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Day 32 – Q 2.How good a policy is it to subsidise electricity and water for the farmers? Critically examine.

2. How good a policy is it to subsidise electricity and water for the farmers? Critically examine. 

किसानों के लिए बिजली और पानी की सब्सिडी देना कितनी अच्छी नीति है? समालोचनात्मक जांच करें।


Subsidy is a transfer of money from the government to an entity. It leads to a fall in the price of the subsidised product. The electricity subsidies imply that the government charges low rates for the electricity supplied to the farmers.


The rationale of subsidising agricultural inputs is to be traced to the role that these subsidies play in stimulating development of any country through increased agricultural production, employment and investment. However, there are arguments advanced on both sides.

  • Half of India’s workforce is engaged in agriculture and most of them are either marginal or small farmers. Subsidy support is needed to incentivize them as the land-to-man ratio has been falling (from 0.34 in 1951 to 0.15 in 2009).
  • There is a strong linkage between electricity, water and agriculture. All of the electricity supplied to agriculture is used for pumping water, mostly groundwater for irrigation. Close to 85% of pumping energy used in agriculture comes from electricity, the rest being mainly from diesel. Therefore subsidizing it will help the marginal farmers.
  • Input subsidisation also avoids raising food (and raw material) prices, thus avoiding the plausible adverse effect on the poor (and the industrial sector). This has come to be known as ‘cheap-input- cheap-output policy’.
  • Electricity is mainly consumed in pumping out underground water. As 70 % of countries agricultural land is Rainfed electricity becomes main input in agricultural produce. For that purpose farmers get highly subsidized or free electricity for agricultural purposes.
  • Subsidies help maintain the sustained flow of inputs like fertilizer, irrigation, electricity, hybrid seeds at reasonable prices which is necessary to increase productivity, generate employment in the farms, ensure low food prices and contain the flow of rural population into towns and cities.

However, subsidized and ample electricity has resulted in indiscriminate use of electricity by the farmers, which results in massive wastage of electricity and water. In fact, this is main reason behind depleting ground water. It also provides avenues for pilferage and theft of electricity.

  • According to the high-level committee, chaired by NITI Aayog member Ramesh Chand, with resources like power not being charged to the farmer, there has been over-exploitation of water resources, leading to a drop in water table and creation of scarcity situation for water and power.
  • Groundwater overexploitation has reached near-crisis level in the states dominated by electric tube-wells and cheap or free power – the nine states of Punjab, Andhra Pradesh, Karnataka, Haryana, Gujarat, Rajasthan, Madhya Pradesh, Maharashtra and Tamil Nadu together account for 85% of India’s groundwater blocks that are in critical condition. If current trends of declining groundwater tables continue, 60% of all aquifers in India will be in critical condition by 2025.
  • The water availability at watershed levels decreases because subsidies for irrigation efficiency lead to increases in irrigated areas and water withdrawals as well as driving a choice of more water-intensive crops. This is clearly a critical concern for India considering the monsoon response to global warming.
  • Electricity use is up for pumping groundwater. The depletion of groundwater tables is alarming in the northwest even though the central-western India shows some groundwater recovery. Irrigation water use shows no decrease even during excess monsoon years which is a clear indication that the subsidies are not incentivising the farmers to produce more crops with less water.
  • While the farmers are ostensibly the beneficiaries of subsidized electricity, they suffer from a de facto ‘deelectrification’ – rationing and poor quality of electricity delivery – which results from the lack of accountability of the power utilities to the farm-sector users.
  • Providing unmetered supply to agriculture has undermined energy accounting in power utilities and impaired their internal accountability systems. In addition, lack of verifiable energy accounting helps hide inefficiency and widespread theft of electricity by non-agricultural consumers that gets classified as agricultural consumption. The average technical and commercial loss in the electricity sector in the country is now as high as 40%, and more than 75% of the total technical loss and almost 100% of commercial losses occur during distribution. While the total electricity consumption in India increased 12-fold from 1971- 2000, the estimated agricultural electricity consumption has grown 25-fold during the same period. 
  • In addition to damaging financial performance, electricity subsidies have eroded skills development among utility staff, hindered infrastructure maintenance, and undermined the utilities’ ability to finance the investments required to meet the increasing demands for electricity.

Way forward

Separation of feeders

Feeder is an electrical cable or group of electrical conductors that runs power from a ‘larger central source’ to one or more secondary or branch-circuit distribution centers(to end user). We have yet common feeder lines for agricultural and other sectors in all states except Gujarat.

In Gujrat Jyotigram Yojna was initiated in 2006, which separated agricultural feeders from main feeder. Agricultural feeder supply was regulated and power is given only for 8-10 hours per day. Timings of powers are pre declared to the farmers. On the main feeder power is supplied full time. This development has two fold benefits; one is surplus electricity for industry and civilians and second is it arrested rapid depletion of ground water. Result is Gujrat has surplus power of 2000 MW (out of total capacity of 14000 MW) which is sold to other states.

Success of this scheme was recognized by planning commission and it was made central to power reforms under 12th five year plan.

New scheme Pandit Deendayal Upadhyaya Gram Jyoti Yojna, aims for separation of feeders at national level. It is first to be rolled out in Rajasthan and Andhra Pradesh. Scheme would be merged with ‘Integrated Power Development Scheme’, which aims at improving India’s sub-transmission and distribution network.


Ensuring real increases in irrigation efficiency requires carefully combining subsidies with caps and trade-offs of water withdrawal, irrigated area, electricity use, crop selection, weather and extended range forecasts as well as seasonal outlooks and other market factors.

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