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Case for Endowment Power Subsidy for Farmers

Updated on November 12, 2016
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A member of the IAS, Jaspalkaler loves to read and write on current issues. He also loves mathematics and economics particularly game theory

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Power grid | Source


State Governments provide power subsidy to farmers and other under privileged sections. The pan India extent of subsidy for 2012-13, as per state budget documents, is Rs. 56000 crore. This brings out the commitment of the State Governments towards the support to farmers and the under privileged sections of the society.

Punjab Government, for example, provides subsidy to the Punjab State Power Corporation in lieu of the free power supplied to the Agriculture Power Consumers (APC) as well as for domestic power consumption by SC/ST and BPL households. The State Government incurs annual expenditure of the order of Rs. 5785 crore on this. The State Government has clearly spelt out its commitment to continue this support to both the farmers and the under privileged sections through a resolution of the Council of Ministers passed in December, 2011. It is, therefore, imperative that the State Government takes necessary steps to ensure continued support to the farmers and the under privileged sections by making it sustainable in the long run. The following steps shall be a win-win situation for all concerned viz., the FARMER, the POWERCOM, the INDUSTRY and the GOVERNMENT.

Incentivise farmer to save energy

There are significant wastages of energy which can be attributed to non-endowment power subsidy to APC consumers. It, therefore, makes eminent sense to incentivise the farmer to save precious energy. This can be achieved by switch over from the present wasteful non-endowment subsidy to endowment subsidy. Under this scheme the amount of annual per hectare subsidy, as on a cut off date preferably 31 March 2013, shall be determined by dividing the total subsidy amount by the total cultivated area under APC tube-well irrigation. That amount of per hectare subsidy shall be fixed, frozen and paid to the farmer, on endowment basis, in cash through DBT in monthly instalments. The POWERCOM shall bill the farmer on metered consumption basis.Whatever the farmer saves shall be his cash gain.

The farmer gains handsomally

It is expected that the farmer shall be able to save 10% – 15% of the total consumption. This will act as a handsome incentive for him to save energy. He can save through various means viz., by prudent use of energy, by changing over to water saving crops, by resorting to water conservation techniques or by installing energy saving devices and machinery. As of now the total annual savings of the farmers are expected to be in the range of Rs. 520 – 780 crore. Potentially the savings will increase significantly in future through technological interventions.

POWERCOM also gains

The energy saved by the farmer allows the POWERCOM to divert energy from the AGRICULTURE sector to INDUSTRY. But there is a tariff differential between the AGRICULTURE and INDUSTRY sectors, the later being significantly higher. The POWERCOM, therefore, is able to supply more power to INDUSTRY and realise higher revenue. Besides this there shall be operational savings on account of transformers saved from burning down due to reduced peak time overloads. The total annual gain to POWERCOM on present tariff rates is expected to be of the order of Rs. 80 - 120 crore.

Hope for industry

As noted above, the energy saved from the AGRICULTURE sector is likely to be 10% -15% of the present consumption of the AGRICULTURE sector. There seems enough demand for this additional supply available to INDUSTRY. The INDUSTRY is thus able to avoid loss of production on account of power cuts. This will lead to increase in GDP and eventually in rate of economic growth of the state. The net gain to industry, though is not quantifiable, shall be substantial due to the multiplier effect.

Government also gains

The Government stands to gain from the fact that its subsidy bill is frozen and no further hike takes in this revenue expenditure. The fiscal indicators shall improve in due course. Besides this the increased rate of growth shall ensure higher Tax Revenue to the state, however small the increase may be. The biggest advantage of course will be that state economy shall get a boost.


The Aadhar penetration now is more than 95% and it is possible to transfer the endowment cash subsidy through DBT directly into farmer’s account. The transfer of subsidy will be linked to actual payment of the POWER bill by the farmer. Bio-metric devices can be provided at the bill collection centres to capture the particulars of the farmer who pays the bill before subsidy is released. The farmer shall have incentive to pay the bill and get his subsidy which will eventually ensure that the POWERCOM will effortlessly collect its dues. The change over shall also ensure that all stakeholders the farmer, the POWERCOM, the government, the industry and economy as a whole gain.


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