New Delhi: In a strong policy decision, the central government has curtailed states’ power to declare bonuses for wheat and paddy over and above the minimum support prices (MSP) fixed by the Centre.

Declaring bonuses over MSP distorts the market and cultivation patterns and increases the subsidy burden, the Centre said.

The formal announcement on the decision came in a written reply from the minister of state for agriculture Sanjeev Kumar Balyan in the Rajya Sabha on Friday. The Centre has already sent the policy directive to states last month.

The minister said the government expects the decision will lead to crop diversification as farmers will no longer be encouraged to grow foodgrains which come with a price support.

In the past almost all major states like Madhya Pradesh, Punjab, Haryana and Andhra Pradesh have announced bonuses over MSP. States say the cost of cultivation varies from state to state whereas MSP is standard across states. Bonuses are also declared by governments to gain political mileage.

The cost of procuring foodgrains is part of the budget for implementing the National Food Security Act 2013. This year’s budget has allocated 1.10 trillion against a requirement of 1.31 trillion.

Under the new policy, if a surplus state undertaking decentralized procurement (DCP) declares a bonus for paddy and wheat for the Kharif marketing season 2014-15 and Rabi marketing season 2015-16, the central government will limit the procurement for the central pool. The procurement in such states will be limited to the state’s requirement of foodgrains for its own targeted public distribution system (TPDS).

The Food Corporation of India (FCI), the Centre’s procurement agency, can acquire additional quantities from the state but will no longer be under any compulsion to do so. In such cases state governments will be responsible for any surplus procurement and will have to bear the financial burden.

Under the DCP system, states directly purchase paddy and wheat on behalf of the Centre, and also store and distribute these foodgrains meant for TPDS and other welfare schemes. The central government meets the entire expenditure incurred by the state governments on the procurement operations. Chhattisgarh, Andhra Pradesh, Odisha, West Bengal, Kerala, Karnataka and Bihar are some of the major DCP states for paddy procurement. For wheat, some of the major DCP states are Gujarat, Madhya Pradesh and Rajasthan.

The Centre’s new policy directive for non-DCP states is even stronger. If a non-DCP state announces bonus over and above MSP, the FCI will no longer procure from the state and state agencies will have to mobilize resources and take care of entire MSP operations on their own including arrangements for storage of procured foodgrains. Punjab is a major non-DCP state for paddy procurement.

“With respect to such States, FCI in consultation with the Department of Food and Public Distribution will decide as to how much stock of wheat or rice it should acquire from the concerned State in a particular season and will restrict its Central Pool procurement to that extent leaving rest of the surplus stocks to be disposed of by the State Government concerned at its own risk and cost," reads the new directive.

“Since cost of production varies from state to state, respective state governments had declared bonuses in the past. The problem is that state governments have been procuring more than what is required which has led to burgeoning food stocks. But limiting procurement by states may lead to a chaotic situation," said Himanshu, assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.