As farmers protest, here's a look at what MSP is and why it is important

To protect farmers' interest, the Cabinet Committee on Economic Affairs (CCEA) on Monday approved a hike in MSP for six key crops for the 2020-21 season, including wheat.

The Commission for Agricultural Costs & Prices (CACP) recommends MSP for 22 crops before the sowing period each year. There are 14 Kharif crops and seven Rabi crops covered under MSP. Copra, de-husked coconut, jute, sugar cane (FRP) are the four calendar year crops. Fair and remunerative prices for sugar have also been declared.

Agriculture Minister Narendra Singh Tomar said on September 21 that the hike in before ahead of the Rabi season (October-March) will help farmers take decisions on their crop structure.

According to the recommendations of Swaminathan Commission, the MSP should be at least 50 percent more than the average production cost. The new hike is in accordance with the recommendation as the Centre aims to double the income of farmers by 2022.

The CACP considers the following factors as important basis to fix MSP:

Overall demand-supply conditions

Domestic and international prices

Inter-crop price

Terms of trade between agricultural and non-agricultural sectors

The likely effect on the rest of the economy, besides ensuring rational utilization of land, water & other production resources.

As per Union Minister Ravi Shankar Prasad, the MSP of wheat has been hiked by Rs 50 per quintal to Rs 1,975 per quintal. Similarly, MSP of gram has been hiked at an annual growth rate of 8.3 percent, MSP of rapeseed and mustard has been hiked by 7 percent and that of barley has been increased by 5.7 percent. Additionally, MSP of barley  has been hiked by Rs 75 per quintal to Rs 1,600.

This year, the central government has spent Rs 1.13 trillion on MSP to farmers for Rabi crops such as wheat, pulses and oilseeds. This is 30 percent higher than the previous crop year.

There is no draft of regional MSP. The entire country has one uniform MSP. But, the state government can give a bonus on any crop by looking at the cost that is incurred.

As per the Kharif 2019-20 report, during 2017-18 and 2018-19, states like Kerala, Tamil Nadu and Chhattisgarh declared bonuses for paddy. Additionally, Chhattisgarh declared a bonus of Rs 750 per quintal for paddy in 2018-19, which is about 43 percent of the MSP.  Although the procurement of paddy in Chhattisgarh has become controversial as the central government  refused to allow the state to pay farmers a bonus over and above  the fixed MSP.