Implications of Agricultural Electricity Subsidies in India

In India, the government provides agricultural electricity subsidies amounting to 85% of the average cost of supply to encourage agricultural production and economic growth, especially among the rural poor. However, these agricultural input subsidies may compromise environmental quality and have the potential to reduce agricultural output in the long run. This article provides an overview of these subsidies in India, detailing the rationale behind their introduction and their evolution over time. It then examines the benefits of the subsidies, notably a rise in agricultural productivity and an increase in rural incomes. In addition, it considers the environmental and economic costs of this policy: accelerated groundwater extraction, increased electricity usage and in turn greenhouse gas emissions, a contribution to the intermittent and low-quality electricity service characteristic of India, and potential impacts on industrial growth. The authors then broaden the lessons learned from electricity subsidies in India to other countries and contextualize these findings within the discussion on environment and development