Raising MSPs won’t save agriculture if costs keep rising

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Editor's note: There is much ongoing debate on the new minimum support prices (MSPs) for crops declared by the Government of India. For Kharif 2022-23, the MSP for rice was raised by Rs 1 per kg, and the MSP for maize by 92 paise per kg. For pulses, oilseeds and cotton, MSPs were raised by Rs 3-4 per kg. On the one hand, some economists argue that MSPs lead to higher inflation. However, this argument is considered specious as only a part of the total production of major crops in India are procured; and, at the national level, MSP covers only 13% of all the paddy sellers and only 16% of all the wheat sellers. On the other hand, other economists—and farmer’s organizations—argue that MSPs do not cover either inflation or the rising costs of cultivation. They also argue that an inadequate increase in MSPs is the cause for falling profitability rates in agriculture. This newsletter aims to focus on the second argument. In this newsletter, first, I use data from the Cost of Cultivation of Principal crops (CCPC) in India—an official …