Regina Birner Surupa Gupta Neeru Sharma

The Political Economy ofAgricultural Policy Reformin India FERTILIZERS AND

ELECTRICITY FOR IRRIGATION

About IFPRIThe International Food Policy Research Institute (IFPRI®) was established in 1975 to identify and analyze alternative national and international strategies and policies for meeting food needs of the developing world on a sustainable basis, with particular emphasis on low-income countries and on the poorer groups in those countries. While the research effort is geared to the precise objective of contributing to the reduction of hunger and malnutrition, the factors involved are many and wide-ranging, requiring analysis of underlying processes and extending beyond a narrowly defined food sector. The Insti-tute’s research program reflects worldwide collaboration with governments and private and public institutions interested in increasing food produc-tion and improving the equity of its distribution. Research results are dis-seminated to policymakers, opinion formers, administrators, policy analysts, researchers, and others concerned with national and international food and agricultural policy.

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The Political Economy of Agricultural Policy Reform in IndiaFertilizers and Electricity for Irrigation

Regina Birner, Surupa Gupta, and Neeru Sharma

RESEARCHMONOGRAPH 164

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International Food Policy Research Institute2033 K Street, NWWashington, D.C. 20006-1002, U.S.A.Telephone +1-202-862-5600www.ifpri.org

DOI: 10.2499/9780896291720

Library of Congress Cataloging-in-Publication Data

Birner, Regina. The political economy of agricultural policy reform in India : fertilizers and electricity for irrigation / Regina Birner, Surupa Gupta, and Neeru Sharma. p. cm. — (IFPRI research monograph) Includes bibliographical references and index. ISBN 978-0-89629-172-0 (alk. paper) 1. Agriculture and state—India. 2. Agriculture—Economic aspects—India. 3. Agricultural subsidies—India. I. Gupta, Surupa. II. Sharma, Neeru. III. International Food Policy Research Institute. IV. Title.HD2073.B57 2011338.1′854—dc22 2009019596

Contents

List of Tables vii

List of Figures ix

List of Boxes x

Foreword xi

Acknowledgments xiii

Acronyms and Abbreviations xiv

Summary xvi

Part 1. Introduction, Conceptual Framework, and Methods

1. Introduction 3 Regina Birner, Surupa Gupta, and Neeru Sharma

2. Insights from the Literature 7 Regina Birner, Surupa Gupta, and Neeru Sharma

3. Conceptual Framework and Research Methods 21 Regina Birner, Surupa Gupta, and Neeru Sharma

Part 2. The Political Economy of Fertilizer Supply to Agriculture

4. Fertilizer Policy in India: An Overview 35 Surupa Gupta

5. Fertilizer Policy in India: Evolution and Reform Initiatives 43 Surupa Gupta

6. The Politics of Fertilizer Supply to Agriculture: Analysis of Political Actors, Discourses, and Strategies 58

Surupa Gupta

7. Policy Implications of Fertilizer Subsidy Reform 87 Surupa Gupta

v

Part 3. The Political Economy of Electricity Supply to Agriculture

8. Electricity Supply to Agriculture in Andhra Pradesh and Punjab: An Overview 99

Regina Birner and Neeru Sharma

9. Electricity Supply to Agriculture in Andhra Pradesh and Punjab: Evolution and Reform Initiatives 108

Regina Birner and Neeru Sharma

10. The Politics of Electricity Supply to Agriculture: Analysis of Political Actors, Discourses, and Strategies 130

Regina Birner and Neeru Sharma

11. Policy Implications of Reform in Electricity Supply to Agriculture 157 Regina Birner and Neeru Sharma

Part 4. Comparing Electricity and Fertilizer Policies and Strategies for Reform

12. Comparing the Political Economy of Fertilizer and Electricity Supply to Agriculture 185

Regina Birner, Surupa Gupta, and Neeru Sharma

13. Political Strategies for Policy Reform 193 Regina Birner, Surupa Gupta, and Neeru Sharma

14. Conclusions 207 Regina Birner, Surupa Gupta, and Neeru Sharma

References 209

About the Authors 222

Index 223

vi CONTENTS

Tables

3.1 Interviewed stakeholders and key respondents: Fertilizer policy 29

3.2 Interviewed stakeholders and key respondents: Electricity supply 29

4.1 Growth rate, holding size, and indebtedness of the Indian farm sector 36

4.2 Number and total area of Indian farm landholdings by size, 2003–04 37

4.3 Use of fertilizers by size of landholdings, 2000–01 38

4.4 Consumption of fertilizers by India and neighboring countries 38

4.5 Fertilizer consumption by state, 2004/05 and 2003/04 39

4.6 Consumption of nitrogen, phosphorus, and potassium (million metric tons) 40

4.7 Amount of subsidy and concessions disbursed on nitrogen, phosphorus, and potassium (Rs millions) 40

4.8 Fertilizer manufacturing capacity, by sector, 2007 41

4.9 Annual consumption, production, and imports of fertilizers (million metric tons) 42

6.1 Core beliefs (paradigms) and self- and other-representations 78

6.2 Major story lines and specific beliefs: Fertilizer policy 80

7.1 Reform options evaluated according to multiple criteria: Fertilizer policy 88

7.2 Political feasibility of reform options: Fertilizer policy 90

8.1 Socioeconomic and agricultural data for Andhra Pradesh and Punjab 100

8.2 Percentage of households using electric pumps and area irrigated with pumps, 1998 101

8.3 Electricity subsidy as a share of state expenditure in Andhra Pradesh and Punjab, 2002/03 104

vii

8.4 Distribution of electricity subsidy by farm size in Andhra Pradesh, 2003/04 105

8.5 Distribution of electricity subsidy by farm size in Punjab, 2003/04 105

8.6 Status of electricity reform in Punjab and Andhra Pradesh 106

8.7 Performance of the power sector in Punjab and Andhra Pradesh 107

9.1 Opinion on policy of supplying free electricity to farmers, by party affiliation 125

9.2 Socioeconomic status, locality, and voting preferences of voters 125

9.3 Timing of voting decisions, by party affiliation 126

10.1 Electricity policy discourse coalitions: Major actors, Punjab and Andhra Pradesh 138

10.2 Major story lines and specific beliefs: Electricity supply 140

11.1 Assessment of reform options according to multiple criteria: Electricity supply 168

11.2 The political feasibility of reform options: Electricity supply 170

11.3 Classification of reform options by political feasibility and budget constraints 174

13.1 Principles for consensus-oriented deliberation processes 202

viii TABLES

Figures

1.1 Policy fields related to fertilizer subsidy and electricity supply to agriculture 5

3.1 Conceptual framework 22

3.2 Classification of beliefs 24

3.3 Stakeholder map: Fertilizer policy 30

3.4 Stakeholder map: Electricity supply to agriculture 31

8.1 Households with access to groundwater and electricity price by state 102

8.2 Farmers reporting inadequate access to electricity and groundwater by state 103

8.3 Status of groundwater exploitation and development in selected states, 2006 104

11.1 Policy options to address fiscal and distributional problems related to electricity subsidies to agriculture 158

11.2 Policy options to address low quality of electricity supply 159

11.3 Policy options to address groundwater depletion 160

ix

Box

10.1 The People’s Monitoring Group on Electricity Regulation (PMGER) 135

x

Foreword

The 2008 food price crisis has stimulated a renewed interest in using agricultural input subsidies to increase food production and achieve food security in developing countries. Studies by the International Food

Policy Research Institute of returns to public investments in India have shownthat subsidies for agricultural inputs, such as seeds, pesticides, fertilizer, surface irrigation, and electricity for groundwater irrigation, have indeed played an important role in achieving a Green Revolution in that nation. Nevertheless, these subsidies have become subject to far-reaching concerns in India and other Asian countries because (1) they have outlived their original purpose of stimulating input use; (2) they benefit large-scale farmers more than small-holders; (3) they are a fiscal burden on the state; (4) they might crowd out more effective poverty-reducing public investments; and (5) they have nega-tive environmental implications. Reforming these subsidy policies has turned out to be a major political challenge, however. This monograph provides important insights into why this is the case, and what can be done about it. It analyzes the subsidy policies for two important inputs in Indian agriculture: electricity for groundwater irrigation and fertil-izer. More than half of India’s foodgrains are produced using groundwater irrigation systems operated by electricity, and between 50 and 60 percent of the increase in foodgrain production in India since the 1960s has been attributed to increased fertilizer use. Through a wide-ranging review of the literature and interviews with an array of stakeholders, the authors analyze the evolution of the input-subsidy policies for these two inputs and examine the political processes involved in reform efforts. Their analysis shows that apart from vested interests, which have been highlighted in earlier studies as obstacles to agricultural policy reform, one also needs to acknowledge the role of electoral politics, bureaucracy, and competing policy paradigms, which all contribute to the impasse in policy reform. Using this analysis of the political processes involved in reforming input sub-sidy policies, the study assesses the political feasibility of a range of policy reform options. In the case of nitrogenous fertilizers, the government should target small-holder farms when providing subsidies, subsidize the fundamental nutrient, nitro-gen, rather than compounds such as urea, and focus on technology-based methods of improving crop productivity. In the case of electricity supply for groundwater

xi

xii FOREWORD

use, community-based strategies—such as electricity cooperatives, groundwater management by community groups, and monitoring of electricity quality by user groups—offer potential solutions because they are not subject to strong political opposition. Still, such solutions have been largely ignored in the past. The studyalso discusses political strategies that may overcome the obstacles that have impeded policy reforms. The authors highlight the advantages of forming new coalitions for policy reform, reframing the policy debate to focus it on poverty reduction, engaging in innovative and consensus-oriented forms of deliberation, and using research-based knowledge more effectively in the policy process. By analyzing India’s experience with subsidies for both groundwater-irrigation electricity and fertilizer, this book provides a unique understanding of the political challenges involved in using subsidies as policy instruments. The insights from this study are relevant not only to India, but also to other countries that want either to introduce or to reform input subsidy policies.

Shenggen FanDirector General, International Food Policy Research Institute

Acknowledgments

The authors express their heartfelt thanks to all stakeholder representa-tives, policymakers, and experts who were interviewed for this study. We greatly appreciate the time and effort they took to share their

knowledge, experiences, and insights on this challenging topic. Special thanks are due to Ashok Gulati for encouraging this study and to the IFPRI team in the Delhi office. We also express our sincere thanks to Fahd Ali, Benpramar Laitflang, Yuki Miyagiwa, Nethra Palaniswamy, and Rachel Wells for their research assistance.

xiii

xiv

Acronyms and Abbreviations

APERC Andhra Pradesh Electricity Regulatory Commission

APWALTA Andhra Pradesh Water, Land and Trees Act

BJP Bharatiya Janata Party

CPI Communist Party of India

CPI-M Communist Party of India (Marxist)

CRISIL Credit Rating Information Services of India Ltd.

CSO Central Statistical Organization

DAP diammonium phosphate

DFID Department for International Development (U.K.)

DISCOMS distribution companies

DoAC Department of Agriculture and Cooperation

DoF Department of Fertilizers

ERC Expenditure Reforms Commission

FAI Fertiliser Association of India

FICC Fertilizer Industry Coordination Committee

FO fuel oil

GDP gross domestic product

GoAP government of Andhra Pradesh

GoI government of India

GoM group of Ministers

GoP government of Punjab

HVDS high-voltage distribution system

HYV high-yielding variety

ICRA Investment Information and Credit Rating Agency

ACRONYMS AND ABBREVIATIONS xv

IPP independent power producer

IWMI International Water Management Institute

K potassium

KPMG Klynveld Peat Marwick Goerdeler advisory services

LSHS low-sulfur heavy stock

MoA Ministry of Agriculture

MoCF Ministry of Chemicals and Fertilizers

MoF Ministry of Finance

MoPNG Ministry of Petroleum and Natural Gas

MP member of Parliament

MRP maximum retail price

MSP minimum support price

N nitrogen

NDA National Democratic Alliance

NPS New Pricing Scheme

NSS National Sample Survey

P phosphorus

PMGER People’s Monitoring Group on Electricity Regulation

PSEB Punjab State Electricity Board

RLD Rashtriya Lok Dal

RPS Retention Price Scheme

SAD Shiromani Akali Dal (state party in Punjab)

SEB state electricity board

TDP Telugu Desam Party (state party in Andhra Pradesh)

TRS Telengana Rashtriya Samiti (state party in Andhra Pradesh)

UPA United Progressive Alliance

USAID United States Agency for International Development

WENEXA Water and Energy Nexus Activity

xvi

Summary

This report analyzes the political economy of two important fields of agricultural policy in India: fertilizer supply and electricity supply for groundwater irrigation. These inputs are essential to food production

and agricultural development, which have been core areas of concern for policymakers in India since Independence. Following the food shortages and the political problems associated with food imports in the 1960s, the gov-ernment of India put in place a set of policies to increase food production, which encouraged the production and consumption of fertilizer and the use of groundwater irrigation. Although the polices achieved the intended goal of enhancing food production and food security, the practice of subsidizing fertilizer and electricity use has become subject to increasing criticism dur-ing the past decade, for several reasons. The subsidies impose a rising fis-cal burden on the state. Because these input subsidies are price subsidies, larger farmers benefit more from them than smaller farmers do, and more prosperous regions benefit more than poorer ones. Moreover, both types of input subsidy are associated with environmental problems. With fertilizer, the problems include an unbalanced use of nutrients. Electricity subsidies reduce the incentives to conserve groundwater and to coordinate the use of groundwater and surface water. Both subsidies also have problematic effects on the industries supplying these inputs. Fertilizer subsidies lead to an inef-ficient allocation of scarce resources such as natural gas. Electricity subsidies discourage investment in rural electricity infrastructure, which results in a low-quality supply of electricity to farmers. Such economic, environmental, and distribution concerns are typical with agricultural input subsidies. Thus this report presents case studies of the general problems of subsidizing agricultural inputs. The two cases also demon-strate that the political challenges of reforming such policies are complex and in many regards specific to the input in question. They also illustrate the chal-lenges of policy reform at both the national level and the state level. In India, fertilizer policy is determined at the national level by the central government, whereas policies on electricity for agriculture are made at the state level. The supply of both fertilizer and electricity to agriculture has been sub-ject to considerable reform efforts during the past decade. The government of India (GoI) enacted reforms related to potassic and phosphoric fertilizers

in the early 1990s. Various reform efforts have also been directed toward the production, distribution, and farmgate pricing of nitrogenous fertilizers. Although the elaborate Retention Price Scheme (RPS) that governed the pro-duction and distribution of urea has been replaced, making a complete transi-tion to the New Pricing Scheme has posed significant challenges. Increasing the farmgate price of nitrogenous fertilizers has also, predictably, met with immense resistance. Hence, in spite of all reform efforts, the central govern-ment’s subsidies on fertilizers have been increasing steadily over the past decade and a half. Attempts to address the problems of electricity supply to agriculture have also been largely unsuccessful. In spite of an official commitment by the Indian states more than a decade ago to reduce electricity subsidies to agriculture, the number of states that supply electricity to farmers for very low prices or even free of charge is increasing. At the same time, problems of overextraction of groundwater have become more serious. The quality of electricity supply also remains unreliable. Even in states that have made con-siderable progress in reforming the energy sector, such as Andhra Pradesh, farmers’ organizations claim that the quality of electricity supply to agricul-ture has not improved. The political challenges of reforming the policies governing fertilizer sup-ply and electricity supply to agriculture are aggravated by the fact that they cut across several overlapping fields: fiscal policy, energy policy, agricultural policy, irrigation and water resources policy, and environmental policy. Hence, efforts to reform these areas are intertwined with the highly contested reform efforts in other policy fields.

