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4 CHAPTER 1


dies that create a considerable fiscal burden for the states while benefiting larger farmers more than smallholders, and a price structure that provides no incentives to save groundwater or to manage groundwater and surface water jointly (World Bank 2001; Monari Lucio 2002; Batra and Singh 2003; Shah et al. 2003; Dossani and Ranganathan 2004; Rao 2004; Dubash 2007). Various attempts during the past decade to address these problems were largely unsuccessful (Brewer and Raju 1995; Rao and Gulati 1997; Dubash and Rajan 2002; Peter 2002).


Reducing agricultural subsidies poses significant political challenges. In industrialized countries, these subsidies are defended by small but power- ful farm lobbies (see, for example, Tyers and Anderson 1992; Swinnen 1994; Davis 2003; Gawande 2005). In India, the policy framework on subsidies has created multiple interest groups that support the status quo. These include not only farmers, who—unlike those in industrialized countries—constitute a considerable share of the electorate, but also the industries that produce fer- tilizers, and others. In addition, the government itself has multiple and often conflicting interests in the debate on subsidies. Fertilizer and electricity policy reform must be seen in the context of the government’s overall efforts at economic reform as well as within the context of fiscal discipline, food policy reform, and other reforms in the agricultural sector and the energy sector. Figure 1.1 shows the interplay of these policy areas.


The problem of electricity supply to agriculture cuts across similar policy fields: energy, agriculture, irrigation and water resources, and environment. All are subject to major reform efforts that must be seen in the broader context of India’s economic reforms, which started in 1991, and of a growing concern for environmental sustainability.


Against this background, the study has three major objectives:


1. to analyze why past efforts to reform the policies governing the fertilizer supply and electricity supply to agriculture have been ineffective;


2. to identify reform options that have the potential to overcome these prob- lems and to assess their political feasibility; and


3. to identify political processes and strategies by which reforms can be achieved.


Whereas the national government is responsible for fertilizer policy, policy governing the electricity supply to agriculture is made at the state level. To analyze past experiences with electricity policy reform, this report takes two states as examples: Punjab and Andhra Pradesh. In both states, electricity supply for groundwater extraction is important, but they differ considerably in their approach toward reforms.


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