Elsevier

Journal of Hydrology

Volume 409, Issues 1–2, 28 October 2011, Pages 382-394
Journal of Hydrology

Inducing the shift from flat-rate or free agricultural power to metered supply: Implications for groundwater depletion and power sector viability in India

https://doi.org/10.1016/j.jhydrol.2011.08.033Get rights and content

Summary

India’s farm sector sustains livelihoods for hundreds of millions of rural people, but faces serious management challenges for land, water, and energy resources. Growing dependence on groundwater threatens water resources sustainability and power sector viability. Sustaining India’s rising prosperity rests on managing groundwater. This study shows that raising power tariffs in the farm sector to achieve efficiency and sustainability of groundwater use is both socially and economically viable. The question is about how to introduce this shift. This paper discusses five different options for power supply, metering and energy pricing in the farm sector and the expected outcomes of implementing each vis-a-vis efficiency of groundwater and energy use, equity in access and sustainability of groundwater. It concludes that establishing an energy quota for each farm-based on sustainability considerations, and metering and charging pro rata for power used are the best options to manage groundwater and the energy economy.

Highlights

► Shift in power tariff from flat rate to pro rata results in better water productivity (Rs/m3) in farming operations. ► Such shift in power tariff also results in reduction in groundwater pumping per ha of irrigated land. ► When confronted with marginal cost of using electricity and water, farmers derive greater return per unit of land. ► Raising power tariff to achieve efficiency and sustainability of groundwater use is both socially and economically viable. ► Introducing energy quotas and charging pro rata for power used are the best options to manage groundwater and energy economy.

Introduction

India’s farm sector sustains rural livelihoods for hundreds of millions of people, ensures food security for well over a billion, and faces serious management challenges for land, water and energy resources. But, the growing dependence on groundwater – the backbone of India’s irrigation – threatens land productivity, water resources sustainability, and power sector viability. Continuing the marvel of India’s rising prosperity rests on getting the groundwater equation right. Raising social and economic equity nationally and minimizing inter-regional disparities are essential to under-gird urban-led economic growth. This will require continued growth of agriculture while at the same time, the farm sector must internalize it share of the effects of groundwater depletion and bankrupt power utilities. Agricultural power – supplied flat-rate or free and viewed as an entitlement – must increasingly be managed as a scarce input (World Bank, 2001). Raising power tariffs in the farm sector to achieve efficiency and sustainability of groundwater use is both socially and economically viable and urgently necessary. The fundamental question addressed is how to induce this shift.

In arid and semi arid regions of India, groundwater withdrawal for crop production exceeds the average annual recharge. Uncontrolled withdrawal of groundwater for crop production, which is supported by subsidized electricity in the farm sector, leads to rapid declines in water level in many parts of the country (Kumar, 2007, World Bank, 2010). As irrigation is the main user of groundwater in the country, raising water productivity in groundwater-irrigated areas to reduce total water use is essential for arresting groundwater depletion (Amarasinghe et al., 2004; Kumar, 2005, Kumar, 2007). Many Indian states are contemplating re-introduction of electricity metering in the farm sector to manage groundwater demand. The basic premise is that at higher power tariff, with induced marginal cost of electricity and water, the farmers will improve water use efficiency (Kumar and Singh, 2001, Kumar, 2005, World Bank, 2001) and enhanced water productivity. Such proposals face fierce resistance from farmers’ lobby. Further, political parties and scholars alike argue that it will lead to a collapse of farming and the loss of untold rural livelihoods in many water-scarce regions due to reduced net farm returns, making electricity metering in the farm sector socially and economically unviable.

In 2003–04, the most recent period for which state wise data are comprehensively reported, agriculture accounted for almost 21% of the total power consumption in India. But, for states such as Haryana, Gujarat and Punjab, it was as high as 40.6%, 29.6% and 27.4%, respectively (source: www.cwc.nic.in/Water_Data_Pocket_2006/TB.2find.pdf). Electricity to the farm sector in India is subsidized under both flat rate and pro rata tariff systems (Scott and Sharma, 2009). The subsidy in terms of sale to agricultural consumers was estimated to have increased from US$ 3.4 billion in 1996–97 to US$ 5.16 billion in 2000–01 at constant prices (GOI, 2002). This is because of increasing use of electricity for groundwater pumping, which is the result of increased groundwater draft1. In most states, farmers pay electricity charges based on connected load and not on the basis of units of power consumed. Some of the Indian states are providing electricity to the farm sector free of cost, though with ever-decreasing hours of supply and deteriorating quality of power that results from the due to poor financial condition of the State Electricity Boards (SEBs). Modes of electricity pricing under which the charges paid by farmers do not reflect actual consumption, creates incentive for inefficient and unsustainable use of both power and groundwater (Kumar, 2005, Kumar and Singh, 2001).

While metering appears to be a solution to the problem, researchers question its viability on three grounds: (1) transaction cost of metering is very high, which increases the cost of supply of electricity, thereby reducing net social welfare (Shah et al., 2004); and (2) tariff levels at which electricity and water demand curve becomes elastic to price changes would be so high that it becomes socio-economically unviable (Saleth, 1997); and (3) political opposition to metering is so high that governments shy away from the option.