Objectives and ApproachAgainst this background, the objectives of the present report are1. to analyze why efforts to reform the policies governing fertilizer supply

and electricity supply to agriculture have had limited success in resolving the associated economic, distribution, and environmental problems;

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.

This study builds on the substantial literature on the political economy of power-sector reforms and reforming the electricity supply to agriculture in India (Dubash and Rajan 2001; Shah et al. 2003; Lal 2006; Dubash 2007). These studies have mostly taken an interest-group approach, which focuses on the material interests of different groups in the agricultural sector, the

SUMMARY xvii

power sector, and the bureaucracy, and on the interests of politicians seekingreelection. These studies also address historical developments and issues of political and bureaucratic culture. Less has been written on the political economy of fertilizer policy reforms. Several economic studies suggest using an interest-group approach (Kumar 1999; Gulati and Narayanan 2003), while others point to statist explanations (Venkateshwarlu and Sen 2002). Several studies also suggest coalition politics as a factor in the failure of reform in this area (Bardhan 2003; Guha Thakurta and Raghuraman 2004; R. Singh 2004; Jenkins 2005). The present study departs from the existing literature in several respects. First, it takes into account that politics is driven not only by interests but also by institutions and ideas. Hence, in addition to analyzing interests and electoral politics, it examines the role of knowledge, beliefs, and worldviews in shaping the politics of fertilizer and electricity supply to agriculture. The study also systematically examines the role of institutional factors such as interbureaucratic and coalition politics. Second, the study examines policy reforms at both the national and the state level. Fertilizer policy reform is a case study of agricultural policy at the national level. The reform of elec-tricity supply to agriculture, which is a matter of state policy, is analyzed in two Indian states: Punjab and Andhra Pradesh. In both states, electricity supply to groundwater is important, but the states differ considerably in their approach toward policy reform. Third, rather than concentrate on the “first-best” option of increasing the electricity price paid by farmers and introducing metering of agricultural electricity connections, the study evalu-ates the political feasibility of a range of alternative and complementary policy options to meet equity, efficiency, and sustainability goals, including options that are considered second-best from the perspective of neoclassical economics. The same approach is applied to the production and distribution of fertilizers. Fourth, the study discusses a range of processes for achieving policy reforms in spite of political resistance. Fifth, it examines the role that research-based knowledge can play in promoting policy reform. The analysis is based on an extensive review of the literature, includ-ing policy documents and newspaper reports. In addition, for the analysis on fertilizer production and distribution, interviews with 36 stakeholders and key informants were conducted. For the analysis on electric supply, the study relies on interviews with 75 stakeholders and key informants from the electricity sector, the agricultural sector, and the groundwater sector in Andhra Pradesh, in Punjab, and at the national level. The conceptual frame-work used for the analysis is informed by the work of the Advocacy Coalition Framework (Sabatier and Jenkins-Smith 1993) and the comparative-politics literature on the politics of economic reforms.

xviii SUMMARY

Major Findings

Reform of the Policies Governing Production and Pricing of Nitrogenous FertilizersTwo approaches have been tried for reducing the subsidies paid out for urea by the national government. First, the government has attempted to alter the incentives for private and public domestic firms engaged in urea production. Second, it has tried to increase the price at which urea is made available to Indian farmers. Neither approach has been successful. This study identifies two main factors in this lack of success: interest-group politics and a clash of ideas. The government’s ability to raise farmgate prices has been con-strained by coalition politics and by political representatives of the owners of medium-sized and large farms. The government has not been able to directthe subsidies more narrowly toward small and marginal farmers because of opposition from owners of medium-sized and large farms and logisticalproblems. Reform of the policy framework for the production and distribu-tion of fertilizers was opposed by a strong coalition consisting of the fertil-izer industry, the Ministry of Chemicals and Fertilizers (MoCF), and the Min-istry of Agriculture (MoA), which has successfully argued that policy reform would reduce India’s self-sufficiency in fertilizer production and thereby its food security. The reform process has also been complicated by the inad-equate supply of natural gas in India. The advocates for policy change are fewer and have been unable to build a strong coalition that supports their position. Interest-group politics alone, however, does not explain failure of reform. Agricultural policy discourse in India has been strongly shaped by the debate over links between food security and food self-sufficiency, and these dis-courses and ideas need to be taken into account. The debate involves the clash of two value and belief systems, or paradigms. One view (the market-oriented paradigm) holds that state intervention is no longer needed to guar-antee food security and that market forces, including international trade, will guarantee food security. The opposing view (the welfare-state-oriented paradigm) argues that market failures are inherent in agriculture and that state intervention remains essential to guarantee food security. In the wel-fare-state-oriented paradigm, subsidies to farmers are also seen as a means of redistributing income from the nonagricultural to the agricultural sector. A public discourse that highlights farmers’ suicides and agrarian distress increases the political motivation to pursue this policy goal. Even though the two positions represent “ideal types,” and individuals may hold views that lie between these two positions, distinguishing the two paradigms is important for understanding Indian politics.

SUMMARY xix

Reform of the Policies Governing Electricity Supply to AgricultureThe analysis of the political processes underlying electricity policies in Andhra Pradesh and Punjab also indicates that both interest-group politics and political ideas affect political outcomes. The research largely confirms major findings of earlier studies that used an interest-group approach: Reforms have been hindered by politically powerful interest groups, by the nature of electoral competition at the state level, and by developments that created path dependence, especially the abolition of metered agricultural-electricity connections in the 1980s. As with fertilizer policy, the clash between the market-oriented and the welfare-state-oriented paradigm is significant. The political appeal of using electricity pricing as an instrument for income redistribution lies in its relative simplicity: unlike other policy instruments, such as conditional cash transfers, providing free electricity to farmers does not require any imple-mentation by the bureaucratic apparatus, with all the associated problems of delays and leakage. In the market-oriented paradigm, the goal of intersec-toral income redistribution is questionable. In this paradigm, only safety nets for the “really poor” are acceptable. The study finds that both paradigms are represented across almost all the stakeholder groups, including organizations representing the agricultural sector, the energy sector, the research commu-nity, and the political parties. Related to this clash of paradigms is the fact that stakeholders, and even researchers, have rather different, and often opposing, views about essential facts, causal mechanisms, and appropriate policy solutions regarding electricity supply to agriculture. Coalitions of politi-cal actors that jointly promote certain reform options have, so far, been formed among groups that basically share the same paradigm, but not across paradigms.

Comparing the Politics of Fertilizer and Electricity ReformThe two policy fields are characterized by a range of structural differences. Fertilizer policy is a national-level policy, whereas electricity supply to agri-culture is managed at the state level. The structure of the industries supply-ing the respective inputs is different, as are the types of market failures that arise in the two areas. Both policy areas have environmental implications, but the concerns regarding the nutrient imbalance caused by subsidizing nitrogenous fertilizers are less pronounced than the problems of groundwater overextraction resulting from electricity subsidies. The policy outcomes in the two fields, however, are remarkably similar: in neither case has it been possible to implement reforms. In both cases, interest-group politics as well as clashing paradigms have been significant barriers to reform. Both cases

xx SUMMARY

are subject to the same type of liberalization discourse. In neither case have coalitions of actors across different paradigms been formed. These similari-ties are closely linked to the origin of both policies in the Green Revolution period and to their relation to the question of food self-sufficiency, which remains a powerful goal across the spectrum of Indian politics. In spite of several political factors that are specific to India, the two cases also repre-sent the general problems that countries face in seeking to reform policies on agricultural subsidies.

The Political Feasibility of Reform OptionsIn view of the past problems in attempting to reform policy, this study goes beyond the reform options that would be classified as first-best from the perspective of neoclassical economics. It identifies three groups of reform options, with different degrees of political feasibility and budget implica-tions: (1) reform options that do not face either major political challenges or budget constraints; (2) reform options that do not face major political chal-lenges but do face budget constraints; and (3) policy options that face major political challenges while avoiding budget constraints.

FertilizerReform options that do not face major political resistance or budget con-straints include increasing efficiency through better application of knowledge and technology. Another reform option that fits this category but faces interna-tional market constraints is to relocate Indian fertilizer manufacturing to areas outside India that are close to sources of natural gas. This option would allow the government to reduce its expenditure on subsidies and to maintain self-sufficiency in the production of urea. However, such efforts are likely to be less successful if the international market price of natural gas remains high. One reform option that does not face political resistance but does face budget constraints is the continuation of the groupwise concession scheme that exists today. Under this scheme, fertilizer firms are grouped according to the feedstock they use and the year they came into operation. The savings in subsidy using this option would be marginal. Moreover, this option would not correct the distribution and environmental problems. Reform options that face strong political resistance include complete or partial decontrol or deregulation of the fertilizer industry, import liberal-ization, increases in the farmgate price of urea, and even price increases targeted specifically at large farmers. Each of these options addresses fiscal, distribution, and environmental concerns, but each has faced strong resis-tance from several political actors when previously proposed.

SUMMARY xxi

Electricity Supply to AgricultureReform options regarding electricity supply to agriculture are again classified into three groups according to their political feasibility and budget implica-tions. In addition, the study classifies reform options according to their ability to address three sets of problems: (1) the fiscal and distribution problems related to electricity subsidies; (2) the low quality of electricity supply to agriculture; and (3) groundwater depletion. Among policy options that are confronted with neither major political challenges nor budget constraints are several options that are community oriented and can be regarded as highly feasible, as they are acceptable within both the welfare-state-oriented and the market-oriented paradigms. These options include decentralization and devolution of both groundwater management and electricity supply to local governments and user groups, monitoring of electricity quality by citizen groups, and the promotion of independent farmers’ cooperatives for the marketing of less water-intensive crops. Reform options that do not meet major political resistance but face possi-ble budget constraints include expanding the high-voltage distribution system (HVDS) to improve the quality of electricity supply and reduce power theft; expanding and improving surface-water irrigation; intensifying research and extension on water-saving production techniques and less water-intensive crops; improving the marketing of less water-intensive crops; and promoting energy-saving technologies. Although the incentives to promote water-saving technologies are obviously higher if metering is introduced and the price of electricity is increased, other incentives also support water-saving technolo-gies. (1) Even where electricity is free, many farm households sell or buy water because there is a market for groundwater. (2) Increasing groundwater depletion imposes costs on farmers (requiring the boring of deeper wells). (3) Some water-saving technologies, such as the System of Rice Intensifica-tion, have other potential benefits, such as increasing yields. Reform options that face major political challenges include, not surpris-ingly, those that have been tried without significant success for the past decade: increasing the electricity price paid by farmers in combination with introducing metering; and privatizing the power sector. The introduction of metering is not affected by a clash between the welfare-state-oriented and the market-oriented paradigms, but the other two options are. Targeting subsidies provides a means of resolving this difference, but its feasibility is questionable. Other policy options include regulating bore wells more exten-sively and placing bore wells under state ownership. These options face both political resistance and administrative implementation challenges.

xxii SUMMARY

Policy Processes and Political StrategiesDistinguishing between conventional and new approaches, the study dis-cusses a range of political strategies that may reduce political resistance to reform options that are at present characterized by low political feasibility but score high according to other criteria. In each policy field, a combina-tion of approaches can be applied. Value judgments may play a role in the choice of strategy.

Past Reform Approaches

Stealthy GradualismThe strategy of gradually introducing elements of reforms below the radar screen of public attention was employed extensively in the early phases of economic reforms in India. This strategy is less suited to reform of the pricing framework related to nitrogenous fertilizers or the electricity supply to agri-culture because such reforms affect a considerable share of the rural popula-tion in a way that cannot easily be concealed. However, this approach may be effective for certain aspects of reform. The administrative price mechanism (APM) for fertilizer is gradually being replaced by market-determined prices because of depletion of the gas reserves earmarked for this purpose. The gradual transition from free to paid electricity for large farmers in Andhra Pradesh is another example of this approach.

Strong Political LeadershipThe study suggests that strong support from the political leadership would be necessary to achieve the rationalization of subsidies favored by the Min-istry of Finance (MoF), and especially to override opposition from the other ministries involved. Based on the experience of reforms in Andhra Pradesh, the study also finds that political leadership could be essential in reforming the electricity supply to agriculture. However, as the Andhra Pradesh case also shows, the need to have an ear to the ground with respect to the reac-tions of local farmers and other constitutents is particularly important if this strategy is pursued.

