Minimum Support Prices in Indian Agriculture: Supporting Whom and at What Price?
By Shilpa Aggarwal, Ishani Chatterjee, Natasha Jha
March 2023
March 2023
Citation
Aggarwal, Shilpa., Chatterjee, Ishani., Jha, Natasha. (2023). Minimum Support Prices in Indian Agriculture: Supporting Whom and at What Price? .
Copyright
2023
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Abstract
Distortions introduced by price-controls may be underestimated if controls are captured for uses beyond fixing market failures. We study India’s minimum support prices (MSP) for food grains, and find that when a district with a larger area under cultivation for a crop is slated to go for elections, the central government announces a higher MSP for that crop. Since the government’s procurement price is the same across states, this blunt instrument is used more when other policy instruments are unavailable, i.e., when the incumbent state government is unaligned with the center. Higher MSP directly reduces welfare by increasing consumer prices.
Shilpa Aggarwal is an Associate Professor of Economics and Public Policy at the Indian School of Business (ISB). She is a development economist, whose research aims to explore market linkages in developing countries. For her PhD dissertation, she examined the effects of a road construction programme in India that connected remote rural areas to nearby markets. Her ongoing research is focused on agricultural supply chains in India and East Africa. She also works on issues pertaining to domestic trade, microfinance, and food policy.
Professor Aggarwal holds a PhD from the University of California, Santa Cruz, an MA from the Delhi School of Economics, and a BA from Shri Ram College of Commerce, University of Delhi.
Shilpa Aggarwal