Agricultural electricity subsidies in India have been meant 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 nearly for free, use too much, draining groundwater, worsening poverty, and bankrupting electricity distributors. In turn, distribution companies resort to rationing supply.

Economic theory suggests that, given the distortion caused by pricing power below cost, a Pareto improvement is possible—both farmers and the distribution companies could be made better off if subsidies, instead of being tied to power use, which promotes over-consumption, were given as a lump-sum transfer. This project is a unique collaboration with the Government of Rajasthan to design such a Pareto-improving tariff reform by implementing a direct cash transfer instead of per unit tariff subsidies. A similar project is underway in Punjab as well where a lump-sum transfer is implemented “in-kind” via an electricity savings target.

Background Research: Rationing the Commons

For this project, the Energy Policy Institute gratefully acknowledges generous research support provided by the Shakti Sustainable Energy Foundation, Governance Initiative (J-PAL GI), Payments and Governance Research Initiative (PGRP)Department of Economics – Yale University and The United States Agency for International Development (USAID).


Project Partners

Government of Rajasthan

Visit Site

The Government of Rajasthan is the supreme governing authority of the Indian state of Rajasthan and its 33 districts. It consists of an executive, led by the Governor of Rajasthan, a judiciary and a legislative. Jaipur is the capital of Rajasthan, and houses the Vidhan Sabha and the secretariat.

The Abdul Latif Jameel Poverty Action Lab (J-PAL)

Visit Site

The Abdul Latif Jameel Poverty Action Lab (J-PAL) was established in 2003 as a research center at MIT’s Department of Economics. Since then, it has built a global network of 113 affiliated professors and regional offices in Africa, Europe, Latin America and the Caribbean, North America, South Asia, and Southeast Asia. J-PAL’s mission is to reduce poverty by ensuring that policy is informed by scientific evidence. It does this by working with governments, non-profits, foundations and other development organizations to conduct rigorous impact evaluations in the field, policy outreach to widely disseminate the lessons from research, and building the capacity of practitioners to generate and use evidence. Over 200 million people have been reached by the scale-up of programs evaluated by J-PAL and found to be effective. Find J-PAL on Twitter, Facebook, LinkedIn, and YouTube.