Targeting, Packaging, Timing, and SequencingTargeting subsidies instead of trying to abolish them could reduce politi-cal resistance, even though political challenges would persist because the better-off farmers would lose income as a consequence of such a measure. Packaging unpopular reform elements with popular measures, as well as the

SUMMARY xxiii

careful timing and sequencing of new reforms, could facilitate reforms. For reforms affecting fertilizer producers, however, there are no obvious ways to mitigate the negative perceptions of these reforms. For both farmgate pric-ing of fertilizers and electricity pricing for agriculture, the government could reverse the declining trend in public investment in agriculture by channeling savings on subsidies into such investments. Subsidy reforms could also be packaged with measures affecting other areas of agricultural policy or rural development policy. The study discusses the option of a “social pact,” which implies quantifying the amount of resources that can be saved by subsidy reform and identifying ways to use these resources more effectively to the benefit of the rural poor. Sequencing of reforms can help to build trust and increase the political feasibility of reform. For example, governments might choose to reduce the subsidies for fertilizer and electricity only after other policy instruments (such as public investments) started to show an income-generating effect. However, it might be difficult to pursue this option in the face of budget constraints. Regarding the timing of reforms, it would be useful to conduct more research about windows of opportunity for policy reform. In particular, it would be useful to study how agricultural policy reform has succeeded in other developing countries that are also democracies in which farmers have a political voice.

Options for New Reform Strategies

Building New CoalitionsThe failure to build new coalitions, for example coalitions that include environ-mental groups, in support of policy reform has been a significant factor in the failure of past reform efforts in both policy areas. Research can help provide more transparency and make potential coalition partners aware of the ways in which they are affected by the status quo and how they would be affected by a proposed policy change, such as a move toward targeted subsidies.

Reframing the Reform DebateA shift toward targeted subsidies would be easier if the dominant discourse on agrarian distress focused more specifically on the problems of small and marginal farmers and of landless laborers, rather than on all farmers as a group. Moreover, the proponents of the market-oriented paradigm have apparently been unable to argue credibly in the public debate on either elec-tricity or fertilizer policy that their reform proposals exhibit a genuine con-

xxiv SUMMARY

cern for the poorer sections of the agricultural sector. Hence, reframing the market-oriented debate on rationalizing subsidies by placing more emphasis on poverty and equity, in addition to macroeconomic and fiscal goals, may help to overcome political resistance.

Strategic Bargaining and DeliberationStrategic bargaining is an approach that assumes that people have fixed preferences and act exclusively out of self-interest in a bargaining situation. In contrast, deliberation—or the type of approach characterized as “delib-erative democracy”—assumes that social learning can occur and that people may change their preferences as a consequence of engaging in deliberative processes. Both approaches can facilitate policy reform. Strategic bargaining between labor unions, electricity utilities, and the government, for example, has helped to bring about power-sector reforms in Andhra Pradesh. Strategic bargaining is also likely to be instrumental in the government’s negotiations with the fertilizer-producing firms. Bargaining approaches can help identify packages or clusters of reforms that balance fiscal and political-feasibility constraints. They might also be the best strategy for realizing the option of a social pact, mentioned above. Experimentation with deliberative approaches, such as citizen juries or consensus conferences, appears to be a promising avenue for involving a wider range of stakeholders in policy-reform efforts, including different groups of farmers, rural laborers, employees of utilities, and environmental groups. In view of the hierarchies that characterize Indian society, special provisions must be made for achieving equal participation when using deliberative approaches.

Use of Research-Based Knowledge in Promoting Policy ChangeBy promoting policy-oriented learning across groups with different value and belief systems or paradigms, research-based knowledge can support both conventional and new reform approaches. However, to take advantage of this potential, it is important to understand the challenges of this strategy. (1) Because the level of conflict is high regarding both fertilizer and electricity policy, stakeholders tend to use research-based knowledge strategically to promote their own positions. (2) Some of the problems related to both issue areas are analytically intractable, because causal relationships span differ-ent policy areas. (3) Although there are a range of analytical forums (such as commissions, journals, and conferences) for professional debates in India, there are few forums where professionals with different value and belief systems or paradigms engage in analytical debates. Against this background, the following strategies appear promising:

SUMMARY xxv

1. Establish a clearinghouse (for example, a website) that makes available studies conducted in different states and by different institutions related to the specific policy issue. This website should also provide informa-tion on all related issues, such as the groundwater-extraction problem. The website could also provide access to official documents and reports, including current information on the pricing of fertilizer and of the elec-tricity supply to agriculture in different states.

2. Focus new research more specifically on contested issues for which empiri-cal analysis is lacking: For example, it would be useful to have studies that examine the effect of small rises in the price of fertilizers on farm-ers’ income and food prices. Moreover, there is substantial research on the direct effects of electricity subsidies, but little empirical evidence regarding the indirect effects on farm households that purchase water, on agricultural laborers, or on food prices. Likewise, a range of analytical techniques could be used to better understand the relationship between electricity pricing and groundwater use, such as stochastic frontier produc-tion functions to compare water-use efficiency in households with metered and unmetered electricity, and the use of linear-programming models to simulate crop choices under different electricity-price scenarios. It would also be useful to make research in this field more demand-driven, for example by linking it to deliberative policy processes (see above).

3. Promote experimentation and learning: An experimental research design could be used to evaluate different reform options, such as decentraliz-ing and devolving groundwater and electricity management. Likewise, an experimental design could be used to evaluate different types of pricing and targeted subsidy schemes for fertilizer and for electricity. A methodologi-cally rigorous evaluation of such experiments would help to identify “what works where and why,” thus promoting policy-oriented learning.

4. Promote analytical debate in more diverse analytical forums. To promote policy learning, it would be useful to create more opportunities, such as workshops or committees, where researchers and professionals with different value and belief systems could meet and engage in analytical debates.

ConclusionFor the electricity supply for groundwater use in India, a variety of reforms could be adopted that would be unlikely to face major political challenges. In particular, community-oriented approaches are promising. For fertilizer policy and pricing reform, reforms that do not face political resistance but offer fiscally rational outcomes are more limited, but they include a better

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SUMMARY xxvii

use of knowledge and technology. In both policy fields, a range of policy processes and political strategies could be applied to overcome political challenges. Deliberative policy processes may have a considerable potential that has not yet been explored. Finally, experimentation and research-based knowledge could be used more effectively to promote policy-oriented learn-ing across groups that differ in their views and beliefs regarding the roles that the state and the market should play in supplying fertilizer and electricity to agriculture in India.

PART 1

Introduction, Conceptual Framework, and Methods

CHAPTER 1

IntroductionREGINA B IRNER, SURUPA GUPTA, AND NEERU SHARMA

Food production and agricultural development have been core areas of concern for policymakers in India since Independence. In the 1960s, food shortages and foreign-exchange shortages led to major political

challenges after the United States decided to use food exports as an instru-ment of foreign policy. As a consequence, the government of india (GoI) adopted policies that aimed at making the country self-sufficient in foodgrain produc-tion (Subramaniam 1995). Together with promoting high-yielding varieties,two policies have been instrumental in achieving this goal: promoting the appli-cation of fertilizer and promoting groundwater irrigation. According to several estimates, between 50 and 60 percent of the increase in foodgrain production in India since the 1960s can be attributed to higher fertilizer use (Venugopal 2004, 59–60), and between 55 and 60 percent of India’s irrigated lands now depend on groundwater (Shah et al. 2003). Although the policy framework achieved the intended goal of food self-sufficiency, subsidizing the costs of fertilizer and electricity—along with other policies put in place to launch the Green Revolution—has met with increasing criticism during the past decade. Since 1991, almost every finance minister has emphasized the need to reform the government’s policies on fertilizers. Various government reports have recommended the same (HPRC 1998; ERC 2000; Planning Commission 2002; MoCF 2005b). The existing policies on the production, distribution, and sale of fertilizers have created a severe fiscal burden for the central govern-ment. They have also contributed to an imbalance in the use of nutrients and distribution problems across classes of farmers and across regions. Despite the GoI’s professed intention to reduce subsidies, expenditure on fertil-izer subsidies increased from Rs 5.1 billion in 1980/81 to Rs 994.56 billion in 2008/09 (MoF 2004a, 2009). The supply of electricity to agriculture has also been plagued for decades by a set of interrelated problems: unreliable and poor-quality supply, subsi-

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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 oftenconflicting 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; and3. 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.

A number of studies have analyzed the problems associated with fertil-izer supply and electricity supply to agriculture. Several economic studies on fertilizer supply have used an interest-group approach (Kumar 1999; Gulati and Narayanan 2003; MoF 2004a), while others point to statist explanations (Venkateshwarlu and Sen 2002). Other studies ascribe the failure of reforms to coalition politics (Bardhan 2003; Guha Thakurta and Raghuraman 2004; R. Singh 2004; Jenkins 2005). The problems regarding the electricity supply to agriculture in India have been analyzed even more extensively in the lit-erature on power-sector reforms and on irrigation reforms and agricultural-sector reform more generally. An increasing number of studies also deal spe-cifically with the “energy-irrigation nexus” (see Chapter 2 for references). The present study departs from the existing literature in several respects:first, it takes into account that politics is driven not only by interests but also by institutions and ideas. Hence, in addition to analyzing interests and electoral politics, it examines the role that knowledge, beliefs, and worldviews play in shaping the politics of fertilizer and electricity supply to agriculture. It also examines the role of institutional factors such as interbureaucratic

INTRODUCTION 5

Economicpolicy

• Policies to maintain soil fertility

• Policies for irrigation and water and resources management

Fertilizer policies

Policies on electricitysupply for groundwaterirrigation

•

•

Agriculturaland food

policy

Energypolicy

Environmentalpolicy

Figure 1.1 Policy fields related to fertilizer subsidy and electricity supply to agriculture.

Source: Authors.

6 CHAPTER 1

and coalition politics. Second, the study examines policy reform at both the national and the state level, based on interviews with representatives of interest groups and key informants. Thirty-six interviews were conducted for the study of fertilizer supply, and 75 for the study on electricity sup-ply. Third, rather than concentrate on the “first-best” option of increasing the prices paid by farmers for fertilizer and electricity, the study evaluates the political feasibility of a range of alternative and complementary policy options to meet equity, efficiency, and sustainability goals, including options that are considered “second-best” from the perspective of neoclassical eco-nomics. Fourth, it discusses a range of political strategies for overcoming resistance to reforms. Fifth, it examines the role that research-based knowl-edge can play in promoting policy reform. Using this approach, the study identifies factors that have received limited attention in the literature so far, most notably (1) the fundamental disagree-ments of different stakeholders regarding basic facts, causal mechanisms, and appropriate reform options; (2) the role of different political paradigms in the political debate; (3) the resulting obstacles to the formation of pro-reform coalitions across policy fields; (4) the role of bureaucratic politics in fertilizer-supply policy; and (5) the dynamics of state-level party politics in setting policies governing electricity supply to agriculture. The monograph is organized as follows: Chapter 2 reviews the relevant lit-erature. Chapter 3 presents the conceptual framework and the methodology. Chapters 4–7 deal with fertilizer policy: Chapter 4 gives an overview; Chapter 5 describes the evolution of fertilizer policy in India and the reform initiatives that have been undertaken; Chapter 6 analyzes the actors and their politi-cal strategies and discourses; and Chapter 7 examines policy implications. Chapters 8–11 deal with electricity supply to agriculture: Chapter 8 provides background information on the electricity supply to agriculture in Andhra Pradesh and Punjab in the Indian context; Chapter 9 describes the evolution and the reform initiatives of the two states’ policies governing electricity sup-ply to agriculture; Chapter 10 analyzes the actors in this policy field and exam-ines their political strategies and discourses; and Chapter 11 reviews policy implications. Chapter 12 compares fertilizer and electricity policy. Chapter 13 discusses a range of political strategies that could be applied to promote the reform of both fertilizer and electricity policy, and Chapter 14 presents conclusions.

CHAPTER 2

Insights from the LiteratureREGINA B IRNER, SURUPA GUPTA, AND NEERU SHARMA

In view of the multisectoral nature of the policies governing fertilizer and electricity supply to agriculture (see Figure 1.1), the policies have been assessed by sector and analyzed by scholars from different disciplines.

Although a comprehensive review of the literature in all related policy fields is beyond the scope of this monograph, this chapter reviews key sources from policy fields of particular relevance for the present study.

The Politics of the Economic Reforms

OverviewEconomists, political scientists, sociologists, and anthropologists have con-tributed to a sizable body of literature on the politics of economic reforms in India (Bardhan 1999, 2001, 2003; Jenkins 1999; Varshney 1999; Corbridge and Harris 2000; Mooij 2005). Liberal economic reforms were initiated by Prime Minister Narasimha Rao in 1991. Subsequent governments have all supported the overall rhetoric of liberalization but have had varied success in imple-menting it. Reforms of the industrial, financial, and other service sectors have dominated the agenda, whereas agricultural reforms have received less atten-tion (Bardhan 2003; Rao 2004). The literature cited above addresses three important questions:1. What effects have the reforms had in reducing poverty?2. Why were the reforms politically feasible at all?3. Why did reforms progress faster in some policy fields than in others?

