7 PM | Power subsidy in agriculture:| 22 January, 2019

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Context:The role of inputs in agriculture plays a major role in sustainability and viability of agriculture.

The debate in India on reforming agriculture mainly revolves around the issues of loan waivers and MSP etc. and hardly delves into the input side of agriculture, which often remains neglected.One of the main agricultural input, which needs streamlining in electricity supply that goes into agriculture.

Usage of electricity in agriculture:

• All of the electricity supplied to agriculture is used for pumping water, mostly groundwater, for irrigation.
• Close to 85% pumping energy used in agriculture comes from electricity, the rest being mainly from diesel.
• There has been a sharp growth in electricity use in the agriculture sector. Since 1980s,the electricity consumptionin agriculture arose from 8%of total consumption in 1969 to 17% cent of total consumption in 2016.

Problems with usage of subsidized electricity in agriculture:

• Fiscal impact of subsidized power:The widespread use of electricity is either provided free of cost (Tamil Nadu) or highly subsidized, which causes huge financial loss to states.
• Makes utilities (Discoms) unviable and hampers irrigation infrastructure:
  • Removing meters on tube wells undermines energy accounting in power utilities and impairs their internal accountability systems.
  • Financial losses of electricity utilities undermine their ability to invest in infrastructure development to meet the rising demand for electricity, thus perpetuating electricity usage.
• Impacts on farmers:Low agricultural revenues have led State electricity utilities to view agricultural consumers as a liability and utilities follow rationing, low-quality electricity delivery which hit rural areas with substantial economic costs.
• Limited supply: Due to unrestrained power extraction power outages become a common phenomenon due to overload on power transmission infrastructure.
• Groundwater depletion:Nearly 80% of groundwater reservoirs in Punjab and 60% in Haryana are over-exploited, a direct result of the irrigation and power subsidy.
• Promotes unsustainable agriculture:Free availability of electricity to farmers promotes growth of crops not suitable to agro-climatic zones like rice in Maharashtra etc.

Why is it a challenge to control power subsidies:

• Farmers are reluctant to relinquish access to subsidized power, even when utilities promise supply-quality improvements.
• Political decision makers face political difficulties in implementing a rational price regime for agricultural power supply because it is hugely unpopular.
• Rural prosperity is largely driven by the irrigation economy in which groundwater plays an increasingly important role, which is largely dependent on subsidized electricity.

Under these circumstances a solution to the energy-groundwater nexus cannot be considered realistic if it is based on a withdrawal of subsidies from farmers, while at the same time current system of electricity provision to agriculture is unsustainable. Therefore any solution has to balance both the sides of the argument.

What can be done to reform the power subsidy sector?

• Minimum energy support: The farmer is assured an annual allocation of electricityand there are two dimensions of the MES i.e. the unit of subsidy that can be defined:
  • In terms of quantity of electricity (kWhs) rather than free hours. A nominal charge can be extracted after free quota is exhausted.
  • Amount of subsidy that can be estimated either on the basis of connected load (kW) or land holding (Hectares).
  • This system more transparent, equitable, and easier to administer and monitor
• Smart metering and subsidy delivery using ICT: The use of smart meters that can be read online in real time, through mobile-based technology for meter reading and demand management, is a well-established cost-effective technology.
• DBT for power subsidy transfers:DBT would bring efficiency in subsidy transfers as seen in LPG subsidy case. Recently, Punjab approved a proposal to pass on direct benefit of free power to agricultural tubewells into farmers’ accounts on a pilot basis with an aim to save subsoil water.
• Segregated feeders: Separate feeders should be set up to cater to small clusters of villages in order to reduce the load on main line, increase load diversity and longer supply hours. This system has worked well in some States but feeders must be accompanied by metering and energy accounting.
• Investment in canal infrastructure:The net area irrigated by groundwater increased seven-fold between 1950 and 2013 but in the same period, canal irrigated area rose only two-fold. Mihir Shah Commission suggested investment in expanding canal networks to make available the reservoir water from dams to fields.
• Performance-based incentives for power utility employees: Reforming agricultural power supply requires streamlining of power utilities accounting and demand capture process, which needs active employee support. Incentives would be set at each level:
  • Rural feeder-level: reduced technical losses and improved bill collection;
  • Division/District level: reduced technical losses, improved billing and collection etc.
• Other measures: Measures like installation of solar plants of 1-2 MW capacity at the feeder level, community driven regulation of groundwater extraction and a procurement and price regime to encourage a shift towards an appropriate cropping pattern should be explored.

Source:  https://www.thehindubusinessline.com/opinion/issues-in-power-subsidy-and-farm-distress/article26053133.ece