December 27, 2020

The Rs 100,000 crore Burden on Farmers in the Electricity (Amendment) Bill 2020

Tejal Kanitkar

IN this bitter winter cold, lakhs of farmers have been protesting at the Delhi border against the three Farm Acts. Along with the Farm Acts, farmers are also demanding the rollback of the Electricity (Amendment) Bill 2020. This Bill if passed, is likely to add Rs100,000 crore of additional burden on the farmers and increase their costs of irrigation by 500 per cent.

The proposed amendment seeks to remove all cross-subsidies and make all consumers pay the actual cost of supply, or what the amendment calls, the cost to serve the consumer. Currently, the better-off consumers pay a higher rate, cross-subsidising the poor and the rural consumers. Under the proposed amendment, the farmers and the rural consumers will pay the highest price for electricity, as the cost of supply to rural areas are significantly higher than to urban consumers. And no prize for guessing who will pay the lowest price for electricity: it is the large enterprises and well-off consumers, who currently subsidise the poor and the rural consumers.

We have come a long way from Ambedkar's vision in the 1948 Electricity Act that electricity is a basic necessity of the people and should be supplied to all its people, and not as a commodity for earning profits. He was well aware that if a commercial principle was used, the burden of higher costs will fall on those who are least able to pay: those living in our villages and remote areas.

From 2003, we have started the transformation of electricity being just another commodity. With the proposed amendment by the Modi government, we will bury Ambedkar's vision of the electricity sector completely. In the Modi era, everything should be "market-driven", ensuring the profits of the capitalists, never mind the admitted failure of such market fundamentalism when it comes to essential infrastructure like electricity.

Not only are the Farm Acts bad for the farmers, but they are also a constitutional misadventure as the central government is encroaching essentially in what is a state subject. When it comes to the power sector, which is on the list of concurrent subjects, such encroachment has a long history. The central government's "reform" of the sector since the 90s, is not only in favour of big capital and the rich at the expense of the poor, it also leaves the state governments to deal with the financial and political consequences of its policies. In the reforms, the bulk of the generation of electricity is either private or with central utilities like NTPC, while its distribution is with the states. It is the states who have to pay for the high cost of electricity which the centre has been pushing since the Enron days, as they cannot pass the huge burden of higher prices on the consumers including the farmers.

The bulk of the subsidies provided to the poor consumers and agriculture, or 55 per cent of the total subsidy in the power sector, is obtained through cross-subsidies. The remaining is transferred as direct subsidy by state governments to distribution companies —DISCOMs. If cross-subsidies were to be removed overnight, and state governments were to foot the bill, it would entail a huge additional burden on them. Many state governments have, therefore, rightly, opposed this bill.

Instead of addressing the high cost of electricity generation, the Modi government believes that the distribution utilities should be privatised. The presence of cross-subsidies in which the industrial and better-off consumers subsidise the poor by paying a higher cost is seen to be a hindrance, and therefore the attack on the cross-subsidies.

Rural consumers, both agricultural and domestic, are the main beneficiaries of these subsidies. Since the Electricity Act of 2003, passed by the first NDA government, the "elimination" of electricity subsidies has been on the agenda of the BJP. The first UPA government under the aegis of the Common Minimum Program and the pressure of the Left amended this provision in the Act to a "progressive reduction" instead of "elimination" of cross-subsidies as in the BJP's 2003 Act.

The New Electricity (Amendment) Bill 2020 on the anvil proposes to eliminate all cross-subsidies in one go. It mandates the State Electricity Regulatory Commissions to determine tariffs based on the "cost to serve" without allowing for any cross-subsidies. This means that each category of consumer, i.e., agricultural, domestic, industrial etc., will pay what it costs to supply electricity to that category. If a state government wishes to subsidise any category of consumers, they may do so by transferring the subsidy benefits directly to the consumers by using the Direct Benefit Transfer (DBT) mechanism.

The first and most direct impact of this policy would be that rural consumers, especially agricultural consumers, will be charged the highest tariffs. These consumers are the most expensive to serve as supplying electricity to them requires long transmission and distribution lines and step-down transformers and there is, therefore, the additional cost of the attendant line-losses. On the other hand, large industrial consumers getting electricity through high tension lines would have a lower tariff.

