Most political parties and media have passionately supported the Supreme Court ruling in the 2G spectrum case, that the government should auction natural resources and not allot them or allow unregulated extraction (as in iron ore mining). The Comptroller and Auditor General has fuelled this public passion by estimating huge losses to the exchequer through failure to auction natural resources like spectrum and coal.
Yet you do not hear political parties or the media condemning losses through non-auction of the biggest natural resource of all — water. Political competition between parties has driven down the price of canal water and rural electricity (used to pump groundwater) to zero or negligible levels. Free power actually subsidises farmers to extract a natural resource, something like a negative auction price! The huge loss is pushing many state governments toward bankruptcy.
State Electricity Boards were given a rescue package of Rs 41,000 crore in 2002, after which they were to behave responsibly. Alas, their combined losses now exceed Rs 100,000 crore, mainly because of free or highly subsidized rural power.
The worst example is Punjab, which cannot even pay staff salaries. Agricultural guru SS Johl estimates that free power costs Punjab Rs 4,500 crore a year, and accounts for 90% of Punjab’s Rs 78,000 crore debt.Now, governments have aims other than maximizing revenues through auctions. Subsidies for basic education and health and safety nets are desirable and common in all democracies. Politicians say free electricity is a good subsidy helping poor farmers.
Really? Johl says 83% of Punjab farmers have small or marginal holdings, and no tubewell at all. Free power benefits the 17% richest farmers, some of whom have 150 tubewells. Free power has caused water tables to plummet, so 107 of Punjab’s 127 blocks are now “dark zones” facing extinction of sweet groundwater.
A falling water table immediately dries up drinking water wells (which serve the poor). As the water table keeps falling, centrifugal pumps (costing Rs 30,000 and working up to 30 feet depth) cease functioning, hitting small farmers who cannot afford deep submersible pumps costing Rs 1.5 lakh. Ultimately, the only beneficiaries are farmers with the deepest pockets and tubewells. Free power induces them to grow water-guzzling crops like rice, which destroy acquifers in a low-rainfall area like Punjab.
So, “free” power is not free at all. It imposes huge costs on acquifers, small farmers and the thirsty poor. By bankrupting the exchequer, “free” power imposes huge costs on state services like education, health, nutrition and safety nets.
The political problem is, free power provides immediate benefits to influential farmers. Since elections are won and lost on small shifts of one or two per cent of the vote, no political party wants to risk alienating the rural elite by charging for power.
The problem has spread from Punjab to most other states. YS Rajashekhar Reddy claimed credit for boosting farming in Andhra Pradesh by providing free power, and won re-election in a landslide. But 15 years down the line, the state will go the Punjab way, with over-pumping and exhaustion of sweet groundwater. This is myopic destruction of acquifers, disguised as agricultural dynamism in the short run.
Okay, say some critics, maybe all water should not be free. But it should not be auctioned either. They say water should be viewed as a basic need, so we must provide some free water to all. But “basic need” refers to drinking water, not irrigation, which consumes huge amounts of water, and is limited to relatively prosperous areas.
One rural compromise could be a modest free quota of power per farmer, and commercial, metered rates for higher consumption. Subsidies will then flow mainly to small farmers, not big ones. Farmers will be induced to replace highly inefficient old pumps with efficient new ones, conserving power. They will innovate ways of conserving water, whereas free power encourages endless pumping.
Some farmers will switch from water-guzzling rice to oilseeds and maize, which need much less water. Johl himself favours a specific subsidy to farmers for growing oilseeds and pulses in the kharif season in Punjab. The saving of electricity and groundwater might compensate for most of the subsidy.
Two years ago, the Akali government introduced the idea of charging farmers for electricity but then giving them a “productivity bonus” equal to the bill. The underlying idea was to get farmers used to the idea that they were entitled to a certain quota of free power, preparing them to be charged for higher consumption above the quota. This scheme was abandoned before the last election. But it contains the kernel of a future solution.