prod. MSP AUC Prod. MSP* AUC Prod. MSP** AUC Prod. MSP AUC Prod. MSP AUC Prod. MSP AUC Prod.
1980-81 105 40.15 53.63 130 22.28 36.31 128.33 17.60 9.37 NA 22.46 10.63 NA 7.82 7.01 160 1.30 8.16 13 2.67 154.25
1981-82 115 40.71 53.25 142 22.14 37.45 160 18.91 12.08 NA 23.84 11.51 NA 8.06 7.88 175 1.15 8.37 13 3.19 186.36
1982-83 122 38.26 47.12 151 23.57 42.79 227.5 17.76 10.00 230 22.83 11.86 NA 7.87 7.53 175 1.02 7.17 13 3.36 189.51
1983-84 132 41.24 60.10 152 24.67 45.48 239.17 18.69 12.69 245 23.54 12.89 527 7.72 6.39 185 1.05 7.72 13.5 3.11 174.08
1984-85 137 41.16 58.34 157 23.56 44.07 259.17 18.92 12.95 206.25 22.74 11.96 535 7.38 8.51 195 1.13 7.79 14 2.95 170.32
1985-86 142 41.14 63.83 162 23.00 47.05 335 19.02 10.83 290 24.42 13.36 535 7.53 8.73 215 1.50 12.65 16.5 2.85 170.65
1986-87 146 41.17 60.56 166 23.13 44.32 349.17 18.63 11.27 310 23.16 11.71 540 6.95 6.91 225 1.07 8.62 17 3.08 186.09
1987-88 150 38.81 56.86 173 23.06 46.17 364.17 20.13 12.65 316.25 21.27 10.96 550 6.46 6.38 240 0.96 6.78 18.5 3.28 196.74
1988-89 160 41.73 70.49 183 24.11 54.11 395.83 21.90 18.03 351.25 23.15 13.85 600 7.34 8.74 250 0.92 7.86 19.5 3.33 203.04
1989-90 185 42.17 73.57 215 23.50 49.85 475 22.80 16.92 424 23.41 12.86 690 7.69 11.42 295 0.91 8.29 23 3.44 225.57
1990-91 205 42.69 74.29 225 24.17 55.14 517.5 24.15 18.61 472.5 24.66 14.26 750 7.44 9.84 320 1.02 9.23 22 3.69 241.05
1991-92 230 42.65 74.68 280 23.26 55.69 577.5 25.89 18.60 533.75 22.54 12.02 840 7.66 9.71 375 1.11 10.29 26 3.84 254.00
1992-93 270 41.78 72.86 330 24.59 57.21 671.67 25.24 20.11 630 22.36 12.82 950 7.54 11.40 400 0.93 8.59 31 3.57 228.03
1993-94 310 42.54 80.30 350 25.15 59.84 720.83 26.90 21.50 685 22.25 13.30 1050 7.32 10.74 450 0.89 8.43 34.5 3.42 229.66
1994-95 340 42.81 81.81 360 25.70 65.77 765 25.30 21.34 737.5 23.03 14.04 1200 7.87 11.89 470 0.93 9.08 39.1 3.87 275.54
1995-96 360 42.84 76.98 380 25.01 62.10 798.33 25.96 22.11 775 22.28 12.31 1350 9.04 12.86 490 0.93 8.81 42.5 4.15 281.10
1996-97 380 43.43 81.73 475 25.89 69.35 820 26.34 24.38 815 22.45 14.24 1380 9.12 14.23 510 1.10 11.13 45.9 4.17 277.56
1997-98 415 43.45 82.54 510 26.70 66.35 875 26.12 21.32 878.75 22.87 13.83 1530 8.87 10.85 570 1.11 11.02 48.45 3.93 279.54
1998-99 440 44.80 86.08 550 27.52 71.29 931.67 26.23 24.75 943.75 23.50 14.91 1650 9.34 12.29 650 1.03 9.81 52.7 4.05 288.72
1999-00 490 45.16 89.68 580 27.49 76.37 1018.33 24.28 20.71 1082.5 21.12 13.41 1775 8.71 11.53 750 1.04 10.55 56.1 4.22 299.32
2000-01 510 44.71 84.98 610 25.73 69.68 1071.67 22.77 18.44 1175 20.35 11.07 1825 8.53 9.52 785 1.02 10.56 59.5 4.32 295.96
2001-02 530 44.90 93.34 620 26.34 72.77 1134.17 22.64 20.66 1290 22.01 13.37 1875 9.13 10.00 810 1.05 11.68 62.05 4.41 297.21
2002-03 530 41.18 71.82 620 25.20 65.76 1143.33 21.49 14.84 1300 20.50 11.13 1875 7.67 8.62 850 1.04 11.28 69.5 4.52 287.38
2003-04 550 42.59 88.53 630 26.60 72.15 1253.33 23.66 25.19 1375 23.46 14.91 1925 7.60 13.73 860 1.00 11.17 73 3.93 233.86
2004-05 560 41.91 83.13 640 26.38 68.64 1331.67 27.52 24.35 1408.75 22.76 13.13 1960 8.79 16.43 890 0.92 10.27 74.5 3.66 237.09
2005-06 570 43.66 91.79 650 26.48 69.35 1368.33 27.86 27.98 1468.75 22.39 13.39 1980 8.68 18.50 910 0.90 10.84 79.5 4.20 281.17
2006-07 580 43.81 93.35 750 27.99 75.81 1370 26.51 24.29 1473.75 23.19 14.20 1990 9.14 22.63 1000 0.94 11.27 80.25 5.15 355.52
2007-08 645 43.77 96.69 1080 28.15 78.57 1411.67 26.54 29.76 1637.5 23.86 14.76 2030 9.43 25.88 1055 0.96 11.21 81.18 5.04 348.19
CGR 7.6 0.35 2.19 7.9 0.75 2.65 8.57 -.14 3.49 9.00 1.43 0.60 7.11 1.80 3.58 7.87 0.77 1.46 8.3 -.65 2.48
* it is average MSP calculated from MSP of Groundnut, Soyabean, Sunflower, Rapeseed and Sunflower
**It is average MSP calculated from MSP of Gram, Tur, Moong and Urad @ : Production in million bales of 170 kg., * : Production in million bales of 180 kg. each.

Source: Ministry of Agriculture, Government of India.

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