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RAS question

The MSP formula ensures minimum margin of what percentage over production cost?

Correct answer: (C) 50%.

The MSP formula ensures a minimum 50% margin over the all-India weighted average cost of production by setting MSP at least 1.5 times the cost of production.

  1. (A)

    25%

  2. (B)

    40%

  3. (C)

    50%

  4. (D)

    60%

Explanation

The Budget 2018-19 commitment was to set Minimum Support Prices at least 1.5 times the cost of production. PIB states that, since 2018-19, the Government has been increasing MSPs for all mandated crops in line with that announcement, ensuring a minimum return of 50% over the all-India weighted average cost of production. The production cost considered by CACP includes paid-out costs such as hired labour, machine labour, leased land rent, seeds, fertilisers, irrigation charges, depreciation, interest on working capital and the imputed value of family labour. Therefore, if MSP is fixed at 1.5 times this cost base, the built-in minimum margin over production cost is 50%, which matches option C.

Why the other options are wrong

  • (A) 25% understates the Budget 2018-19 MSP rule, which fixes MSP at least 1.5 times production cost rather than 1.25 times it.
  • (B) 40% is below the minimum return stated by PIB, because 1.5 times production cost implies a 50% margin over that cost.
  • (D) 60% is not the guaranteed minimum margin under the formula; PIB identifies 50% as the minimum return, though some crops may have higher margins.

Concept

This tests agricultural price policy, especially how MSP is determined from production cost. It recurs in RAS because MSP links farm income support, CACP recommendations and Union Budget commitments.

Source

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