States would then have to identify and provide direct subsidies to consumers who need support. This subsidy will be given directly by the state government to the intended beneficiary but the beneficiary would have to first pay the full cost raised in the bill to the distribution utility upfront, failing which the electricity connection would be terminated. Pay the bill first and then wait for the subsidy to reach you after you have shown the bill you have paid and the amount of subsidy is calculated. Again, one does not need to be a genius to predict the havoc this could wreak on the already precarious incomes of agricultural households.

Given the sorry state of state finances, to expect them to foot the bill for large sections of consumers in their states – peasants, working-class households, small household-based enterprises, schools, public health centres, to name a few – without the benefit of cross-subsidies, will wreck the state's finances. With the centre's encroachment on almost all of the state's revenue streams, especially since the implementation of the Goods and Services Tax (GST), and the repeated delays in releasing even the rightful share of the states, where will states find the money to subsidise consumers whose lives, jobs, and livelihoods depend on the availability of electricity? Electricity is not a luxury. This is what allows the farmers to irrigate their lands and provide us with food!

In the year 2018-19, the agricultural sector accounted for 22.4 per cent of the total electricity sales in the country. The average cost of supply in the same year (PFC Report 2018-2019) was Rs 6.13 per unit. If farmers were to pay this cost, it would impose a burden of over one lakh crore rupees per year on them.

If this amendment is enacted, a farmer operating a 5 hp pump-set will have to pay around Rs 3,000 per year upfront in electricity bills. This constitutes a 500 per cent increase in the cost of irrigation as compared to the current costs. Impacts will differ from farmer to farmer depending on the water table levels, cost of electricity etc., across states. But there is no question on the disastrous impact of this policy change on the marginal and small peasants across the country.

The Modi government loves Direct Benefit Transfer schemes. Administering Direct Beneficiary Transfer schemes is difficult, as shown in many other sectors. Even when the identification of beneficiaries is relatively easy, such as in higher education, for example, students have to wait for months on end at times to get their rightful scholarships, making it extremely difficult for many to continue their education. Multiple studies have shown the failure of the DBT scheme in the distribution of cooking gas where there is no guarantee that the money, even when transferred, will be available to women for the purchase of a gas cylinder.

In this case, since the cash-strapped state governments will have to transfer money to the beneficiaries, there will likely be delays and the individual consumers will face disconnection. Many of these consumers, especially the small and marginal peasantry, already under severe debt due to ever-increasing input costs and unremunerative prices for their produce, thus potentially face the loss of a critical input of electricity for their pump-set based irrigation.

Further, in the agricultural sector, the subsidy transfers will be to those who own land. Those cultivating leased land/sharecroppers are unlikely to be able to avail the benefits at all and most likely be left without access to electricity.

It is often argued that it is the rich peasants that benefit most from the subsidies and very little goes to the small and marginal peasants. This is not true. For example, in states like Andhra Pradesh and Telangana, over 40 per cent of the groundwater schemes are owned by marginal farmers, i.e., those who own less than one hectare of land. Another 50 per cent are owned by small and semi-medium peasants, i.e., those owning between one-four hectares. In Punjab and Rajasthan, over 40 per cent of these schemes in both states are owned by small and semi-medium peasants owning between one - four hectares. The medium peasants, i.e., those owning between four-ten hectares own about 30-40 per cent of the groundwater schemes.

On the other hand, when it comes to surface water schemes, in Haryana and Punjab there is much higher ownership by medium and large peasants. However, surface water tariffs are highly subsidised and there is no discussion about revising these. But electric pump-set based groundwater irrigation is sought to constantly be made more expensive.

If the government was really worried about the landless, marginal, and small peasants, it would acknowledge that unequal access to benefits is the result of skewed land distribution and a lack of any serious land reforms in most parts of the country. However, addressing this is not even remotely on the agenda of the central government.

The presence of red flags across roads leading to Delhi has led many in the government and media to characterise the ongoing protests as ideological and partisan. This characterisation omits the ideological and partisan character of those who bulldozed the farm bills one after the other, without even a semblance of a democratic discussion. The difference is that one ideology stands for the rights of the peasantry and the working masses, and the other is pitted against them.