3.1. Minimum Support Price

It was recognized, even prior to mid sixties, that for the acceleration of agricultural growth, farmers need to be motivated to adopt better technology and to invest more in their farm enterprises. This evidently was difficult without assuring reasonable prices to the farmers. The Government constituted a committee in 1964-65 to suggest price policy for food grains and to suggest the terms of references for an organization which would be set up to advice the government on price policy on a long term basis.

The recommendations of the committee led to the establishment of the Agricultural Price Commission in 1965 which was later renamed as Commission for Agricultural Costs and Prices (CACP) in March 1985. Simultaneously, the development strategy for agricultural sector was also remodeled. Remodeling of strategy included application of modern inputs like high yielding varieties of seed (HYV), chemical fertilizers and mechanization of certain agricultural operations. Thus, main emphasis in this development was on finding methods of increasing land productivity through the use of modern input and improved methods of production in the potential regions of the country. This development strategy in turn required that price policy should encourage farmers to make greater investments in farm operations so as to enable them to shift on to higher production possibility curves. Thus the minimum support price was aimed at:

♤ Assuring remunerative and relatively stable price environment for the farmers by inducing them to increase production and thereby augment the availability of food grains.

♤ Improving economic access of food to people.

♤ Evolving a production pattern which is in line with overall needs of the economy.

Therefore, the provision of Minimum Support Prices (MSP) was initiated during the mid-1960s to create a favorable environment for the producers of major food crops, which were seen to possess vast potential for raising grain production.