Direct Benefit Transfers for Electricity in Punjab

Agricultural electricity subsidies in India were created as a lifeline to farmers, allowing the spread of irrigation using electric pumps to extract groundwater. Instead, they have locked rural India into a destructive cycle of groundwater depletion and bad power supply. Farmers, given electricity for free, use too much, draining groundwater, worsening poverty, and bankrupting electricity distributors. Given the over-use caused by pricing power below cost, both farmers and the distribution companies could be made better off if subsidies were given as a lump-sum transfer, rather than being tied to power use. In collaboration with the Government of Punjab’s Departments of Agriculture and Power, the researchers will collect data and design a welfare-improving reform. This project responds to a request from the Government of Punjab for innovative ideas in the power sector and is one of the first evaluations to come out of the MoU between the Government of Punjab and J-PAL South Asia.