Rationalizing Energy Subsidies in Agriculture: a Scoping Study of Agricultural Subsidies in Haryana, India
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Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India Shruti Sharma Sagun Tripathi Tom Moerenhout © 2015 International Institute for Sustainable Development | IISD.org/gsi September 2015 Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India © 2015 The International Institute for Sustainable Development Published by the International Institute for Sustainable Development. International Institute for Sustainable Development The International Institute for Sustainable Development (IISD) is Head Office one of the world’s leading centres of research and innovation. The 111 Lombard Avenue, Suite 325 Institute provides practical solutions to the growing challenges and Winnipeg, Manitoba opportunities of integrating environmental and social priorities with Canada R3B 0T4 economic development. We report on international negotiations and share knowledge gained through collaborative projects, resulting Tel: +1 (204) 958-7700 in more rigorous research, stronger global networks, and better Fax: +1 (204) 958-7710 engagement among researchers, citizens, businesses and policy-makers. Website: www.iisd.org Twitter: @IISD_news IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the United States. IISD receives core operating support from the Government of Canada, provided through the International Development Research Centre (IDRC) and from the Province of Manitoba. The Institute receives project funding from numerous governments inside and outside Canada, United Nations agencies, foundations, the private sector, and individuals. About GSI GSI is an initiative of the International Institute for Sustainable Global Subsidies Initiative Development (IISD). GSI is headquartered in Geneva, Switzerland International Environment House 2, and works with partners located around the world. Its principal 9 chemin de Balexert funders have included the governments of Denmark, the Netherlands, 1219 Châtelaine New Zealand, Norway, Sweden and the United Kingdom. Geneva, Switzerland Canada R3B 0T4 Tel: +1 (204) 958-7700 Fax: +1 (204) 958-7710 Website: www.iisd.org Twitter: @IISD_news Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India September 2015 Written by Shruti Sharma, Sagun Tripathi, Tom Moerenhout with contributions from Julie Dekens, Dimple Roy, Vikas Singhal, Laura Turley, David Uzsoki, Natalia Zamudio Trigo. IISD.org/gsi II Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India ACKNOWLEDGEMENTS The Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) and ICF Consulting India Pvt. Ltd would like to express gratitude to Shakti Foundation for providing financial support to make this scoping study feasible. The project partners would further like to explicitly thank: • Dr. Baldev Raj Kamboj–for providing valuable insights on agricultural value chains • Mr. Ramesh Krishnan and Mr. R.S. Solanki from the Department of Agriculture, Haryana for providing important information on government expenses on various agricultural schemes • Mr. Sandeep Bishnoi and Mr. Dinesh Kumar Jain from the Department of Irrigation and Water Resources, Haryana for providing critical data on annual expenses and revenues of the department • Mr. Teg Bahadur Punia – for providing valuable insights on farmer level analysis Any views expressed within this report are those of the authors. Any mistakes also remain the sole responsibility of the authors. IISD.org/gsi III Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India Executive Summary Agricultural policies in India have a direct • Ironically, given this situation, Haryana also impact on the Indian economy. In particular, has the lowest power tariffs for agricultural irrigation policies have an overarching impact on consumers (INR 0.08–0.10 per kilowatt hour, agricultural output, since they affect the economy, in the 2014–2015 fiscal year [FY]) across food security and the environment. Currently, India. Like other states with agricultural most agriculture in India is irrigated through power subsidies, Haryana is powered by groundwater, and this has made India the world’s primarily electric pump sets (72 per cent; largest user of groundwater for irrigation. Such the remaining 28 per cent are diesel driven). large use of groundwater for irrigation has serious The share of electric pump sets is likely to environmental and economic implications. It increase as a result of the 2013 diesel price inevitably stresses groundwater levels, and it also liberalization. requires an enormous amount of energy to pump • Additionally, compared to other Indian up groundwater, a problem that is only aggravated states, the average monthly income from as water levels fall. This energy comes from either crop production is one of the highest in the electricity-powered pumps or diesel-powered country at INR 10,916, making it one of the pumps. We need to investigate how different richer Indian states. policies incentivize the use of groundwater irrigation to understand the impacts of possible This research analyzes and quantifies the subsidies reforms. This scoping study is a contribution to for producers for surface water, electricity that much-needed research. (primarily directed at groundwater irrigation) and fertilizers in Haryana. Other agricultural subsidies This study identifies agricultural subsidies in include those on farm equipment and credit general and then quantifies the major irrigation services to farmers. However, they were excluded and agricultural electricity subsidies. The study from the study since they do not affect the energy- understands the need and complexity of electricity irrigation nexus directly. The subsidies were subsidy for irrigation. The study concludes with tabulated for three principal crops of Haryana— options available for reform through electricity, wheat, paddy and sugarcane. The quantification irrigation and fertilizer. Haryana was selected exercise revealed the following results, highlighting for a deeper analysis of reform options, and the the need to focus on electricity subsidies: quantification exercises were done particularly for the state for several reasons: • Surface water irrigation subsidy: approximately 13 per cent of total subsidies. • It is one of the key agricultural states in the • Electricity (groundwater irrigation) subsidy: country. Haryana has a high percentage of approximately 46 per cent of total subsidies. rural households engaged in agriculture (61 • Fertilizer subsidy: approximately 41 per cent per cent) and 69.1 per cent of these generate of total subsidies. their primary income from agricultural activities. The high percentage of electricity subsidies • The number of wells in the 5 to 20 metre (m) explains the alarmingly low groundwater levels. category is alarmingly large (67 per cent), Electricity subsidies have enabled farmers to and a large percentage of the wells recorded access electricity at prices below the marginal cost a fall in water levels. The water levels will only of supply, thereby lowering the cost of irrigation severely deteriorate with time given the high and groundwater extraction, an essential input in groundwater extraction rates. agricultural production. However, these benefits have come at an environmental cost through groundwater exploitation and a financial burden on distribution companies (DISCOMs). They have IISD.org/gsi IV Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India also influenced cropping patterns by distorting of a pilot would need to be complemented decisions over electricity consumption and with political economy efforts to increase groundwater extraction and inducing farmers to resource valuation among farmers and other grow more water-intensive crops. stakeholders. • Energy-efficient pumps – relatively less From FY 2010–11 to FY 2013–14, electricity expensive than solar pumps. However, subsidies formed a huge chunk of the DISCOMs’ measurement, verification and determination total revenue gap (approximately 74 per cent) of savings are a challenge. The problem as well as their annual revenue requirement of uncontrolled water uptake, potentially (approximately 26 per cent). These figures are depleting further groundwater levels, must be expected to increase with rising power supply considered. A pilot program would need to be costs. In its recent order, the Haryana Electricity complemented with political economy efforts Regulatory Commission (HERC) ruled that to increase resource valuation among farmers Fuel Surcharge Adjustment costs amounting to and other stakeholders. INR 6,043 crore must be recovered from non- agricultural consumers. Though not implemented • Micro-irrigation techniques – more water/ to date, this strategy is unsustainable in the long energy efficient but may not be economically term and calls for implementation of new business viable for crops that require flood irrigation. models in the electricity sector in Haryana. Uptake has been slow due to high upfront capital cost and limited improvement in farm A sensitivity analysis was carried out to determine yields. the impact of subsidies on crop production, and • Direct cash transfer scheme for fertilizers – one of the outcomes was that, out of the three laced with several challenges