Policy Evaluation of Minimum Support Price : Analytical Study on Impact of Increase of MSP on Rural Economy and Farmer’s Income

Abstract

This dissertation studies the economic impact of increasing the minimum support price for the agricultural produce as per the recommendation of the National Commission on Farmers, 2007. The results of the analyses show that there is a slight positive growth in the economy after the increase in MSP rate, with higher growth in the primary sectors of the economy which is dominated by the agricultural sector. The employment creation as a result of the increase in MSP is mostly concentrated in the cereals and pulses sub-sectors, which is highly labour-intensive and this is expected to moderately assuage the underemployment crisis in the rural economy. However, it is seen that the income effect of increase in MSP mostly benefits the bigger farmers and the implementation of this policy would lead to further accumulation of wealth by bigger farmers which in turn would lead to perpetuation of inequality in the rural economy. The results in the second part of the study explain how the agrarian relations reduce the effectiveness of the MSP by making it exclusionary. The credit market relations and consumption to production ratio seems to have a significant negative impact on the utilisation of MSP policy by the farmers. The results of this study shows that the price policy of MSP has very little impact on the income of majority of the farm households and this denotes the urgent need to move from an agricultural price policy to income policy which would provide basic income ensuring minimum standards of living for the farmers.