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Need to shift to market-determined prices from MSP, says Nabard Chairman Shaji

February 27, 2026 4 min read Economics GS3 (Agriculture Food Security Government Policies)
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What Happened

  • NABARD Chairman K.V. Shaji, speaking at the Agri-Commodity Summit 2026 in New Delhi, stated that India needs to transition away from the Minimum Support Price (MSP) — a government-determined floor price — towards a market-determined pricing system for agricultural commodities.
  • Shaji described MSP as a drain on the exchequer, arguing that an alternative market-linked system could cover farmers' production risks more efficiently while reducing fiscal burden.
  • He proposed retaining risk-protection mechanisms for farmers within a reformed framework, but shifting the price-discovery process to competitive markets.
  • The statement generated significant debate as MSP is a politically sensitive topic, especially in the context of the 2020-21 farmers' protests which demanded a legal guarantee for MSP.

Static Topic Bridges

Minimum Support Price (MSP): Structure, Coverage, and Fiscal Implications

MSP is the price at which the central government, through agencies like the Food Corporation of India (FCI) and NAFED, procures agricultural commodities from farmers to ensure they receive a minimum return regardless of market prices. The Commission for Agricultural Costs and Prices (CACP) recommends MSP for 23 crops each year based on cost of production (A2+FL cost and C2 cost). The Cabinet Committee on Economic Affairs (CCEA) formally approves MSPs. The stated policy target is to fix MSP at 1.5 times the A2+FL cost of production (announced in Budget 2018-19).

  • Crops covered by MSP: 14 Kharif crops (paddy, jowar, bajra, maize, etc.), 6 Rabi crops (wheat, barley, gram, lentil, rapeseed, safflower), and 2 commercial crops (jute, copra)
  • A2 cost: actual paid-out costs (seeds, fertilisers, labour hired, irrigation)
  • A2+FL: A2 plus imputed value of family labour
  • C2 cost: comprehensive cost including rent of owned land and interest on fixed capital — farmer organisations demand MSP = 1.5x C2
  • Procurement under MSP: concentrated in wheat (Punjab, Haryana) and paddy — distorting cropping patterns toward water-intensive crops
  • Fiscal cost: wheat and rice procurement by FCI alone involves a food subsidy bill of approximately ₹2.05 lakh crore (Union Budget 2024-25)

Connection to this news: NABARD Chairman's critique centres on this fiscal burden — MSP-driven procurement is expensive for the government and creates structural distortions in what farmers choose to grow, regardless of market demand.

NABARD: Role, Mandate, and Agricultural Finance Architecture

The National Bank for Agriculture and Rural Development (NABARD) was established in 1982 under the NABARD Act, 1981, following the recommendations of the Shivaraman Committee. It is the apex development financial institution for agriculture, rural development, and cooperative credit. NABARD refinances credit extended by Regional Rural Banks (RRBs), cooperative banks, and commercial banks to the agricultural sector. It also handles the Rural Infrastructure Development Fund (RIDF).

  • NABARD's capital: owned by Government of India (99.6%) and RBI (0.4%)
  • Key functions: refinancing agricultural credit, supporting Kisan Credit Cards (KCC), funding Rural Infrastructure Development Fund (RIDF)
  • RIDF: set up in 1995-96; funds state governments' rural infrastructure projects; corpus of ₹50,000+ crore allocated annually
  • NABARD's Agricultural Credit: India's total agricultural credit disbursement target was ₹20 lakh crore in FY24
  • Chairman: K.V. Shaji (appointed 2024); previously served as Kerala's Agriculture Secretary

Connection to this news: NABARD's institutional perspective carries significant weight in agricultural policy debates. A statement by its chairman advocating MSP reform signals evolving thinking within development finance institutions about the long-term sustainability of price support mechanisms.

Market-Determined Pricing Models: Alternatives to MSP

Several alternatives to the current MSP-procurement model have been proposed by economists and committees: 1. Price Deficiency Payments (PDP): Government pays the farmer the difference between MSP and market price, rather than physically procuring the crop. Madhya Pradesh's Bhavantar Bhugtan Yojana (2017) was a state-level experiment — it had implementation challenges including farmer collusion to depress market prices. 2. Market Assurance Scheme (MAS): Central government intervenes through procurement only when market prices fall below MSP — selective, need-based rather than universal. 3. Private procurement linked to contract farming: Stable price contracts between farmers and agri-businesses — recommended by the Shanta Kumar Committee (2015) on FCI restructuring. 4. Electronic National Agriculture Market (e-NAM): Unified online market platform for APMC mandis — promotes price discovery and transparency across state markets.

  • Farmers' protest demand (2020-21): Legal guarantee of MSP — would make it legally binding on all private buyers, not just government procurement
  • Swaminathan Commission (2006): Recommended MSP = C2 + 50% profit margin — never fully implemented
  • WTO implications: Government procurement at above-market prices constitutes Aggregate Measurement of Support (AMS) — India's food subsidy program faces challenge under WTO Agreement on Agriculture; protected by "Peace Clause" (Bali 2013)
  • Agricultural Markets: India has ~7,000 regulated APMC (Agricultural Produce Market Committee) markets — state subjects, creating fragmentation

Connection to this news: The NABARD chairman's call aligns with a body of economic thinking that sees market-determined pricing as more efficient, but politically it remains fraught given India's smallholder-dominated agricultural structure where market power asymmetries are real.

Key Facts & Data

  • MSP crops covered: 23 (14 Kharif + 6 Rabi + 2 commercial crops)
  • CACP: Commission for Agricultural Costs and Prices — recommends MSPs
  • Food subsidy bill (Budget 2024-25): approximately ₹2.05 lakh crore
  • NABARD established: 1982, under NABARD Act 1981; Shivaraman Committee recommendation
  • Agricultural credit disbursement target (FY24): ₹20 lakh crore
  • Kisan Credit Card (KCC) scheme: interest subvention at 4% for short-term crop loans up to ₹3 lakh
  • Wheat MSP (RMS 2026-27): ₹2,585 per quintal
  • e-NAM: operational in 1,389+ mandis across 22 states (as of recent data)
  • WTO Peace Clause (2013 Bali): protects India's food procurement programs from being challenged until a permanent solution is found