On the first question, a deep divide exists between proreform economists,who emphasize the positive effects—especially the growth effects—of the reforms, and the critics, who question the distributional implications of the reforms. As Bardhan (2005, 4995) notes: “Each side describes the other in stereotypes and usually talks past each other. The pro-reformers identify the

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8 CHAPTER 2

opposition as belonging to the ‘loony left,’ caught in a time warp, oblivious of global changes and elementary economics. The other side paints the reform-mongers as ‘neo-liberal’ (a widely used term of abuse in certain circles) and lackeys of global capitalism oblivious of the poor and the dispossessed.” As Deaton and Kozel show in their paper “Data and Dogma” (2005), con-troversies about poverty measurement and statistics are prominent in the debate about the effects of the economic reforms. Popular opinion in India seems to support the view that the economic reforms did not benefit the poor. According to a national election survey in 2004, three-fourths of respon-dents who had an opinion on the subject agreed with the statement that the reforms “benefit only the rich” (Suri 2004). Of particular relevance here is the widespread perception that the economic reforms did not benefit the majority of the rural population, a factor widely considered as crucial in the change of government in the 2004 elections. The divide in perception about economic liberalization shapes the debate and the policy process on agricul-tural policy reforms. On the second question, the literature has identified a wide range of factors that affect feasibility. Based on a framework that is widely used in comparative politics to study the political economy of reforms in developing countries, these factors are classified here into three categories: interests, institutions, and ideas (Nelson 1989; Haggard and Kaufman 1992; Bates and Krueger 1993; Williamson 1993; Haggard and Webb 1994).

The Role of Interest PoliticsA substantial portion of the literature on the political economy of economic reforms is devoted to understanding economic reforms, or the lack thereof, through the analytical lens of interests. Simply put, this strand of the litera-ture argues that economic reforms fail because they are obstructed by groups whose interests they threaten. One dominant thesis argues that the success of Indian economic policies depends on their correlation with the interests of the dominant proprietary classes, that is, business, large farmers, and the professional classes (Bardhan 1998). Any policy change that threatens the interests of one of those classes is likely to fail. In his more recent writing, Bardhan recognizes that the attitudes of the proprietary classes toward economic policies have changed and that such change has offered windows of opportunity for reform. However, in explaining the relative lack of reforms in agriculture, he argues that most farm-sectorinterest groups “are not very active in demanding reforms of agricultural controls,” perhaps because they think that “the dismantling of the existing structure of food, fertilizer, water and electricity subsidies in exchange [for] receiving, say, international agricultural prices may be too complex and politi-

cally risky a deal” (Bardhan 2003, 282). The dominance of specific interests also means that economic policy changes succeed only where the government engages in “reform by stealth” (Jenkins 1999). Jenkins’s argument is supported by evidence that public awareness about the economic reform process was in fact rather low during the 1990s (Kumar 2004). However, in a recent con-tribution, Jenkins (2004) argued that the “reform by stealth” approach he observed in the 1990s had become insufficient to promote India’s second-generation reform agenda. He identified the need to address different ideolo-gies as the major challenge for future reforms. Varshney (1999) argued that reforms are more feasible where only the elite pay attention to them, while the attention of the masses is occupied by other issues. These reforms impact the elite while having a limited and imper-ceptible impact on the masses, thus giving the elite the window of opportu-nity they need. Varshney’s contention is confirmed by Pedersen (2000), who emphasized the emergence of a new group of reform-minded industrialists, represented by the Confederation of Indian Industry, as influential in sustain-ing the momentum of the reform process during the 1990s. The reforms they supported lay in the arena that Varshney refers to as “elite politics.” Although interest-based arguments are intuitively convincing, in practice it is often difficult to attribute the lack of reform to the machinations of par-ticular interest groups, because empirical evidence is hard to come by. The scholar then is left with anecdotal evidence at best and conjectures at worst. Moreover, the analysis is, as this study demonstrates, complicated by the lack of differentiation between the positions espoused by major interest groups and related government departments. For example, it is relatively easy to find evidence for the fertilizer industry’s opposition to proposed reforms. However, the argument that this opposition was crucial to the failure of reforms is convincing only where it can be shown that the government was united and strongly in favor of policy change.

The Role of InstitutionsA second strand of the literature focuses on the institutional bases of reform. Some scholars debate whether the Indian state is rent-seeking or developmen-tal, that is, what role its bureaucrats and policy elite play in ensuring conti-nuity and in bringing about necessary changes in the economic framework. The neoclassical rent-seeking argument categorizes the Indian state as a rent seeker. In this formulation, state officials seek to maximize their income, and a closed economy, with various controls on business and commerce, offers the perfect opportunity for these officials to seek rents (Bhagwati 1993). Others argue that although the Indian state engages in rent-seeking activities, it alsodemonstrates developmental traits (Mooij 1999). The state-as-rent-seeker

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10 CHAPTER 2

argument implies that the state has absolutely no interest in changing a policyframework, such as that governing production of fertilizers, that offers a wealthof rent-seeking opportunities. Because the Department of Fertilizers (DoF) with-in the Ministry of Chemicals and Fertilizers (MoCF) exists solely to protect the interests of the fertilizer firms, it would seem logical for it to oppose dismantling the framework that gives the department its raison d’être, its source of power, and its opportunities for rent seeking. However, as one department among many within the Indian government, it has to engage with other players in the reform process. Other ministries, such as the Ministry of Finance (MoF), may demonstrate the developmental aspect of the Indian state in the debate on fertilizer policy. Neither of these formulations, however, explains why policy change does not take place in certain areas. A tendency to treat the state as a unitary player is perhaps partly to blame. The neoclassical argument holds that the state has its own interest. In contrast, this report shows that the state has mul-tiple interests. Each department and ministry has its specific objective, and, faced with reform efforts, each negotiates toward a position that protects its core interest (Varshney 1998, 58–60). In this latter formulation, the state often demonstrates a rather schizophrenic character, with different departments’ support for conflicting and often opposing goals leading to stalemates. Other scholars have focused on the role of the legislature (Nelson 1989; Haggard and Kaufman 1992; Haggard and Webb 1994). Cross-national studies have shown that reforms are more likely to succeed under a majority govern-ment than under a minority or coalition government. However, the Indian case suggests the importance of looking beyond legislative majorities and coalition governments to analyze institutional design and the extent of the legislature’s role in economic policymaking. Following Tsebelis (2002), one needs to ask on whom Indian political institutions confer veto power. In India, the Parliament plays a dual role in economic policymaking. First, a majority is required to pass the budget every year, and if the budget is not endorsed, the government’s survival is jeopardized. Any reform measures embedded in the budget require legislative approval. However, the government can also initiate economic policy changes through executive decisions without seek-ing legislative approval. Such policy changes are primarily the outcome of negotiations among cabinet members and rules governing the work and juris-diction of specific ministries. In such cases, coalition politics influences the outcome of the negotiations among cabinet members: the coalition manag-ers, particularly the prime minister and other leaders of the majority party, must pay attention to the specific interests of smaller coalition partners, whose cooperation is crucial to the coalition’s survival and success. Similar considerations apply at both the national and the state level. Even though the legislature does not vote on the reforms that are the result of executive decisions, it still plays an important role: it serves as the

bellwether for Indian politics in that legislators use it to articulate their posi-tions and thus reveal the spectrum of acceptable policy options. This practice indicates the range in the political spectrum where consensus can be reached and what measures might face an indirect veto. Public expenditure is one area in which outcomes seem to be shaped by coalition politics (Bardhan 2003; Jenkins 2005). Jenkins considers external fac-tors, such as commitments to international financial institutions that have applied pressure on the government to reduce the fiscal deficit. He also considers domestic pressures such as those coming from coalition partners. In addressing the issue of the politics of public expenditure in general, he argues that the coalition pressures have been strong enough to outweigh the external constraints. Although it is highly plausible that coalition politics contributed to the ballooning of the fiscal deficits, that hypothesis, like most others, has not been examined in the context of sector-specific policy reforms in India. Arguably, politics in India has always been some form of coalition politics, whether under the Congress Party as an umbrella party in earlier decades or under the more formal coalition model of the 1990s. Scholars have not explicitly examined whether veto power wielded by coalition partners has constrained economic reforms. Because most of the coalition partners are also regional parties, regional pressures and coalition pressures often overlap (Bardhan 2003; Jenkins 2005). The effect of regionalization on economic policymaking and policy reform is felt through multiple channels as well. Regional parties can influence eco-nomic reform by either supporting or vetoing reform proposals as part of a national coalition, or because the constitution or other institutional arrange-ments mandate state-government approval in changing certain policies. The latter point is significant in agricultural policy; federal provisions under the Indian constitution suggest that, for the most part, states have the authority to make laws and policies affecting agriculture. Although scholars have exam-ined the varying impact of reforms across states arising from differences in implementation (Saez 2002; Kennedy 2004; Sinha 2004), much less is known about the dynamics of state-level politics and its impact on economic policy-making and policy change at the national and state levels.

The Role of IdeasCross-national studies of political reforms have also focused on the role of ideas in economic liberalization (Kahler 1992; Stallings 1992). The literature pays particular attention to the renewed focus on neoliberalism in the West (especially in the United States and Britain) in the 1980s, the ideas that are embodied in the so-called Washington Consensus, and the influence of these ideas in the reform processes in countries ranging from Chile to Indonesia. Dubash and Rajan (2002) point to the shift, motivated by the unraveling of

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12 CHAPTER 2

the Soviet Union, away from ideas of social-democratic governance and toward market liberalism. These ideas have been disseminated by institutions such as the United States government, the International Monetary Fund (IMF), and the World Bank through their writings, negotiations, and recommendations. In addition, these ideas are transmitted through the involvement of Western-educated economists and technocrats in the reform process. Although these individuals may be citizens of the reforming country, they may have imbibed neoliberal economic ideas during their studies in Anglo-American universities or during stints of employment at international financial institutions. Cross-national studies of reforms have found that most successful attempts at reform have been aided by the presence of such reform-minded leaders and change teams (Haggard and Webb 1994; Williamson and Haggard 1994). Among these undertakings Shastri (2001) includes the initiation of liberal reforms in India in 1991. However, neither the 1991 change team nor the sev-eral liberal finance ministers who served thereafter were able to bring about necessary changes in the policy framework governing the production and distribution of nitrogenous fertilizers in India, despite the recommendations of several high-level committees (HPRC 1998; ERC 2000). Likewise, the neo-liberal policy elite were unable to induce the Indian states to reform agricul-tural electricity pricing policies in spite of several national-level efforts. Although liberalization dominated the discourse on economic policy in India after 1991, protectionist ideas from the prereform period have by no means been eliminated. Bardhan (2001, 226) points to a “dominant anti-market streak in the collective passion for group equity . . . among the common people in India.” He argues that political leaders use intergroup equity as a convenient, though self-serving, justification for government subsidies and that this ideology stands in the way of economic reforms in India. In a recent article, Jenkins points out that three powerful political formations—lower-caste assertiveness, Hindu nationalism, and issue-based social activism—all “share a partial claim to the most potent anti-market ideological tradition in India over the past century: swadeshi, a multifaceted Indian variety of economic nationalism” (Jenkins 2004, 202–203). The observations of Bardhan and Jenkins also make it clear that there are two distinct discourses on the issue of economic reforms in India and that it is necessary to take ideology (belief systems) and discourse into account when analyzing India’s economic reforms. While these studies show that ideas matter, it is also necessary to understand the specific mechanisms through which ideas aid or hinder policy change. One framework for understanding policy change and the role of policy-oriented learning within that process is provided by Jenkins-Smith and Sabatier in their advocacy-coalition approach (1993a). They suggest that policies are

shaped by both ideas and interests. Advocacy coalitions may consist of govern-ment bureaucracies, interest groups, legislators, researchers, and nongovern-mental organizations (NGOs)—in short, any stakeholders in a policy process. Sabatier (1993) argues that policy change is brought about by altering theperceptions and conceptual apparatus of policymakers over time. Thus, at any given point, policy reform can be shaped by existing policy-oriented knowledge and the nature of the coalition advocating alternative policy paradigms.

The Role of International PressureA fourth strand of the literature examines the impact of international factors, such as international markets and institutions, on liberal economic reforms in developing countries (Kahler 1992; Stallings 1992). Higher global market prices for commodities can build pressures to liberalize. International finan-cial institutions may impose change from outside through conditions attached to structural-adjustment loans. Several Indian scholars have argued that the liberalization program adopted by the Indian government is imposed from above by the likes of the IMF and the World Bank and has been implemented by policy elites familiar with and in agreement with those institutions’ neo-liberal policies (Bhaduri and Nayyar 1996; Patnaik 2000; Shastri 2001). This argument is related to the role of international organizations in promoting ideas. The salient issue here, however, is their ability to impose change. It has been argued that, although international financial institutions often sug-gest reforms, their ability to impose them is restricted to times of economic crisis. At other times, a sovereign government usually has substantial auton-omy to resist such pressures. Jenkins (2005) argues that during the rule of the National Democratic Alliance (NDA), international pressures were superseded by other considerations while tackling fiscal deficits. Although the above discussion points to several hypotheses that can help explain the lack of reforms in fertilizer and electricity policy, it also high-lights the lack of empirical, sector-specific work on economic policy reforms in India. Therefore, a study of the political forces that have shaped fertilizer and electricity policy should examine several of the possible hypotheses dis-cussed above. As Mooij (2005, 35) points out, “The dust has far from settled in the debate on the politics of the reforms in India.”

