Subsidised power widens rural wealth gap, warns World Bank

Subsidies were difficult to prune largely for political reasons, the World Bank had admitted in a recent report.

The World Bank suggested that subsidised power to farmers provided marginal benefits, while free power would actually harm the farming sector. Low agricultural tariff lowered the incentive for supplying quality power to the farmers by power utilities.

In addition, the rationing regime that governed the supply of power to agriculture was exposed to fiscal pressure and indiscipline, it said.

Contrary to the general belief about the positive effects of subsidised power to the agricultural sector, the report said improvement in quality of supply would help farmers more, specially smaller farmers.

The report warned that the benefits of cheap power went overwhelmingly to rich farmers and hurt poor farmers.

It cited evidence to prove that farmers with irrigation got on average an input subsidy which was 15 times more than that enjoyed by farmers without irrigation, who were the poor farmers.

The same was true within the community of generally better-off minority of pump set owners.

In Karnataka, only 22 per cent of farmers with less than one hectare owned a pump, whereas 70 per cent of farmers with 4 hectare or more had a pump.

The sub-1-hectare farmer got a benefit of Rs 3,300 per year per pump while the average subsidy enjoyed by farmers owning more than 4 hectare of cultivable land was nearly Rs 29,710 per year.

The agricultural power supply to farmers was often unmetered and nearly free.

Payment if any was in the form of a lump sum.

In consequence, power producers supplied limited power which hurt both the agricultural requirement and the state's budget. The subsidised power sector lacked commercial discipline and had very poor utility-customer relationship.Non-paying customers were not disconnected.

The government often failed to compensate the power company for losses incurred due to supply of power at non-remunerative rates. According to Planning Commission estimates, the implicit power subsidy given to agricultural consumers grew fourfold from 1992-93 to Rs 305 billion in 2001-02, the report said.