Powering sustainability in agriculture

The issue of free power to farmers has surfaced yet again, as the Central government put removal of power subsidy and introduction of direct benefit transfer as preconditions for the States to increase their borrowing limit. Will this help farmers? Are there alternatives to free power supply?

The removal of power subsidies or fixing of an electricity tariff for the agriculture sector has been one of the most contentious issues in India for the past two and a half decades. It has long been established that free power and tariff based on connected load (flat-rate) creates incentive for farmers to use groundwater excessively and inefficiently, as the marginal cost of pumping is almost zero. A major fallout of this has been resource over-exploitation.

On the other hand, the heavy subsidies being offered for the farm sector by the power utilities put a heavy burden on the States, with the total revenue loss touching $6-7 billion annually. However, managing the political economy to raise the power tariff is not easy in most States.

With several million electric pump users serving as a strong vote bank and the dominant view that an increase in power tariff would adversely affect the viability of irrigated production, politicians were motivated to use ‘free power’ as a pro-poor policy.

Correct pricing of electricity

Research studies carried out in North Gujarat, East Uttar Pradesh and South Bihar showed that the energy prices at which the farmers start responding to tariff changes in terms of reducing the demand for these inputs would be socio-economically viable. This is because they are able to improve the efficiency of use of irrigation water and other farm inputs, as well as modify their farming systems, when confronted with positive marginal cost of electricity and higher unit tariff.

As a result, they get not only higher water productivity, but also higher net income per unit area of land. Therefore, one should arrive at an ideal unit price for electricity, for different regions, which would be most efficient in terms of demand reduction, affordable for farmers and also improve the viability of the power sector.

The pro-rata tariff should be an inverse function of the depth to the groundwater table to make sure that the cost of electricity to abstract a unit volume of groundwater remains more or less the same across different geo-hydrological environments. However, the price for electricity would also have to be a function of what farmers would be willing to pay. The willingness to pay would be a function of the economic surplus generated from the use of water for irrigation.

This is a function of the cropping system that is feasible under the given climate, the wherewithal available with the farmers to adopt the technologies needed to raise the crops, and the market demand for the crop. These factors need to be considered while fixing the price for electricity.

Reducing metering cost

The State Electricity Boards and policy-makers recognise the importance of metering electricity in the farm sector. But they are also toying with the idea of carrying out metering in a way that makes it fool-proof as well as cost-effective. Today, technologies exist not only for metering but also for controlling energy consumption by farmers. Pre-paid electronic meters, which are operated through scratch cards and work on satellite and Internet technology, are ideal for remote areas to monitor energy use and control groundwater-use online, from a centralised station. Over the past 15 years, there has been a remarkable improvement in the quality of services provided by Internet and mobile (satellite) phone services, especially in the rural areas.

Pre-paid meters prevent electricity pilferage through manipulation of pump capacity. They can be operated through tokens, scratch cards, magnetic cards or recharged digitally through the Internet and SMSes. It helps the electricity company restrict consumption. The company can decide on the “energy quota” for each farmer on the basis of reported connected load and total hours of power supply per unit of irrigated land. Farmers can pay and obtain an activation code through SMSes. Alternatively, automatic metering infrastructure used to meter electricity and, in many cases, water supply, can be used. All these will reduce costs and theft.

Functional water rights system

Researchers have long been arguing for tradeable water rights to ensure sustainability in water usage. Tradeable property rights for groundwater exist in many countries, including the US, Australia, Mexico and Chile. Analyses show that this can serve as a viable instrument for allocation of water to improve efficiency in water use.

There are legal, institutional and technological challenges in establishing and enforcing property rights for groundwater, given the invisible nature of the resource, the pattern of its use and the legal status vis-à-vis its ownership. And newly introduced water rights, if designed to address concerns of the current inequity in access to the resource, can take away some of the existing rights.

Restricting farmers’ energy use for pumping groundwater is analogous to rationing groundwater withdrawal for irrigation volumetrically. This can be done through pre-paid electricity meters. As studies have shown, when water allocation is volumetrically rationed, farmers would allocate the water to more economically efficient crops. Hence, restricting energy use will have positive impact on groundwater use efficiency.

But, in such cases, it is important that the consumers are informed about their energy quota, and the approximate number of hours for which they cand pump water from their wells using this quota, well in advance. Such information would help them choose the crops to grow. The energy quota will have to be decided on the basis of the geo-hydrological environment prevailing in the area and the optimum irrigation requirements.

Free power to the farm sector and attractive procurement prices for water-guzzling cereals has led to an intensive use of groundwater, with adverse impact on the resource-poor farmers. The lack of well-defined property rights in groundwater is another factor driving its over-exploitation and inefficient use. To improve the sustainability of groundwater use, two policy measures are needed. They are pro-rata pricing of electricity and a functional water rights system. Pre-paid energy meters or AMIs can be used to introduce pro-rata pricing system and monitor energy use of individual farmers. This can be combined with energy rationing. However, electricity prices that would affect efficient water use, but are also affordable to the farmers, need to be worked out.

In the context of renewed debate on electricity tariff policy, one should also wait and see how the farmers are going to respond to the PM-Kusum scheme, which provides heavy incentives to farmers to set up standalone solar pumps and grid-connected solar power generation capacity on fallow and barren land.

Kumar is Executive Director, Institute for Resource Analysis and Policy, Hyderabad and Narayanamoorthy is former member, CACP. Views are personal

COMMENT NOW