The Political Economy of Agricultural Policy ReformsIn India, agriculture is largely regulated by the states, although the center’s power to make policies on farm trade, supply of fertilizers, and agricultural credit, to name just a few, have a direct impact on the sector as well. Reforms in the agricultural sector can be classified into five fields: (1) deregulation

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of markets; (2) reform of commodity-price policies; (3) rationalization ofinput subsidies; (4) expansion of productivity-enhancing investments; and (5) reform of institutions (see World Bank 2004c). Reform achievements include the abolition of restrictions on the movement of commodities, the liberaliza-tion of agricultural trade and exports, and the introduction of targeting in the public food-distribution system (PDS). In other fields of agricultural policy, reforms have not progressed very far. Fertilizer, food, irrigation, and power are still subsidized. Likewise, basic stable prices are still controlled by mini-mum support prices (MSPs) (see Mooij 2005, 21). To explain the mixed progress in agricultural-policy reform from the perspective of political economy, the arguments discussed above for general economic reforms and electricity-sector reforms can be applied here as well. In line with Jenkins’s (1999) “stealthy gradualism” argument, one can hold that reforms with obvious, direct effects on a large share of the agricultural population, such as reduction of input subsidies, have been more difficult to implement than policies with largely indirect effects. Considering that agriculture employs 60 percent of India’s labor force, Varshney’s argument (1999) about the power of political elites can also help to explain why eco-nomic reforms have been farther-reaching in industrial and trade policy than in agricultural policy. Still, to understand the political economy of agricultural policy reform, it is necessary to examine a longer time horizon and consider a wider variety of explanatory factors. The policies that were essential to foster the Green Revolution, such as input subsidies, commodity-price policies, and market regulations, have given rise to path-dependent dynamics. These policies con-tributed to the emergence and strengthening of diverse farmers’ movements, which influence agricultural politics in different ways and are subject to a variety of state-specific factors, such as agrarian structure and party politics. Moreover, discourse is an important factor in influencing agricultural policy, as the discourse about the “agrarian crisis” and farmers’ suicides indicates. As this report shows, the efforts to reform fertilizer and electricity subsidies to agriculture are in fact prime examples of the complexity of agricultural policy reform in India. The available literature on this topic has a strong focus on the techni-cal and economic dimensions of various aspects of reform, such as input subsidies (Gulati and Narayanan 2003), trade (Storm 1997), and irrigation (Gulati, Meinzen-Dick, and Raju 2005). The debates in these fields resemble the debates on general economic reforms. Contested issues include whetherliberalization and the withdrawal of subsidies will ultimately benefit the poor and whether the targeting of subsidies is desirable and feasible. In irrigation and water-resources policy, the debate has focused on the use of market-based

instruments (such as water pricing and trading) versus regulatory instruments, and on the devolution of management authority to local governments and water-user associations. In fertilizer policy, the debate has concentrated on the need for self-sufficiency in fertilizer production, the mechanism for dis-bursing subsidies to farmers, and the options for increasing the efficiency of the domestic fertilizer industry. A range of studies have examined the politi-cal economy of agricultural policy reform in different fields. The analytical approaches applied range from sociological concepts of agrarian class rela-tions (for example, SinghaRoy 2005) to neoclassical public-choice approaches (see, for example, Abler and Sukhatme 1998).

The Political Economy of Policy Change in Fertilizer Pricing and SubsidyThe politics of fertilizer subsidies in India has received relatively little scholarly attention. Economic analyses of the fertilizer subsidy and farmgate pricing of fertilizers suggest several reasons why reforms have not taken place. Various studies have analyzed the economic impact of subsidies and identified their actual beneficiaries (Gulati and Narayanan 2003; GoI 2004). Because fertilizer manufacturers and large farmers are the likely beneficiaries of the existing policies, these studies suggest that the stalemate in policymaking is a result of opposition from these interest groups. Kumar (1999) notes the opposition of the fertilizer industry to proposed reforms. Venkateshwarlu and Sen (2002), however, de-emphasize interest-group politics, arguing instead that the poli-cies governing the fertilizer industry have been shaped by the uncertainties and inconsistencies of previous government action. R. Singh (2004) examines the issues of intercrop, interregional, and interclass equity in the distribution of fertilizer subsidy among farmers and identifies paddy and wheat cultivators and farmers in six states as major beneficiaries of the subsidies. These findings suggest that regional politics and therefore coalition politics are instrumental in the success of reforms in this area. Similar suggestions are also made by Bardhan (2003), Guha Thakurta and Raghuraman (2004), and Jenkins (2005). However, none of these hypotheses has been empirically examined. To under-stand the real causes of the lack of reform in the fertilizer sector, this study examines each of these possible explanatory factors.

The Political Economy of Power-Sector ReformsIn the politics of electricity supply to agriculture, general energy-sector reforms play an important role. Energy policy in India is the joint responsi-bility of the federal government and the state governments. Because of the serious problems plaguing this sector, such as energy shortages, high levels of energy theft, and high financial losses, the energy sector was one of the

INSIGHTS FROM THE LITERATURE 15

16 CHAPTER 2

first sectors identified for liberalization in the early 1990s. However, these reforms have to be seen in an international context, too. Around the world, conventional wisdom about the electricity sector—favoring public ownership and integrated utilities—was challenged during the 1990s by a new model of private ownership and unbundled utilities (Dubash 2002). One of the most comprehensive reviews of reform in India’s power sector is the paper by Dubash and Rajan (2001). The authors distinguish four over-lapping but distinct phases of power-sector policy: (1) pre-1991 policy, (2) the 1991 independent power producer (IPP) policy and its aftermath, (3) the World Bank–led restructuring policy that began to be implemented around 1993 in Orissa, and (4) the period after 1998, when the restructuring model was scaled up through national legislation and state-level reforms. Dubash and Rajan explain the origins of the electricity subsidy to agricul-ture in the late 1970s as arising from the struggle of the Congress Party against the emerging regional parties in Southern India and agitation by farmers’ organizations, especially in Tamil Nadu. They show that the resulting aboli-tion of metered agricultural-electricity connections and the extensive subsidy have come to be seen as an entitlement by farmers, which makes reform difficult. This view is widely shared. Another major institutional “lock-in,” according to Dubash and Rajan, was the signing of IPP contracts, which had major fiscal implications but mixed outcomes. The authors highlight the role of the World Bank as central “in moving the sector to the threshold of a new organizational form” (Dubash and Rajan 2001, 3385). The authors also acknowledge that more actors—in addition to state governments and donor agencies—are now involved in the reform process. Sudha Mahalingam, another prominent analyst of India’s power-sector reforms, distinguishes two phases of reform: (1) the introduction of IPPs, and (2) the unbundling and privatization of state electricity boards (SEBs), along with the introduction of independent regulatory commissions (Mahalingam 2005). In line with Jenkins’s “stealth” argument, Mahalingam argues that during the first phase, far-reaching changes were introduced in a stealthy manner, cre-ating considerable scope for corruption among those in charge of implementing the reforms. The potential for corruption in creating IPPs is well documented (Dubash and Rajan 2001; Mahalingam 2005). According to Mahalingam, the sec-ond phase of the reform remained largely a nonstarter, because stealth was no longer an option, and the phase 2 reforms imposed a cost on those implement-ing them by targeting corruption rather creating scope for it. In his book Privatizing Power Cuts, Joël Ruet (2005) argues that power-sector reforms aimed at improving efficiency cannot succeed if they are based only on monetary incentives. They must be based on a radical transformation of the organizational nature of SEBs, which he calls “enterprisation.” The lat-

ter is defined as the transformation of an administration into a full-fledged enterprise, a state which, according to him, has not been achieved through the current so-called structural reforms. A number of authors have analyzed the electricity regulatory commis-sions (ERCs), which are envisaged as independent authorities that provide transparency and ensure public participation (Rao 2004). This is, however, not necessarily the case, as Subramaniam and Vyasulu (1999) show for Karna-taka, and Godbole (2000) and Dixit, Sant, and Wagle (1998) for Orissa. India’s power-sector reform legislation explicitly provides the state and central gov-ernments with powers to override the decisions of regulatory commissions. One of the most comprehensive and recent analyses of the political fac-tors affecting power-sector reform in India is Sumir Lal’s study Can Good Economics Ever Be Good Politics? (Lal 2006). He focuses on the “rhetoric-implementation gap.” His analysis starts from the fact that, at the rhetorical level, power-sector reform has been regularly endorsed by leading politicians from all political parties at both the central and state levels. Until recently, Lal observes, “newly elected chief ministers who won elections on populist slogans have also taken up the reform mantra on assuming office, though this trend has apparently faltered after the latest round of national and state elections in 2004” (2006, 3–4). Lal argues that politicians speak simultaneously to two different audi-ences that are almost completely disconnected. The first audience is the policy and financial elite, which comprises both a domestic metropolitan component and an international donor and investor component. The second audience is the constituency of the individual politician. Actions performed with respect to this audience are usually dismissed as “populist” by the first audience, even though they “comprise both legitimate attempts to address grassroots concerns, and distorted attempts to placate swing-voter categories such as big farmers” (Lal 2006, 4). Lal argues that power-sector reforms have been stalled because of both “legitimate populism” and “distorted populism.” He identifies five factors that account for the rhetoric-implementation gap: (1) legitimate grassroots concerns about the effects and sequencing of the reform; (2) a credibility gap that leaves audiences, especially consumers, unconvinced of the necessity of the reform; (3) the need to placate certain voting blocs, especially large farmers; (4) obstruction by interest groups with a stake in the present system, such as staff members, suppliers, and contrac-tors who gain from corruption; and (5) an inert bureaucracy that is highly unionized, has a safety-first rather than a visionary culture, and is effective in safeguarding its interests. Lal concludes that reform efforts should move beyond the pattern of “stealthy gradualism” and try to ensure “democratic ownership of the reform

INSIGHTS FROM THE LITERATURE 17

18 CHAPTER 2

by negotiating its content with the beneficiary populations and mobilizing grassroots political reform champions” (Lal 2006, 22). He emphasizes the need to address the political as well as the technical dimension of power-sector reform and recommends making major stakeholders, including entrenched interest groups, first “own the problem” and then negotiate solutions. Devo-lution of electricity distribution to local communities or cooperatives is one such strategy. He also makes the important point that election-funding reform is essential for tackling corruption (2006, 12).

The Energy–Irrigation Nexus: Political and Technical AspectsIn addition to being treated as an aspect of energy policy or agricultural policy, electricity supply to agriculture has become the subject of a specific literature on the “energy–irrigation nexus” (Shah et al. 2003). This literature focuses on the need to jointly manage the energy sector and the groundwater sector, as the two are obviously linked. The question of electricity pricing for irrigation is prominent in this literature. From the perspective of neoclassical economics, a metered tariff regime, with volumetric pricing that reflects the real costs of electricity supply and creates incentives for the efficient use of electricity in agriculture, would be the preferred solution for both the energy and the groundwater sectors. Shah and his coauthors (2003) have argued that political resistance and high transaction costs make this solution infeasible. As an alternative, they suggest a “rational flat rate” regime, which is charac-terized by the fine-tuning of a restricted power supply to the irrigation needs of farmers. Critics of this approach point to the managerial challenges of this fine-tuning (Dubash 2007). Moreover, in the absence of studies that attempt to empirically measure the transaction costs of different pricing regimes (which would be possible, as there are metered pump-set connections in India), it remains an open question whether metering would be politically and administratively feasible, if, for example, it was embedded in a negotiated solution with farmers. Detailed empirical information on the economic dimension of the energy–irrigation nexus has been provided by the World Bank study Power Supply to Agriculture (2001), which is based on farm-level surveys in Andhra Pradesh and Haryana. The study found that power theft and losses were considerably higher than previously assumed; that power subsidies mostly benefit larger farmers; that farmers incur considerable costs from pumping-equipment damage caused by the unreliable power supply, irrigation forgone because of power losses, and distorted investment patterns; and that farmers, espe-cially small and medium-sized landholders, would in the medium term benefit considerably from a reform that is partly financed by increased tariffs and improves the quality of electricity supply.

In his recent paper “The Electricity–Groundwater Conundrum: Case for a Political Solution to a Political Problem,” Dubash (2007) has analyzed the political dimension of the energy–groundwater nexus. As he observes:

Although the debate on the electricity–groundwater link is longstand-ing, it is marked by a focus on technocratic approaches to policy-making rather than an appreciation for the entrenched political nature of the problem. Fixes have tended to be economic (raise prices to farmers) and/or technical (install meters). Both are standard elements of the electricity reform prescription that the nation has struggled, largely unsuccessfully, to implement over the last five to 10 years. Failures to follow both prescriptions are ascribed to a lack of “political will.” And there the matter rests. Until politicians develop a back-bone, it is argued, there is little that can be done. (Dubash 2007, 45)

Analyzing the political dimension of the electricity–groundwater link, Dubash finds that farmers have good reasons to be concerned about their future under a reform that follows the standard prescriptions. He concludes that reforms will be feasible and sustainable only if they are based on a politi-cal bargain to which the various stakeholders, especially the farmers, can agree. The energy–groundwater nexus is also dealt with in the recent report Ground Water Management and Ownership, which was prepared by an expert group on behalf of the Planning Commission. This report states: “While undoubtedly some impact on cropping pattern and water use will take place in response to metering and tariff rationalization, the impact may be small.. . . Cost of ground water (and by implication, of power) plays a relatively small role and cropping patterns therefore typically remain unchanged even for large changes in price of electricity” (GoI 2007b, 43). The report does not quote studies in support of this assessment. It also argues that metered supply in combination with a high electricity price will restrict water markets (GoI 2007b, 43). The report recommends giving farm-ers an entitlement for a certain amount of energy and paying them the dif-ference if they use less energy than their entitlement. A pilot scheme is recommended to examine whether the transaction costs of implementing this approach are manageable. Another aspect of the energy–groundwater nexus has received limited attention in the reform literature: the relationship between surface water and groundwater. Groundwater irrigation and surface-water irrigation are linked in a technical as well as a political sense. Surface-water irrigation constitutes an important source for groundwater recharge, and in many regions of the world

INSIGHTS FROM THE LITERATURE 19

20 CHAPTER 2

groundwater irrigation is used primarily in areas that are also irrigated by surface water. However, in India, groundwater irrigation has been expanded into large areas that are not irrigated by surface water (IWMI-TATA 2002). This development has considerably exacerbated the problem of overexploitation of groundwater resources. In fact, groundwater and surface-water irrigation are often seen as alternatives in India, rather than as complementary activities. As Reddy (2005) shows in a case study of Andhra Pradesh, the integration of groundwater development and exploitation with the management of surface-water bodies like tanks increases the sustainability of water-resource use. He also shows that overuse of groundwater without recharge affects small and marginal farmers disproportionately, as they are less able to afford deeper bore wells and stronger pump motors. Likewise, Dhawan (1995) shows that surface water is a significant source of groundwater recharge. Without canals or tanks, groundwater is further depleted. Groundwater, surface water, and electricity are linked not only hydro-logically but also in the policy debate. In defense of electricity subsidies, groundwater users, who have to make private investments in irrigation infra-structure, can always argue that the users of surface water benefit from pub-lic investment in surface-irrigation infrastructure. The expert-group report on groundwater management quoted above also points to this link by stating: “Politically, it is difficult to raise power tariff for agricultural users. It is also unfair to do so when canal water is given at a low rate.” (GoI 2007b, 44). Thus policy-reform efforts in groundwater and surface-water irrigation are politically linked.

