Agricultural Economics Research Review Vol. 25(No.2) July-December 2012 pp 231-242 * Author for correspondence Email: sidhurajinder@gmail.com § The paper is based on the M.Sc. Thesis of the first author titled “Effectiveness of agricultural price policy for wheat and rice in Punjab”, submitted to the Punjab Agricultural University, Ludhiana Effectiveness of Minimum Support Price Policy for Paddy in India with a Case Study of Punjab § Shayequa Z. Ali a , R.S. Sidhu b* and Kamal Vatta c a Jawaharlal Nehru University, New Delhi - 110 067 b College of Basic Sciences & Humanities; c Department of Economics & Sociology, Punjab Agricultural University, Ludhiana - 141 004, Punjab Abstract The effectiveness of minimum support price (MSP) for paddy has been examined in different regions of India and its role and contribution towards production in surplus states like Punjab have been studied. Based on the secondary data spanning from 1980-81 to 2006-07, the deviations of farm harvest prices from the MSP have been used as a measure of ineffectiveness and the impact of prices and technology on rice productivity has been examined by using the simultaneous equation model. While the MSP policy has been very effective in surplus producing states like Punjab and Andhra Pradesh, it has not been so effective in the deficit states. In Punjab, the effective implementation of the price policy has helped in improving the production and productivity of rice. Non-price factors such as use of improved varieties, availability of assured irrigation at subsidized rates and high fertilizer-use have been found to be significant determinants of growth in rice production. The study has suggested that without losing sight of the environmental concerns, the Punjab model can be used for increasing the production of rice in other potential areas of the country. Key words: Minimum support price, paddy, effectiveness of MSP JEL Classification: Q18, E64 Introduction The Agricultural Prices Commission (APC) was set up in India in 1965 to advise the government on evolving a balanced and integrated price structure. The policy framework was modified in 1980, when the emphasis was shifted on to the balance between demand and supply of foodgrains. It was reflected in the revised terms of reference of APC (which was later renamed as Commission for Agricultural Costs and Prices) with a shift from maximizing the production to developing a production pattern consistent with the overall needs of the economy (Acharya, 1997). The Commission for Agricultural Costs and Prices (CACP) recommends Minimum Support Price (MSP) for 25 agricultural crops, the most important of which are paddy, wheat, cotton, oilseeds and pulses. The MSP policy has been a matter of contention since its inception, with a general feeling that MSP favours only the food surplus regions like Punjab and Haryana states from where large stocks of grains are procured for Public Distribution System (PDS) (Chand, 2003). Also, the price policy is considered to have favoured food crops more than the other crops (Singh et al., 2002). As a result, a large chunk of good quality land was shifted from pulses, oilseeds and other important crops to paddy and wheat crops, creating a serious imbalance