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Tariff Reform and Farmer Welfare in Rajasthan
(with Nicholas Ryan) |
Energy Research
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Agricultural electricity subsidies in India have been meant as a lifeline to farmers, allowing the spread of irrigation using electric pumps to extract groundwater. Instead, they have locked rural India into a destructive cycle of groundwater depletion and bad power supply. Farmers, given electricity nearly for free, use too much, draining groundwater, worsening poverty, and bankrupting electricity distributors. In turn, distribution companies resort to rationing supply.
Economic theory suggests that, given the distortion caused by pricing power below cost, a Pareto improvement is possible. Both farmers and the distribution companies could be made better off if subsidies were given as a lump-sum transfer, instead of being tied to power use, which promotes over-consumption. In collaboration with the Governments of Haryana, Rajasthan, and Punjab we are designing and testing variants of this type of subsidy reform. |