CHAPTER 3

Conceptual Framework and Research MethodsREGINA B IRNER, SURUPA GUPTA, AND NEERU SHARMA

Conceptual Framework

Overview

As shown by the literature review presented in Chapter 2, a variety of explanations have been offered as to why efforts to reform fertil-izer and electricity supply to agriculture have not been successful, in

spite of the obvious need for reform. Even so, major knowledge gaps remain, because different authors have focused on different explanatory factors—and, in the case of electricity, because the conditions vary considerably between states. Since most policy recommendations derived from the studies quoted above are generic, few strategies have been proposed for identifying the most relevant political obstacles to reform or devising specific reform strategies. To address this knowledge gap, the present study uses a concep-tual framework (Figure 3.1) that makes it possible to consider multiple fac-tors simultaneously. The framework is based on a combination of the Advocacy Coalition Framework developed by Sabatier and Jenkins-Smith (1993), the discourse-analysis approach developed by Hajer (1995), and political-resource theory, as developed by Ilchman and Uphoff (1998). The combination of these approaches acknowledges that policies are driven by interests, institutions, and ideas. As indicated in Figure 3.1, political decisions in favor or against different aspects of reform are the outcome of a political process in which different coalitions of interest groups interact.

Discourse CoalitionsTwo types of coalitions have been discussed in the literature: discourse coali-tions (see Hajer 1995) and advocacy coalitions (Sabatier and Jenkins-Smith 1993, 1999). Based on Hajer (1995), discourse coalitions are defined here as

21

22 CHAPTER 3

groups of actors that share a discourse on a policy issue, which is indicated by their use of a particular set of story lines. Discourse coalitions consist of groups that do not necessarily engage in joint political action but which are able, by sharing a discourse, to shape the political debate and people’s opin-ions.1 Following Van Dijk (1998), one can assume that the groups constituting a discourse coalition also share a common underlying value and belief sys-tem.2 Van Dijk also points out that groups with a common ideology typically have a positive self-representation and a negative representation of others.

Antireform coalition(s)• Interests• Beliefs• Financial resources• Human capital• Social capital

Proreform coalition(s)• Interests• Beliefs• Financial resources• Human capital• Social capital

Creating political capital• Voting, lobbying• Public protest• Ideological arguments• Evidence

Policy process

Implementation

Policy impact

Political and administrative decisions

Figure 3.1 Conceptual framework

Source: Adapted from Sabatier and Jenkins-Smith (1999, 121).

1 Hajer, who developed the concept of “discourse coalitions” as an analytical approach (see Hajer 1995), differs in his interpretation from Van Dijk (1998). In Hajer’s view, which is influ-enced by the ideas of Michel Foucault, discourse is not merely the expression of underlying ideas and interests, which “cannot be assumed as given, but . . . are intersubjectively constituted through discourse” (Hajer 1995, 59). Though it uses the term discourse coalitions, this mono-graph follows Van Dijk’s approach in relating discourse to underlying value and belief systems.2 In this monograph, the term value and belief system is used instead of ideology, the term used by Van Dijk (1998) and other authors. The latter term is avoided because it has a pejorative

Sabatier and Jenkins-Smith (1993) developed the concept of advocacy coalitions, which may be considered as a subset of discourse coalitions. They are characterized by the fact that the individuals and groups constituting the coalition engage in a nontrivial degree of coordinated activity over time to advocate specific policy options. Following their framework, advocacy coalitions may include interest-group leaders, agency officials, legislators from differ-ent levels of government, applied researchers, and journalists. Although this study employs the broader concept of discourse coalitions, it follows Sabatier and Jenkins-Smith (1993) in identifying the belief systems of different groups of actors. These authors distinguish three different types of beliefs: (1) core beliefs related to fundamental values, which rarely change; (2) policy beliefs, which refer to policy solutions and may change; and (3) secondary beliefs, which refer to minor aspects of the issue, for example, the way in which solutions are implemented. This study adopts a modified classification of beliefs.

Beliefs and ParadigmsThe classification scheme presented in Figure 3.2 is used here to identify dif-ferent belief systems. Two criteria are considered: the likelihood that actors will change their own beliefs, which is important for implementing policy change; and the role that research and empirical evidence play in changing those beliefs. A basic distinction is made between core beliefs and specific beliefs. Core beliefs are not specific to the policy area under consideration; they include normative positions and values. They can also be referred to as paradigms. Specific beliefs are related to the policy areas under consider-ation, in this case the fertilizer and electricity supply to agriculture. Among specific beliefs, we further distinguish factual and causal beliefs, that is, beliefs about facts and causal mechanisms, which can be changed by present-ing credible empirical evidence; and policy beliefs, that is, beliefs about the relevance of a problem and appropriate strategies to address it. Policy beliefs are further distinguished into central policy beliefs, which are linked to the core beliefs and are central to a policy area and hence are more difficult to change; and instrumental policy beliefs, which refer to spe-cific technical aspects of a policy and are therefore more likely to change.

InterestsInterests are obviously important in driving politics, as is evident from the interest-group literature reviewed above. Beliefs are linked to interests, but

CONCEPTUAL FRAMEWORK AND RESEARCH METHODS 23

connotation in everyday language, implying a system of false or distorted beliefs, typically held by political or social opponents.

24 CHAPTER 3

the relations between interests and beliefs can be complex. The same eco-nomic interest may be associated with different types of instrumental policy beliefs and different types of factual and causal beliefs. In most economics-based explanations of policy choices, beliefs are considered to be endogenous to economic interests and hence are not accorded any explanatory power of their own. Phrased differently, it is assumed that individuals “select” the belief systems that best further their interests. By implication, beliefs are stable, and they will change only if the individuals’ interests change. Some public-choice models consider ideology next to interests as an independent factor in explaining policy choices. Because neoclassical economics assumes preferences are assumed to be fixed, ideological positions are considered to be stable as well. In political science and sociology, it is common to conceptualize ideol-ogy and beliefs separately from interests. The Advocacy Coalition Frame-work (Sabatier and Jenkins-Smith 1993) has been used extensively to study how and under which conditions advocacy coalitions change their beliefs in situations where no change in material interests has taken place (see “Policy-Oriented Learning”). Here, the relation between interests and beliefs is considered to be an empirical question. Importantly, not all members of a

Types of beliefs

Specific beliefs

Policy beliefs (p)

Causal andfactual beliefs (f)

Core beliefs (c)(paradigms)

Not specific to one particularpolicy problem or area

•

Include normative beliefs andvalues; linked to ideologies

•

Rarely ever change•

Linked to core beliefs•Difficult to change•

Refer to technicalaspects of policies

•

Can be changed byevidence and dialogue

•

Can be changed byevidence (statistics,research results, etc.)

•

Central policybeliefs (p1)

Instrumentalpolicy beliefs (p2)

Beliefs about facts

Beliefs aboutcausal mechanisms

Figure 3.2 Classification of beliefs

Source: Authors.

discourse coalition necessarily share the same interests. For example, aca-demics can be influential members of a discourse coalition even though they typically do not have a financial stake in the economic outcome of a reform in a particular sector. Moreover, interests can be influenced by beliefs. For example, actors may favor a certain policy instrument because they believe it serves their economic interests better than other policy instruments, even though, in reality, this may not be the case.

Political ResourcesAs shown in Figure 3.1, the resources at the disposal of discourse coalitions are, along with interests and beliefs, a major factor in explaining political outcomes. Resources consist of financial resources (economic capital), social networks (social capital), and skills and experience (human capital). To influ-ence policies, a discourse coalition must mobilize such resources in order to create political capital, which can be defined as the resources an actor can use to realize outcomes that are in that actor’s perceived interest (Birner and Wittmer 2003). Strategies to create political capital may include electoral leverage, lobbying, public protest, use of convincing narratives in the publicdiscourse, and securing support from international actors. Actors can also usescientific evidence as a type of political capital in the policy process. In the framework displayed in Figure 3.1, the outcome of the policy process depends on the comparative ability of different coalitions to build political capital and use it in the political process. Political capital is also important in pursuing the implementation of reforms (see Thomas and Grindle 1990). The political frame conditions influence the formation of coalitions and their interaction. Important frame conditions include the characteristics of the political and administrative system, the party system, and the political culture (see Birner and Wittmer 2004).

Policy-Oriented LearningTo understand how policy change comes about, it is useful to study what Jenkins-Smith and Sabatier (1993) call “policy-oriented learning”—a gradual change in belief systems that is often a precondition for policy change. The use of research-based knowledge can play an important role in this regard.3 Drawing on the Advocacy Coalition Framework, Jenkins-Smith and Sabatier distinguish between policy-oriented learning within and across coalitions with different belief systems. For the purposes of this study, understanding policy-

CONCEPTUAL FRAMEWORK AND RESEARCH METHODS 25

3 As pointed out above, research-based knowledge or evidence can be seen as one type of politi-cal capital.

26 CHAPTER 3

oriented learning across proreform and antireform coalitions is of particular interest. To understand how research-based knowledge can influence policy, it is important to take the conditions and dynamics of policy-oriented learn-ing into account. A single study produced by the proponents of one particular paradigm will not usually convince proponents of a different paradigm, even if this study presents “only facts” in the view of those who conducted or commissioned it. As Jenkins-Smith and Sabatier point out, “ ‘knowledge’ does not suddenly appear, become universally accepted, and suggest unequivocal changes in government action programs” (1993, 47). Their research (Jenkins-Smith and Sabatier 1993, 45–55) has led to the following insights and hypoth-eses in this regard:1. Research is often stimulated by opportunities to realize core values or by

threats to the realization of core values.2. An important motivation for research is to alert people to the potential

effects of a given situation on their interests and values.3. Once political actors have developed a position on a particular policy

issue, they typically use research-based knowledge in an advocacy fashion, that is, to justify and elaborate that position.

4. Groups that disagree with a proposed policy solution because it affects their interests or beliefs and values can use a number of strategies to challenge studies that support it, including challenging the validity of the data concerning the seriousness of the problem; challenging the validity of the analysis, including the methods used; and challenging the efficacy of the technical, economic, and institutional arrangements proposed to solve the problem. An analytical debate between groups associated with different belief systems is important for promoting consensus on these questions.

5. The extent to which policy-oriented learning across groups with different belief systems can take place and the time required for such learning depend on the level of conflict, the analytical tractability of the problem, and the nature of the analytical forum. When the level of conflict is high, in situations where core beliefs and values are at stake, analysis is most likely to be employed as a political resource. Policy-oriented learning is a challenge in this situation. It is also made more difficult when the problem is analytically intractable, as when the subject of the analysis is complex; when causal relationships span several policy areas; and when the issue concerns conflicting policy objectives. In general, problems involv-ing natural systems are more conducive to policy-oriented learning than those involving purely social and economic systems. The term analytical forum refers to the locus or institution where discussions about research-

based knowledge take place. They include advisory committees, confer-ences, and journals of professional groups and temporary groupings such as “science courts.” Policy-oriented learning is more likely to take place in forums that are dominated by professional norms and that are prestigious enough to attract researchers belonging to different belief systems.

Empirical Research Methods

Questions AddressedBased on the conceptual framework developed earlier, the following questions guided the empirical research of this study:• What were their interests and beliefs?• Which actors formed discourse coalitions?• Which resources could different actors and coalitions mobilize to create

political capital?• How did the political interaction of different actors and coalitions influ-

ence policy outcomes?

The study posed the following questions regarding the role of different factors that influence political outcomes:• Interest groups. Was there a close congruence between the position of

specific interest groups and the content of the reform package either at the point of agenda setting (that is, drafting a policy reform package) or at the point of legislation or implementation?

• Bureaucracy. Were subsidy-reform proposals developed by one govern-ment department held up at the agenda-setting phase by other competing bureaucratic interests?

• Parliament. Where parliamentary approval was required, was government-proposed legislation for reform of the subsidy regime vetoed or blocked by parliamentary players?

• Party coalitions. Were proposals by the central government for fertilizer policy reform rejected either by state chief ministers (or their representa-tives) or by the political leadership of regional parties at the central level? What role did coalitions of political parties play in the reform of electricity supply to agriculture at the state level?

• Ideas. Which arguments did different groups of actors make to propose, criticize, and defend different reform proposals? Which core beliefs, policy beliefs, and factual and causal beliefs did they articulate?

• International pressure. Were international actors able to exercise political pressure in favor of reforms?

CONCEPTUAL FRAMEWORK AND RESEARCH METHODS 27

28 CHAPTER 3

InterviewsFor each of the two policy areas, three groups of actors were identified: poli-cymakers, interest groups, and knowledge providers and opinion makers (such as research organizations and the media). Figures 3.3 and 3.4 display the actors belonging to these groups for fertilizer policy and electricity policy. Tables 3.1 and 3.2 show the number of interviews held for each policy area. Representatives of each of the groups shown in Figures 3.3 and 3.4 were interviewed. The interviewees were selected according to the principles of completeness (covering the entire spectrum of actors identified) and dissimi-larity (selecting interviewees with diverse perspectives) (see Blee and Taylor 2002). The respondents were identified based on the literature review, Inter-net searches, key informant information, and the snowball system (asking interviewees to identify further interviewees). Interview guidelines were developed and then tailored to each respondent and used for semistructured interviews that covered the following topics:1. Respondent’s account of the political process and his or her experience

and perceptions regarding the nature of the process.2. Views and perceptions regarding key aspects of the topic: Fertilizer: Relation between various types of feedstock and urea produc-

tion, problems associated with pricing and distribution of urea, balanced use of nutrients, and links with other agricultural policies and food policy.

