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Resource centre on India's rural distress
 
 

'Free electricity for farmers is hurting development, not helping it– including farmers themselves'-Lalit Jalan
-The Economic Times

There has been a change of guard at the power ministry and Jyotiraditya Scindia, the new man in charge, has described his task as daunting. To simplify the many complexities, it's worth keeping in mind an adage that's particularly apt for rural India: Nothing is more expensive than no power.

While on one hand there are thousands of villages that still remain to be electrified, on the other even the ones that have been electrified, get power for a mere four to five hours per day, and that too mostly at night time.

The stark reality is that due to the short-sightedness of our policymakers and the political class, we are unable to mobilise the national consensus needed to do away with subsidised power to the agricultural sector. The decisionmakers fail to realise that more than subsidies, it is round-the-clock and quality power supply that holds the potential to completely transform life in rural India.

It is worthwhile to mention here that agriculture, which accounts for over 25% of the electricity consumption , contributes to a mere 5% of the revenue. Inadequate tariffs on one hand and high technical and commercial losses on the other have completely destroyed the financial health of all state utilities.

Aggregate loss in the year 2012 is estimated at a whopping Rs 1.2 lakh crore (1.5% of GDP). This poor financial health has resulted in inadequate investment in the entire generation, transmission, distribution value chain - which in turn has impacted the overall quality and reliability of the supply.

Recent back-to-back grid failures leading to a complete blackout of the entire northern half of the country, affecting over 600 million people, is as much due to lack of investment in capacity-building and modernisation as it is due to excess drawals by the states. And very often, we find that cash constrained state electricity boards prefer selling power outside the state to paying customers rather than supply to nonpaying farmers.

While it is laudable that the government is investing huge amounts in electrifying villages under the Rajiv Gandhi Grameen Vidyutikaran Yojana, the question is: Are the financially distressed distribution utilities in a position to supply power to these villages at zero net realisation after accounting for cash expenses? With the average cost of supply at over Rs 5 per unit, every 10% increase in agricultural supply will add Rs 7,500 crore to the deficit.

Where will it come from? With the combined (central/ state) budget deficit in the region of 9 % of GDP, the government's hands too are tied; clearly, it is not in a position to fund any subsidy, or for that matter, loss.

It is time that we take cognizance of the fact that this subsidy does not help anyone. First and foremost, instead of four to five hours of subsidised power every day, our farmers need round-the-clock quality supply, even if it comes at a higher cost. This need is evidenced not only in high demand for power from microgenerating units selling to clusters of villages at over Rs 6 per unit, but also in our rural folks often using diesel generator sets, which cost a staggering Rs 14 per unit. Besides, low and fluctuating voltage combined with imbalances in three-phase supply not only significantly reduces operating efficiency of pumps but also leads to frequent motor burnout.

It is surprising that in this 21century world of science and technological advancements , rural India is still starved of basic necessities like electricity and roads. It is even more surprising that our planners and policymakers have failed to realise this. They also need to realise that free or subsidised power encourages excessive and wasteful use of pumps and has led to rapid depletion of water tables, jeopardising the future cultivability of vast tracts of land. This is a serious issue that needs urgent attention.

Affordable power can be better achieved by removing the bottlenecks in domestic coal production. This can be done by either improving Coal India's productivity or involving private players in coal production. By following these methods, allowing us to do away with costly coal imports, power costs can be brought down by over 25% on an average from current levels. Further, affordable power in the medium term will also come from AT&C loss (theft) reduction initiatives.

It is unfortunate that the slogan 'Free power to farmers' has ended up as 'No power to farmers' . There is no debating the fact that round-the-clock power availability in rural pockets will transform our villages and will be the single most important step towards enabling inclusive growth, a concept very dear to all of us. There is urgent need to evolve national consensus in this direction within the political class and among policymakers.

The writer is CEO of Reliance Infrastructure Limited. Views are personal.