Abuse of power

Free or even subsidised power to farmers is a bad idea — it doesn't even help the poor

Jeremy Carl Delhi

Now that the current governments of Andhra Pradesh and Maharashtra, both of which campaigned on a "free power to farmers" platform, have taken a closer look at the bill, they are busily pursuing more realistic alternatives. The Central government, much to its credit, has informed the states in no uncertain terms that they should not expect further handouts to bail them out from their own promises.

Meanwhile, well-meaning columnists and "moderate" figures in the Central government assure us that what is needed is simply "better targeted" subsidies. Given the government's historic inability to effectively target economic and social welfare funds, such declarations should be met with appropriate scepticism.

To be fair, effective targeting of power subsidies is difficult in any country, as wealthy farmers are able to hide income, engage in fictitious paper-based division of assets, and use local political capital to ensure that any such "targeted" power subsidy is most unlikely to reach its intended beneficiaries. In India, with its many permutations of caste politics, pervasive corruption, and decentralised power structure, effectively distributing these benefits is nearly impossible. Given this history and political reality, "targeted" free power or subsidised low-cost power is only slightly less disastrous than a generalised free power scheme.

More importantly, there is of course no such thing as "free power" for anyone. The money being used to subsidise these mostly wealthy and middle-class farmers comes directly from the pockets of India's citizens, including its very poorest. To sum up, giving free power to farmers is a terrible anti-poverty strategy, disastrous economic policy, and an environmental calamity. Other than that, it's perfect public policy. There are several reasons why India needs to wean itself completely from agricultural power subsidies.

As an anti-poverty strategy, giving free power to farmers is a loser. As Ashok Gulati, perhaps India's leading agricultural analyst and a former member of the prime minister's Economic Advisory Council, recently wrote, "Giving free power is irrational and perhaps an economic disaster, which has made all State Electricity Boards financially sick, led to unsustainable mining of groundwater, and distorted the cropping patterns towards water-guzzler crops."

To combat poverty, India should focus its subsidies — to the extent it finds subsidy policies necessary at all — not on farmers, but on poor consumers who cannot afford the large quantities of food already produced by India's farmers, food that today often rots in storehouses.

The longstanding policy to subsidise farmers more than consumers caused economics Nobel laureate Amartya Sen to observe, "We are evidently determined to maintain, at heavy cost, India's unenviable combination of having the worst of undernourishment in the world and the largest of unused foodstocks on the globe."

In 1996, the last year for which official figures are available, 46 per cent of Indian agriculturalists were landless labourers. Of course, this category includes a large number of the poorest Indians. A further 65 per cent of those who are fortunate enough to have land are working farms so small as to be net food purchasers.

Of these, only 40 per cent even irrigate their farms at all. Irrigation is by far the largest use of agricultural power, so farmers who do not irrigate will generally receive very little benefit from a power subsidy.