Kumar (2005) questioned the validity of the first two arguments. Empirical evidence shows that with higher tariffs, the farmers use water more efficiently (by providing lower dosages to the crop), increase gross water productivity (Rs/m3)2; and secure higher returns per unit of water used. Also, they are motivated to shift to less water-consuming water efficient crops, provided they receive high quality, sustained water supply.

Some scholars cite positive impact of flat rate pricing of electricity on access and equity of groundwater (for instance, Shah, 1993). They argue that with competitive water markets that emerge as a result of flat rate pricing, water prices would be low with the result that a major share of the electricity subsidy benefits are transferred to water buyers. However, the zero (or extremely low) marginal cost of production of water from wells does not seem to influence the prices at which water is traded, in favor of buyers of water for irrigation. Recent research shows that flat rate pricing increases the monopoly power of large well owners (Kumar et al., 2001). Flat rate pricing also leads to inequitable distribution of power subsidy benefits among well owners (Kumar and Singh, 2001, Howes and Murugai, 2003). Kumar (2007), on the basis of evidence from Mussafarpur in eastern Bihar state argued that the monopoly power enjoyed by water sellers cannot be reduced by pricing policies, but by improving the transferability of groundwater.

As a way to cope with the increasing financial burden due to revenue losses through subsidies and growing power deficits, the State Electricity Boards in many agriculturally prosperous states have introduced heavy cuts in power supply hours to the farm sector (GOI, 2002). Examples are Punjab, Andhra Pradesh and Gujarat. The assumption here is that this would reduce the energy use and groundwater draft for agriculture. The electricity boards have not analyzed the impact of such cuts on equity in access and efficiency in use of groundwater. On the contrary, with reduction in hours of power supply, the quality of irrigation can be adversely affected3. The economic prospects of irrigated farming are more elastic to the quality of irrigation water rather than to its cost (Kumar and Patel, 1995, Kumar and Singh, 2001). The rich well owners always find ways to overcome the crisis of power cuts. This can further increase their monopoly in water trading.

There have been some developments in metered power supply. For instance, since 2001, the government of Gujarat has only provided metered connections for agriculture. Nearly 12,000 farmers thus have metered power connections in north Gujarat alone. In West Bengal, the state power board has installed electronic meters in all farm wells and started charging for electricity on the basis of the actual number of units consumed. But, empirical studies on the impact of such policy interventions on efficiency, access equity and sustainability in resource use are lacking.

Section snippets

Research objectives

The broad objective of this research study is to analyze the socio-economic viability of pro rata pricing of electricity in agriculture and to assess various technological options for implementing energy pricing policies. Specific objectives are: (1) to study the impact of the shift from flat rate power supply to metered supply on the efficiency and sustainability of groundwater use by well owners; (2) to analyze the overall impact of electricity pricing on the farming system of well owners,

Study area, approach and methodology

North Gujarat, which is a water scarce region, and the eastern plain regions of Uttar Pradesh (UP) and south Bihar, which are water rich regions, are the study locations (see Fig. 1). Water rich regions of UP and Bihar were selected for the study due to the reason that there were no other locations in India where comparison could be made between farmers who are confronted with marginal cost of using energy and groundwater for irrigation, and farmers who are not confronted with, other than

Distribution of land holdings

In north Gujarat, the average size of land holding is higher for tube well owner who are paying power tariff on connected load basis (3.45 ha) as compared to their counterparts with metered connections (2.95 ha). About 90% of the area is under irrigated crop production and remaining 10% area is cultivated under rain-fed condition.

In Eastern UP, the average size of land holding is larger for diesel well irrigated farms4

Implications of farm-sector energy pricing for groundwater sustainability and power sector viability

The foregoing analysis showed that introducing marginal cost for electricity motivates farmers to use water more efficiently at the field level from physical, agronomic and economic points of view through careful use of irrigation water, use of better agronomic inputs and optimizing costly inputs. This is evident from: (1) the lower irrigation dosage applied by farmers who are either using diesel wells or buying water from well owners or paying for electricity on pro rata basis, with lowest

Technological innovations for introducing electricity metering in farm sector

The SEBs and policy makers in government recognize the importance of metering electricity from the point of both cost recovery and improving energy efficiency. This means reducing the unaccounted for losses in electricity distribution, improving the financial working of the SEBs and reducing the overall power deficits. But, for almost two decades, they were also toiling with the idea of carrying out metering of farm-power connection in a way that makes it fool-proof as well as cost effective.

Conclusion and policy implications

Pro rata pricing of electricity coupled with rationing of energy supply based on groundwater resource sustainability criteria is the best option for co-management of electricity and groundwater. This would address the issue of equity, efficiency and sustainability of groundwater use, while improving the energy economy. The second best option would be pro rata pricing with control of electricity supply on the basis of connected load and supply hours, and will positively impact on efficiency of

Acknowledgment

Participation of co-author Christopher A. Scott has been in part supported by the U.S. National Science Foundation under Grant No. EFRI-0835930 (Resilient and Sustainable Infrastructures). Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation.

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