What Happened
- The Union Expenditure Secretary wrote to Kerala's Chief Secretary directing the state to discontinue its additional bonus of Rs 6.31 per kg paid to paddy farmers over and above the central MSP of Rs 23.69 per kg.
- The Centre's rationale is that state-level incentives beyond MSP "artificially stimulate production of water-intensive crops" like paddy and wheat, leading to procurement exceeding buffer stock requirements and creating financial burdens on the exchequer.
- Kerala has rejected the directive, arguing that the state's paddy cultivation has been shrinking for decades and the bonus is an economic lifeline — not a surplus-generating incentive.
- The area under paddy cultivation in Kerala fell from 3.22 lakh hectares in 2001-02 to 1.95 lakh hectares in 2021-22 — a 39% decline in two decades.
- Rice production dropped by 20%, from 7.03 lakh tonnes in 2001-02 to 5.62 lakh tonnes in 2021-22, even as the state's per capita rice consumption remains among the highest in India.
Static Topic Bridges
Minimum Support Price (MSP) — Mechanism and CACP Methodology
The Minimum Support Price is the price at which the government guarantees procurement of agricultural produce from farmers. MSP is recommended by the Commission for Agricultural Costs and Prices (CACP), an attached office of the Ministry of Agriculture and Farmers' Welfare, and approved by the Cabinet Committee on Economic Affairs (CCEA). CACP considers three cost concepts: A2 (actual paid-out costs — seeds, fertilisers, pesticides, hired labour, fuel), A2+FL (A2 plus imputed value of family labour), and C2 (comprehensive cost including rental value of owned land and interest on fixed capital). Since 2018-19, the government has set MSP at a minimum of 1.5 times the A2+FL cost.
- CACP recommends MSP for 22 mandated crops and Fair and Remunerative Price (FRP) for sugarcane
- The 22 crops include 7 cereals, 5 pulses, 7 oilseeds, and 4 commercial crops (cotton, jute, sugarcane, copra)
- MSP for paddy (common) for Kharif 2025-26: Rs 23.69 per kg (Rs 2,369 per quintal)
- CACP does not conduct field-based cost surveys — it uses data from the Directorate of Economics and Statistics (DES)
- MSP has no statutory backing — it is an administrative decision of the government
Connection to this news: Kerala pays an additional Rs 6.31 per kg above the central MSP, bringing the effective price to Rs 29.99 per kg. The Centre's directive to scrap this bonus raises questions about whether the MSP alone is sufficient to sustain paddy farming in high-cost states where production costs exceed the national average.
Centre-State Fiscal Relations — Expenditure Control and Federal Autonomy
India's fiscal federalism framework involves concurrent responsibilities in agriculture under the Seventh Schedule. While agriculture is a State subject (Entry 14, State List), the Centre exercises influence through MSP operations, Food Corporation of India (FCI) procurement, and conditional fiscal transfers. The Union government periodically issues advisories to states regarding fiscal prudence, particularly on expenditure that impacts central programmes — paddy procurement being one where FCI bears storage and distribution costs.
- Article 282 of the Constitution allows both Centre and states to make grants for any public purpose, even outside their legislative competence
- 15th Finance Commission (2021-26) recommended fiscal deficit limit of 4% of GSDP for states
- States providing bonuses over MSP bear the additional cost, but FCI bears the storage and logistical costs of centrally procured grain, creating an indirect fiscal linkage
- Similar advisory issued to other states: Odisha was also asked to discontinue its input subsidy of Rs 800 per quintal for paddy farmers
Connection to this news: The Centre's directive to Kerala illustrates the tensions inherent in India's cooperative federalism — where agriculture remains constitutionally a state subject, but central procurement policy and fiscal advisories can constrain state-level agricultural support mechanisms.
Kerala's Paddy Cultivation Crisis — Structural Decline
Kerala presents a unique case in Indian agriculture: a rice-consuming state where paddy cultivation has been declining for decades due to rising labour costs, land fragmentation, conversion of wetlands for construction and other uses, and competition from more profitable crops like rubber and spices. The Kerala Conservation of Paddy Land and Wetland Act, 2008 was enacted to prevent conversion of paddy land, but implementation has been patchy. The state meets less than 15% of its rice consumption from domestic production, making it heavily dependent on procurement from surplus states like Andhra Pradesh and Punjab through FCI allocations.
- Area decline: 3.22 lakh hectares (2001-02) to 1.95 lakh hectares (2021-22) — 39% loss (1.27 lakh hectares)
- Production decline: 7.03 lakh tonnes to 5.62 lakh tonnes over the same period (20% drop)
- Rice constituted only 7.1% of total cropped area in 2023-24
- Production fell further by 10.5% in 2023-24 compared to 2022-23
- Three paddy seasons in Kerala: Virippu (autumn), Mundakan (winter), and Puncha (summer)
- Annual rice consumption: approximately 40.68 lakh tonnes vs domestic production of approximately 3.65 lakh tonnes
Connection to this news: The Centre's justification — that bonuses create surplus production — does not apply to Kerala, which is a deficit state producing a fraction of its consumption needs. Removing the bonus could accelerate the existing structural decline in paddy cultivation, further deepening the state's food security dependence on inter-state procurement.
Key Facts & Data
- Central MSP for paddy (common): Rs 23.69 per kg (Rs 2,369 per quintal)
- Kerala's additional bonus: Rs 6.31 per kg (revised upward from Rs 5.20 in October 2025)
- Effective price to Kerala farmers: Rs 29.99 per kg (Rs 2,999 per quintal)
- Area under paddy in Kerala (2021-22): 1.95 lakh hectares (down from 3.22 lakh hectares in 2001-02)
- Rice production in Kerala (2021-22): 5.62 lakh tonnes (down 20% from 7.03 lakh tonnes in 2001-02)
- Kerala's rice self-sufficiency: less than 15% (produces ~3.65 lakh tonnes, consumes ~40.68 lakh tonnes)
- CACP recommends MSP for 22 crops + FRP for sugarcane
- MSP formula since 2018-19: at least 1.5 times A2+FL cost