Question

Explain the rationale of the policy of fixation of floor price.

Answer 1

The rationale behind the floor price fixation policy is to protect producers’ interests, particularly farmers, by ensuring that they receive a minimum fixed price for their produce. When the market price goes below the cost of production, farmers may incur significant losses or be forced to sell at extremely cheap prices. To avoid such distressed transactions, the government establishes a floor price, also known as the Minimum Support Price (MSP), that serves as a safety net. This policy seeks to maintain price stability, boost agricultural production, and give a fair return for producers. It also gives them the confidence to invest in better farming practices, which benefits rural incomes and food security.