- When determining the MSP for a product, the CACP considers a variety of criteria, such as cultivation expenses.
- In addition to considering the commodity's supply and demand modeling, domestic and international market price developments, parity with other crops, the effects of the commodity on consumers, the environment, and trade agreements between the agricultural and non-agricultural sectors are taken into account.
- A2: Pays for all direct expenditures the farmer makes for things like seeds, fertilizer, hired labour, pesticides, leased land, fuel, irrigation, and so on.
- A2+FL: This includes the cost mentioned above and an inferred value for unpaid family labour.
- C2: It is a more inclusive cost that, in addition to A2+FL, considers interest forgone on owned land, rents, and fixed capital assets.
- When advising MSP, CACP takes into account both A2+FL and C2 expenses.
- CACP estimates simply A2+FL as the return cost.
- However, C2 costs are primarily used by CACP as baseline reference costs (opportunity costs) to assess whether the MSPs they recommend at least handle these costs in some of the major producing states.
- The Union government's Cabinet Committee on Economic Affairs (CCEA) makes a final determination about the MSP level and other suggestions given by CACP.
- Confined extent: Despite the formal declaration of MSPs for 23 other crops, only two merchandise, rice and wheat—are procured since they are allocated via the National Food Security Act (NFSA). The rest is mainly incidental and pointless.
- Non-efficient Implementation: Only 6% of the MSP was received by farmers, according to a 2015 review by the Shanta Kumar Committee. That means that the MSP does not benefit 94% of agriculture producers in the nation.
- Act as a Procurement Price: The present MSP regime has no impact on pricing in the domestic market, making it more of a procurement price. Due to its primary purpose of satisfying NFSA criteria, it does not serve as an MSP but functions as a procurement price.
- Makes wheat and paddy dominant in Agriculture: The overproduction of rice and wheat caused by the skewed MSP system inhibits farmers from growing other crops and horticultural products, which have higher demand and may, therefore, boost farmers' income.
- The difficulty for smaller farmers: The MSP-based purchasing system depends on intermediaries, commission agents, and APMC officials, all of whom are difficult for smaller farmers to contact.
