Institutions and Infrastructure for Market Development

Power and Irrigation Subsidies in Andhra Pradesh and Punjab in India

There is an inbuilt inefficiency in the current pricing mechanism and measuring system of power for irrigation. In Andhra Pradesh and in many other states in India, the cost of electricity for irrigation for majority of the farmers is fixed per month. It implies that at the margin, farmers incur almost a zero cost for irrigation in the short-run (ignoring depreciation cost due to additional use and marginal labor cost of additional use). Linked to the pricing mechanism is the measurement problem as there is no accurate estimate of actual power consumption in agriculture. Provision of electricity and irrigation at concessions has encouraged inefficient use of a scarce resource and has distorted the inter-temporal resource allocation. This research, therefore, examines the general setting of subsidy in canal irrigation and power for irrigation and using household surveys identifies the beneficiaries and the efficiency losses of irrigation and power subsidies in AP and Punjab. The main objectives are:

  • Examine the general setting of subsidy in power for irrigation and canal irrigation,
  • Analyze the reform that took place on the electricity and irrigation sectors,
  • Analyze welfare consequences of current subsidies,
  • Analyze additional costs of current subsidies, and
  • Identify alternative institutional mechanisms to rationalize the subsidies