The Agricultural Prices Commission (APC, later renamed as CACP) and the Food Corporation of India (FCI), both came into existence in January 1965. The APC was mandated to recommend minimum support prices (MSPs) to incentivise the cultivators to adopt modern technology, and raise productivity and overall grain production in line with the emerging demand patterns in the country. FCI was mandated to provide an effective floor price by procuring grain at MSP whenever the market prices went below the MSP. The emergence of both these institutions had its roots in the acute scarcity of grain that India faced during the droughts of mid-1960s. A heavy reliance on food aid (PL 480) in the absence of much foreign exchange to commercially import food, and political compromises that one has to make under such circumstances, made India realise the importance of self-reliance in basic staples. This encouraged India to import 18,000 tonnes of high yielding variety seeds of wheat from Mexico, which together with the positive price policy followed through APC and FCI, paved the way for Green Revolution in India. In 1985, NAFED came into being with a mandate to provide price support operations for pulses and oilseeds, whenever their market prices went below the MSPs announced by the government. As of now, CACP recommends MSPs of 23 commodities, which comprise 7 cereals (paddy, wheat, maize, sorghum, pearl millet, barley and ragi), 5 pulses (gram, tur, moong, urad, lentil), 7 oilseeds (groundnut, rapeseed-mustard, soyabean, sesamum, sunflower, safflower, nigerseed), and 4 commercial crops (copra, cotton, raw jute and sugarcane).
Pricing policy of minimum support prices (MSPs), it may be noted, is not rooted in ‘cost plus’ pricing principle, though cost of production is certainly one of the important factors that go into the determination of MSPs. But there are equally important other factors such as overall demand and supply of the commodity under consideration, domestic and international prices, inter-crop price parity, terms of trade between agriculture and non-agriculture, and likely implications of MSPs on consumers of that product, which are all given as parts of the terms of reference of the Commission. In addition, the Commission also keeps in view the need for rational utilisation of water, land, and other production resources while recommending MSPs. Thus, all these factors are taken into account before arriving at MSPs of various crops. Yet, some of stakeholders do perceive ‘skewness’ and feel