Big reform! Punjab mulling ending power subsidies to big farmers

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Published: January 4, 2020 12:52:50 AM

The subsidy policy had long stopped making economic sense—while power consumption in agriculture rose 1.2 times between FY02, when the policy came into effect, and FY15, the share of agriculture in the Punjab GSDP has fallen from 18.8% in FY12 to 14.4% in FY19.

Punjab, Punjab government, power subsidies for farmers, PSPCL, CAG, Punjab GSDPThe Punjab power subsidy never really benefited the farmers that need such support the most.

The Punjab government is considering ending power subsidies to big farmers (owning more than 10 acres of land). This is a step in the right direction, though much delayed—the Punjab State Farmers’ and Farm Workers’ Commission had first proposed charging farmers with more than four acres of land Rs 100 per BHP of their pumps per month in 2018. It had subsequently proposed, in a draft farm reforms policy, that subsidies to such farmers be cut to 33%—and to 66% for farmers who adopted micro-irrigation. The government had taken it up for consideration twice before now. Punjab’s power subsidies have brought the state to its knees—the CAG had highlighted that the state government had to pay off loans incurred by Punjab State Power Corporation (PSPCL), the state-owned genco-discom, which had severely depleted state finances. PSPCL, of course, had taken these loans because the state had deferred payment of subsidy dues. The state has been reluctant, so far, to end the power subsidies for farmers, likely because of the political fallout the move would have.

The subsidy policy had long stopped making economic sense—while power consumption in agriculture rose 1.2 times between FY02, when the policy came into effect, and FY15, the share of agriculture in the Punjab GSDP has fallen from 18.8% in FY12 to 14.4% in FY19. This is likely to fall further given the water-table in the state has crashed—in 2016, nearly 85% of the blocks in the state were classified as over-exploited/critical for groundwater availability versus 53% in 1984—and climate change effects could exacerbate the pain. Given how free power and the procurement policy, centred on water-guzzling crops like paddy, resulted in unsustainable drawing of groundwater in the state, any reform in either of the policies can only be welcome.

The Punjab power subsidy never really benefited the farmers that need such support the most. As per the Centre for Research in Rural and Industrial Development, while there are 14.5 lakh agricultural tubewells in the state, less than a fifth of the farmers benefiting from the policy are small farmers with landholdings of 2.5 to 5 acres. With the public-procurement–MSP route delivering only feeble income growth, and with a strong case for direct cash transfers obviating the need for food subsidies, power subsidies will mean less for even those who corner the bulk of it. Power subsidy for agriculture totalled Rs 6,000 crore last year, nearly half of the state’s power subsidy and arrears bill; for perspective, the power subsidy bill before the policy came up was just over Rs 1,600 crore. While the Punjab government missed the bus in 2018 and 2019, if it continues to pussyfoot on this fearing farmer reaction, it will only have itself to blame even as its own finances and farm growth both continue to suffer.

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