ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Growth and Welfare Consequences of Rise in MSP

This note summarises the results of a recently completed study that examined the consequences of increasing the minimum support price (MSP) of wheat and rice by 10 per cent, with an applied general equilibrium model of India with 65 sectors, and five rural and five urban expenditure classes. The results show that an increase in the MSP of wheat and rice leads to decline in overall GDP, increase in aggregate price index and reduction in investments. Even the increase in agricultural GDP resulting from higher MSP dwindles rapidly and only a minuscule positive impact on agricultural GDP remains by the third year. More importantly, in terms of welfare the bottom 80 per cent of the rural and all of urban population are worse off.

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