Electricity: Quality of electricity supply to agriculture, electricity pricing and subsidies, links between electricity and groundwater use, links between groundwater and surface irrigation, and links with other agricultural policies.

3. Assessment of different reform options: Fertilizer: Fertilizer production and pricing, nutrient balance. Electricity: Pricing of electricity for agriculture, metering, organizational

reforms in the electricity sector; groundwater conservation, energy con-servation, links between groundwater and surface-water irrigation.

4. Additional information, depending on area of expertise.

Detailed notes were taken during the interviews. Approximately half of the interviews on electricity policy were tape-recorded, with the consent of the respondents, and transcribed. A table was prepared that summarized and compared the information from all interviews. The transcribed inter-views were analyzed with the NVivo software, which allows for the coding of qualitative interview information.

Other Information SourcesVarious other information sources were used to assess political processes, document the interests and actions of actors, and validate information obtained

CONCEPTUAL FRAMEWORK AND RESEARCH METHODS 29

Table 3.1 Interviewed stakeholders and key respondents: Fertilizer policy

Number ofType Sector respondents

Employees of government agencies Fertilizers 6 Finance 4 Agriculture 1 Petroleum and natural gas 1 Others 1Interest-group representatives Fertilizers 7 Agriculture 4Party representatives and members 5 of state legislative assemblies Members of think tanks, academics, 7 journalists Total 36

Source: Authors.

Table 3.2 Interviewed stakeholders and key respondents: Electricity supply

AndhraType Sector Punjab Pradesh National International Total

Government Agriculture and water 2 2 2 — 6 agencies Electricity 1 3 1 — 5Interest groups Agriculture 5 2 3 — 10 Electricity 2 2 1 — 5 Environment 1 1 — 2Party representatives and MLAsa 5 7 3 — 15Donor agencies and IFIsb — 1 7 4 12NGOsc 1 1 — — 2Members of think tanks, academics, journalists 7 2 9 — 18Total 24 21 26 4 75

Source: Authors.aMembers of state legislative assemblies.bInternational financial institutions.cNongovernmental organizations.

30 CHAPTER 3

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32 CHAPTER 3

during interviews. These sources include academic literature, newspaper and journal articles, information published through the Internet, and govern-ment documents. In view of the role of Parliament in fertilizer policy, par-liamentary debates on budgets, subsidies, and farm inputs were reviewed.The government documents include several publications by the Ministry of Finance (MoF) and the Planning Commission, and the annual reports of the Department of Fertilizers (DoF), the Department of Agriculture and Coopera-tion (DoAC), and the Ministry of Petroleum and Natural Gas (MoPNG) for pri-mary and numerical data. Several other reports, such as those written by the Joint Parliamentary Committee (JPC) (1992), the High Powered Review Com-mittee (HPRC) (1998), and the Expenditure Reforms Commission (ERC) (2000), were examined to gain a better understanding of the issues involved in this reform process and of previous recommendations. On electricity policy, a range of official documents were also consulted. They included the tariff orders and other documents of the state ERCs in Andhra Pradesh and Punjab, and the reports of rating agencies in the power sector (ICRA and CRISIL 2005).

PART 2

The Political Economy of Fertilizer Supply to Agriculture

CHAPTER 4

Fertilizer Policy in India: An OverviewSURUPA GUPTA

The debate on fertilizer subsidy, as well as all other agricultural sub-sidies in India, should be examined against the backdrop of India’s overall economic situation, the prominence of farmers and the agri-

cultural sector in India’s political economy, and recent trends in the Indian agricultural economy. This chapter presents socioeconomic data on the Indian economy, particularly its farm sector, and discusses issues related to fertilizer production and use. Table 4.1 provides an overview of the growth rate, holding size, and indebtedness of the farm sector in India.

Agriculture against the Backdrop of the Indian EconomyWhile the Indian economy grew at an average rate of 5.5 percent during the Ninth Plan period (1997/98–2001/02) and 7.2 percent during the Tenth Plan period (2002/03–2006/07), the agricultural sector grew at an average rate of 2 percent and 1.7 percent during the same periods (Planning Commission 2007, 4). This compares to earlier growth rates of 3.64 percent during the period 1990/91–1996/97 and 3.12 percent during the period 1980/81–1989/90 (Chand, Raju, and Pandey 2007, 2529). The deceleration of agricultural growth rates, which is seen as the root cause of rural distress in different parts of the country, has affected farms of all sizes. Indian agriculture has been marked in recent years by low farm incomes, inadequate productivity growth, low prices of output, lack of affordable credit, and increased levels of uncertainty regarding prices and inputs (Planning Commission 2007, 4). At the same time, agriculture continues to support 115.5 million farm families (MoF 2007b, 161). Seen in a different light, roughly 60 percent of India’s labor force is employed by this sector, although its contribution to the GDP is only about 18.5 percent (MoF 2007b). Nearly 75 percent of those identified as poor live in rural areas (IFAD 2009). Equally important, Indian agriculture is dominated by peasant farming, in which the farmer grows pri-

35

36 CHAPTER 4

marily to meet household needs. Table 4.2, which shows the distribution of landholdings by size, demonstrates that more than 80 percent of the holdings fall into the small and marginal categories. In addition, the number of large holdings, above 10 hectares, has been decreasing, with simultaneous growth in the number of small and marginal farms. The deceleration in the farm sec-tor thus has far-reaching political and economic implications.

Fertilizer Use by Indian FarmsDomestic fertilizer production increased from 4.09 million metric tons in 1981/82 to 14.43 million metric tons in 2002/03. Corresponding figures for fertilizer consumption were 6.06 million tons and 16.09 million tons respec-tively (Venugopal 2004, 172). Rice and wheat production increased from 53.63 million tons and 36.31 million tons in 1980/81 to 72.65 million tons and 65.10 million tons in 2002/03 (Venugopal 2004, 43, 46). As indicated in the introduction, between 50 and 60 percent of the increase in foodgrain production in India since the 1960s has been due to increased use of inputs, including fertilizers (Venugopal 2004, 59–60). However, the use of fertilizers to increase productivity has by no means reached its full potential in India. The variation in fertilizer use across states suggests that some states still have a lot of catching up to do. Moreover, India’s average fertilizer use is much lower than that of its neighbors. At the same time, overuse of nitrog-enous fertilizers in some parts of the country is viewed with concern. Fertil-izer subsidies in India have been directed toward nitrogenous (N), phosphatic (P), and potassic (K) fertilizers. The recommended ratio according to which

Table 4.1 Growth rate, holding size, and indebtedness of the Indian farm sector

Characteristic Measure

Total population (million), 2000/01 1,028.61Population below poverty line (percent), 1999/2000 26.1Gross domestic product (GDP) at constant prices (Rs million), 2004/05 23,936,710Share of agricultural sector in GDP (percent), 2006/07 18.5Total debt/GDP (percent), 2005 15.3Growth rate of GDP (percent) (2002–07) 7.2Growth rate of agricultural sector (percent) (2002–07) 1.7Gender ratio (women per 1,000 men) 933Unemployment rate (percent) (September 2005) 9.1Average size of landholding (ha) 1.39Indebtedness of farmers (percent) 48.6Indebtedness of farmers, amount (Rs) 12,585

Sources: MoF (2007b).

nitrogen, phosphate, and potash should be used in Indian soil conditions is 4:2:1, though this ratio varies across regions within India. Because of the pric-ing policies on fertilizer inputs, however, in some years the ratio has dete-riorated to approximately 10:3:1 (though again, this varies across regions) (Planning Commission 2007, 9). Table 4.3 shows the variation in use of fertilizers by farm size. Table 4.4 compares fertilizer use in India to that of other countries. Table 4.5 shows the variation in fertilizer use across states. Whereas agricultural states such as Andhra Pradesh, Punjab, Haryana, and Uttar Pradesh show uses far above the average, others have significant room for increasing consumption. Another concern for the government is that although the total consump-tion of fertilizers has increased, the average consumption of fertilizers per hectare of arable land in India (approximately 99.7 kg/ha, slightly lower than the global average) is much lower than that of neighboring countries. This figure is particularly important in view of the Indian farm sector’s low productivity, which is less than 50 percent of that of neighboring countries such as China (Planning Commission 2007). Given the variation in fertilizer use across Indian states, policymakers argue that increasing the intensity of use in states other than Punjab, Haryana, and Uttar Pradesh offers an oppor-tunity to increase the overall productivity of Indian agriculture. Reform of

FERTILIZER POLICY IN INDIA: AN OVERVIEW 37

Table 4.2 Number and total area of Indian farm landholdings by size, 2003–04

Size of landholding 1970/71 1995/96 1970/71 1995/96 1970/71 1995/96

Marginal (<1 ha) 35.7 71.2 14.5 28.1 0.41 0.40(percent of total) (50.6) (61.6) (9.0) (17.2)

Small (1–2 ha) 13.4 21.6 19.3 30.7 1.44 1.42(percent of total) (19.1) (18.7) (11.9) (18.8)

Medium (2–4 ha) 10.7 14.3 30.0 39.0 2.81 2.73(percent of total) (15.2) (12.3) (18.5) (23.8)

Large (4–10 ha) 7.9 7.1 48.2 41.4 6.08 5.84(percent of total) (11.3) (6.1) (29.8) (25.3)

Very large (>10 ha) 2.8 1.4 50.1 24.2 18.10 17.21(percent of total) (3.9) (1.2) (30.9) (14.8)

Total 70.5 115.6 162.1 163.4 2.30 1.41

Source: FAO (2005).Note: Percentages do not add up to 100 percent. The missing percentages were not included

in the original source.

Number (millions)Total area (million ha) Average size (ha)

38 CHAPTER 4

policy on fertilizers and the effort to rationalize or reduce fertilizer subsi-dies must be examined against this imperative. Table 4.6 shows the variation in the consumption of the different types of fertilizers by nutrients during 1998–2006.

Magnitude and Distribution of Fertilizer Subsidies to AgricultureThe GoI’s expenditure on subsidies and concessions to fertilizer producers has increased steadily over the past three decades (Table 4.7). The sub-sidy on fertilizers increased from Rs 3.81 billion in 1980/81 to Rs 110.15 bil-lion in 2002/03 (MoF 2004a, 3). Table 4.7 includes the amounts expended on the different nutrients during the period 1995–96 through 2007–08 (budget estimate). The subsidy on fertilizers in the federal budget has been exceeded only by the subsidy on food. The subsidy on urea in dropped in 2001/02 and 2002/03,

Table 4.3 Use of fertilizers by size of landholdings, 2000–01

Area Gross treated cropped with area fertilizers (thousand (thousandFarm size (ha) ha) ha) Nitrogen Phosphorus Potassium Total

Marginal (<1 ha) 29,081 18,632 1,885,435 804,736 329,865 3,020,036Small (1–2 ha) 29,168 18,281 1,455,338 693,675 260,179 2,409,192Medium (2–4 ha) 35,974 21,870 682,515 797,976 228,691 1,709,183Large (4–10 ha) 38,454 22,086 690,978 779,747 149,193 1,619,918Large (>10 ha) 20,298 9,139 692,622 313,414 32,179 1,038,215All groups 152,976 90,008 7,406,888 3,389,548 1,000,107 11,796,543

Source: MoA (2008).

Total consumption of nutrients (tons)

Table 4.4 Consumption of fertilizers by India and neighboring countries

Average fertilizer consumptionCountry per hectare of arable land (kg)

Bangladesh 177China 276India 100Pakistan 138Sri Lanka 310

Source: Planning Commission (2007).

FERTILIZER POLICY IN INDIA: AN OVERVIEW 39

Table 4.5 Fertilizer consumption by state, 2004/05 and 2003/04

Nitrogen, phosphorus, and potassium fertilizer consumption (kilograms)

State or territory 2004/05 2003/04

Andhra Pradesh 203.61 158.57Karnataka 117.34 99.51Kerala 57.00 56.74Tamil Nadu 183.67 159.07Pondicherry 1100.26 1086.30Gujarat 111.07 99.49Madhya Pradesh 47.13 53.42Chhattisgarh 67.36 65.19Maharashtra 84.52 74.68Rajasthan 36.29 31.33Goa 32.66 34.08Haryana 166.72 155.10Himachal Pradesh 48.75 47.00Jammu and Kashmir 81.31 66.30Punjab 210.06 194.56Uttar Pradesh 140.37 134.13Uttaranchal 94.24 88.93Bihar 152.32 99.78Jharkhand 67.61 62.10Orissa 57.33 51.59West Bengal 127.50 129.73Assam 49.26 41.25Tripura 39.21 34.74Manipur 59.84 85.57Meghalaya 17.98 18.05Mizoram 25.45 5.85Sikkim 2.83 5.01All-India 104.50 94.52

Source: MoF (2007b).Note: Based on 2004/05 provisional gross cropped area.

primarily because of a decrease in consumption. Since 2004/05, the total central government expenditure on fertilizer subsidy has again been on the rise and was estimated to be Rs 305 billion in 2007/08 (MoF 2008). The rising subsidy bill contributes to India’s fiscal deficit, which has remained at 4–6 percent of GDP throughout this decade.1 The fiscal burden associated with the subsidies continues to be a source of concern for policymakers.

