Does Minimum Support Price Have Long-Run Associations and Short-Run Interplays with Yield Rates and Quantities of Outputs? A Study on Food and Non-food Grains in India

Indian agricultural practices in most instances are nature dependent; notwithstanding, it contributes a huge amount to the nation’s gross domestic product and in providing food security to the masses. The government’s announcements of minimum support prices (MSPs) for the crops work as insurance for the farmers from distress sales in the times of bumper crops as well as from nature’s shocks. In the recent past, a new agricultural bill has been passed by both houses of the Indian Parliament which constitutes a major source of concern on the MSP. Under this backdrop, the present study investigates through an endogenous growth model incorporating MSP as the public policy variable and empirical analysis whether MSP has long-run relations with yield rates and total quantity of production of different food and non-food crops for 1983–2019. Using a unit root test, cointegration test and causality test under structural break, it concludes that MSP and yield rates, and MSP and outputs of the selected crops have long-run relations under different break points with temporary deviations from the equilibrium path. Further, there are certain crops like pulses and groundnuts where MSP makes a cause to yield rates and, on the other hand, there are the crops like jute and cotton where MSP makes a cause to quantity of production. Thus, it is recommended that the Government of India should revisit the new agricultural bill and make necessary amendments for the overall benefits of the farmers and the economy as a whole. JEL Classification: Q180; O4; C22