An Economic Analysis of Trends in Cost of Production and MSP in India

Abstract

Objectives: To study a two-decade economic analysis of Minimum Support Price (MSP) trends compared to the cost of production of major crops of India and understand the real impact of price policy formed by the Government of India. Methods: The period of the analysis is from 1999 to 2019 (20 years) and the data sources consulted are Cost of cultivation and Farm Harvest price from Directorate of economics and statistics, Minimum support price from Commission for Agricultural Costs and Prices (CACP) and Awareness report of farmers by Questioner based survey. Compound annual growth rate and percentage analysis are used as a statistical tool for this research. To access the impact, Tamil Nadu has been taken as the model state with two model crops Paddy and Cotton and its comparative analysis is done with reference states Punjab and Maharashtra for Cost of Cultivation components and Profitability.  Findings: The finding of this research unravels that Wheat, Groundnut and Cotton are getting supported largely due to MSP policy, Paddy and Black gram are barely supportive as there is cutthroat competition between MSP and the Cost of Cultivation and sugarcane is not supported by MSP policy. The comparative and profitability analysis unravels how labour cost is the major cost in Tamil Nadu and paddy is profitable whereas cotton is not. Novelty: Therefore, this research depicts that MSP has been supporting the farming community on the policy end. But it’s not working as a fundamental supporting system for the majority of farmers as it’s not exercised by majority of farmers due to low awareness and inefficiency of the system.