1 Information derived from the annual budgets presented by different finance ministers during this decade.

40 CHAPTER 4

Table 4.6 Consumption of nitrogen, phosphorus, and potassium (million metric tons)

Year Urea DAP MOP Nitrogen Phosphorus Potassium N+P+K kg/ha

1998–99 20.39 5.82 1.62 11.35 4.11 1.33 16.79 87.021999–00 20.27 6.93 2.04 11.59 4.79 1.67 18.06 94.942000–01 19.18 5.88 1.82 10.92 4.21 1.56 16.70 89.632001–02 19.91 6.18 1.99 11.31 4.38 1.66 17.36 91.132002–03 18.49 5.47 1.91 10.47 4.01 1.60 16.09 91.452003–04 19.76 5.62 1.84 11.07 4.12 1.59 16.79 88.052004–05 20.66 6.25 2.40 11.71 4.62 2.06 18.39 94.522005–06 22.29 6.76 2.73 12.72 5.20 2.41 20.34 104.50

Source: DoAC (2007).Notes: DAP, diammonium phosphate; MOP, muriate of potash; N+P+K, nitrogen, phosphorus,

and potassium.

Table 4.7 Amount of subsidy and concessions disbursed on nitrogen, phosphorus, and potassium (Rs millions)

Amount of concession Total disbursed on Total Indigenous Imported subsidy phosphorus subsidy on Period urea urea on urea and potassium fertilizers

1995–96 43,000 19,350 62,350 5,000 67,3501996–97 47,430 11,630 59,060 16,717 75,7781997–98 66,000 7,219 73,219 25,960 99,1791998–99 74,730 1,242 75,972 37,899 113,8711999–2000 86,700 740 87,440 45,000 132,4402000–01 94,800 9 94,809 43,190 137,9992001–02 82,570 473 83,043 45,035 128,0782002–03 77,900 0 77,900 32,245 110,1452003–04 85,210 0 85,210 33,260 118,4702004–05 102,431 4,939 107,370 51,421 158,7922005–06 104,601 14,180 118,782 65,962 184,7442006–07 (BE) 104,103 10,935 115,039 57,490 172,5292006–07 (RE) 114,003 27,035 141,039 83,481 224,5202007–08 (BE) 114,003 27,035 141,039 83,471 224,510

Source: DoF (2007).Notes: BE, budget estimate (this indicates the estimated expenditure anticipated in that year’s budget); RE, revised estimate (this indicates the revised figures at the end of the year).

Fertilizer Sector: Reform and PerformanceTo understand the debate on fertilizer subsidy, it is necessary to examine both the demand and the supply side of the fertilizer sector. From humble beginnings in 1906, the Indian fertilizer industry has come to supply a sub-stantial portion of the fertilizers used domestically. The Green Revolution in the late 1960s gave impetus to the growth of the fertilizer industry; a new policy framework and increased government assistance in the 1970s pushed its development forward; and 1980s and 90s continued to witness significant increases in production. The installed capacity has now reached a level of 12.06 million metric tons of nitrogen and 5.65 million metric tons of phosphate nutrients, making India the third largest fertilizer producer in the world (DoF 2007, 3). Table 4.8 shows fertilizer production in the public, cooperative, and private sectors in India. The actual production by these sectors varies every year, as illustrated by Table 4.9. All potassic fertilizers are imported. Although some nitrogenous and phosphatic fertilizers are also imported in most years, a substantial quan-tity of these is domestically produced. The New Pricing Scheme (NPS), announced in 2003, defines the policy on production and distribution of urea in India. The NPS was designed to be implemented in three stages. During the first and second phases, the existing urea units were divided into six groups according to vintage and feedstock, and group-based concessions were announced accordingly. During phase 1, between 50 and 75 percent of the urea was to be distributed under the terms of the Essential Commodities Act of 1955. During phase 2, urea distribution was to be completely decontrolled on the basis of phase 1 evaluation and Ministry of Agriculture (MoA) recommendations. Such decontrol never took place. Phase 3 was to be determined by the recommendations of a committee on the basis of its evaluation of the first two phases. The Alagh Committee, which was appointed in 2004 and submitted its report in 2005, recommended promoting further investment in the urea sector while keeping the groupwise

FERTILIZER POLICY IN INDIA: AN OVERVIEW 41

Table 4.8 Fertilizer manufacturing capacity, by sector, 2007

Capacity (million metric tons) Percentage share

Sector Nitrogen Phosphorus Nitrogen Phosphorus

Public 3.498 0.433 29.0 7.65Cooperative 3.169 1.713 26.27 30.27Private 5.394 3.513 44.73 62.08Total 12.061 5.659 100.00 100.00

Source: DoF (2007).

42 CHAPTER 4

pricing scheme in place until the end of the decade and encouraging fertil-izer producers to convert from naphtha and other feedstock to natural gas, which allows the most efficient production of urea. Further, the committee recommended establishing joint-venture projects for producing urea abroad and improving distribution to remote areas.

SummaryIndian agriculture has suffered adversity during the past decade despite high overall growth rates experienced by other sectors in the Indian economy. Increasing growth rates in the farm sector would require, among other things, a more equitable use of fertilizers. Thus far, the trends in fertilizer use have been uneven across states and across farms of different sizes. Reform options for fertilizer policy should take into account these realities as well as India’s continued need for food security. The reform process itself has made very modest progress. The next chapter examines past reform efforts to identify aspects of political economy that have shaped the reform process.

Table 4.9 Annual consumption, production, and imports of fertilizers (million metric tons)

Consumption Production Imports

Year N P K Total N P K Total N P K Total

2001/02 11.31 4.38 1.66 17.35 10.76 3.86 0.00 14.62 0.26 0.42 1.70 2.392002/03 10.47 4.01 1.60 16.09 10.56 3.91 0.00 14.47 0.06 0.17 1.43 1.672003/04 11.07 4.12 1.59 16.79 10.63 3.63 0.00 14.26 0.13 0.33 1.54 2.012004/05 11.71 4.62 2.06 18.39 11.33 4.06 0.00 15.40 0.40 0.29 2.04 2.752005/06 12.72 5.20 .241 20.34 11.35 4.22 0.00 15.57 1.38 1.12 1.74 5.25

Source: MoCF (2007).Notes: N, nitrogen; P, phosphorus; K, potassium.

CHAPTER 5

Fertilizer Policy in India: Evolution and Reform InitiativesSURUPA GUPTA

This chapter describes the political processes related to reforming the policy framework for fertilizer production as well as those related to determining the farmgate price of urea.

Indian Fertilizer Policy: Evolution and Reform InitiativesThe current policy regime can best be understood by focusing on three dis-tinct phases of its evolution:1. the period 1977–91, during which fertilizer subsidies were instituted as one

of the tools for achieving food security;2. the period 1991–2003, during which efforts were made to reduce and

rationalize the fertilizer subsidies as part of an economic reform agenda; and

3. the period since 2003, during which the government has been trying to make the fertilizer sector more efficient and to keep the subsidy to the farmers in place, in view of the need to increase the agricultural productivity.

As part of the strategy for a Green Revolution, the GoI decided to encour-age domestic production of fertilizers and increased consumption by farmers. This led the government to introduce the Retention Price Scheme (RPS) in 1977. The RPS guaranteed fertilizer producers a 12 percent return on their investment. The government also kept the farmgate price of fertilizers mostly unchanged for a decade to encourage consumption. In the next phase, fertilizer subsidies became a focus of reform efforts, and attempts to reduce them were part of the landmark 1991 package that initiated the process of economic liberalization in India. While the policy on phosphatic and potassic fertilizer production was liberalized in 1992, reform of the pricing of urea, a nitrogenous fertilizer, faced stiffer resistance. Between 1991 and 2003, sev-

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eral attempts were made to increase the farmgate price of urea as well as to reform the policy governing its production and distribution. Despite somesetbacks, the farmgate price was increased on six occasions, rising from Rs 2,350 per metric ton in 1990/91 to Rs 4,830/ton in 2002. It remained unchanged between 2002 and 2009. In February 2010, the cabinet approved another increase in the price of urea by 10 percent from Rs 4,830/ton to Rs 5,310/ton (Telegraph 2010). After long and tortuous deliberations, the RPS, which provided the policy framework for urea production and distribution, was replaced by the NPS in 2003. However, this three-stage reform process brought only modest changes to the policy framework. In February 2010, the government announced a nutrient-based fertilizer policy in order to address the nutrient imbalance that was evident in Indian agriculture. The government hopes that the nutri-ent-based scheme will bring down the expenditure on subsidy. It continuesto push for greater efficiency in fertilizer production. At the same time, it iscommitted to retaining the subsidy on fertilizers, in some form, for the fore-seeable future.

Emergence and Establishment of Fertilizer Subsidies, Late 1977 to 1991Fertilizer pricing has been largely determined by the government since Inde-pendence. The Fertilizer Control Order, formulated to allow the government to fix selling prices, went into effect in 1957. A Central Fertilizer Pool was created to deal with different domestic and international prices. Fertilizer price was determined on the basis of the pooled cost of obtaining fertilizer from imports and from domestic producers; the pool operated on a no-profit, no-loss basis, thus placing no burden on the central budget. During this period, domestic production and consumption of fertilizers were low. This scenario changed during the 1970s on account of the oil shocks and the new policy relating to fertilizers. In 1977, as a part of its Green Revolution strategy, the GoI established a policy to encourage the production and distribution of fertilizers in India and to facilitate their use. The Retention Price Scheme (RPS), as the policy was called, set an ex-factory price for fertilizer (called the retention price) that was specific to each unit, depending on the capacity utilization and raw-materials consumption of each and without any regard for common standards of efficiency. The pricing mechanism allowed for an after-tax return of 12 percent on the net worth of the unit. The farmer bought fertilizers at a gov-ernment-controlled price known as the issue price.1 The difference between

1 The issue price is the price at which urea is sold. This is also known as the farmgate price or the maximum retail price (MRP) and is fixed by the government.

the retention price and the issue price was paid to the unit by the GoI. In addi-tion, the government reimbursed the producer for the cost of transporting the material from the production facility to the farm gate. The RPS was introduced for nitrogenous fertilizers in 1977 and was later extended to complex fertilizers in 1979 and to single superphosphate in 1982. In addition to encouraging fertilizer production, the government sought to encourage fertilizer use to increase foodgrain production and so decided to continue with the existing controlled-price regime. However, to keep the subsidy low, the government initially increased the price of urea to reflect the cost of production more closely. Thus urea prices rose by almost 38 percent from 1979/80 to 1980/81 and then by 17.5 percent in 1981/82. The rise in urea prices was kept in check throughout the rest of the 1980s both because the government wanted to further increase consumption and because of the rise of strong farmers’ movements. These movements emerged indepen-dently in different parts of the country under different leaderships and have been studied elsewhere (Brass 1995; Assadi 1997; Varshney 1998). As a result of both increased consumption and low retail prices, the subsidy on fertilizers increased from Rs 5.05 billion in 1981/82 to Rs 43.89 billion in 1990/91 (MoF 1992, 105) and became a focal point in the discussion on India’s fiscal deficit and economic reforms since 1991.

Rationale for ReformAs discussed in “Fertilizer Use by Indian Farms” in Chapter 4, the RPS was largely successful in achieving the objectives of increasing domestic fertil-izer production, fertilizer consumption by farmers, and foodgrain produc-tion. However, the subsidy created distortions in the economy, chiefly fiscal and environmental. These distortions prompted a reexamination of the need for and the format of the subsidy. Below we discuss the primary considerations that prompted such a reexamination.

Reducing the Fiscal Burden and Improving TargetingAs noted in Chapter 4, the subsidy on fertilizers has been on an upward trend since the Retention Price mechanism was introduced. The subsidy has continued to increase and reached Rs 305 billion in 2007–08 (MoF 2008). That year the government spent 1.3 percent of its GDP on what it calls major subsidies—the subsidies of food, fertilizers, and petroleum. In 2008–09 that number increased to 1.4 percent. (Author’s calculation, MoF 2008, 2009). Fiscal stress is one of the main reasons officials give for their attempts to reduce the subsidy on fertilizers.2 This concern has to be weighed against

FERTILIZER POLICY: EVOLUTION AND REFORM 45

2 Interviews with officials in the MoF, New Delhi, June and July 2005, August 2006, and July 2007.

46 CHAPTER 5

the likelihood of a 13.5 million ton drop in foodgrain production if fertilizer prices were to increase to import parity level (MoF 2004a). Concerns about the low productivity of Indian agriculture, also discussed in Chapter 4, need to be taken into account when discussing fiscal concerns. The government needs to balance fiscal concerns against the need for food security and the need to increase agricultural productivity. A second fiscal consideration has to do with the distribution of the fertil-izer subsidy. As noted earlier, calculations suggest that over the long term, 62 percent of the subsidy on fertilizers has gone to farmers, and the remaining 38 percent has gone to fertilizer manufacturers (Gulati and Narayanan 2003). In the context of fiscal stress, it is difficult to justify the latter. Although R. Singh (2004) finds evidence of interclass equity in the distribution of fertil-izer subsidies, a more recent and disaggregated study tells a more complex story. It finds that the fertilizer subsidy is distributed less than equitably among different classes of farmers in Punjab, whereas in Andhra Pradesh, the fertilizer subsidy acts as an equalizing factor (Vashishtha 2006). In general, a case can be made against the need to subsidize owners of medium-sized and large farms. However, those arguments must be balanced against concerns about increases in price of food and the interests of poor consumers.

Increasing Public Investment in AgricultureIn 2000/01, the anticipated growth rate in agriculture and allied sectors was 0.9 percent. There was concern about the falling share of public investment in agriculture. This decline was attributed to the increased levels of food, irriga-tion, fertilizer, and other subsidies that were eating up a large proportion of public expenditure (MoF 2000a). It has been suggested that reversing this trend, that is, increasing public investment and decreasing spending on subsidies, will lead to higher growth rates (Gulati 2006). Such public investment could go toward providing better seeds and irrigation facilities, which are necessary for remedying regional inequities in agricultural production (R. Singh 2004).

Balancing the Use of Nutrients and Mitigating Environmental ProblemsThe existing subsidy regime has contributed to an unbalanced use of nutri-ents, with possible negative consequences for soil health and productivity. The primary threat is that of nutrient mining: crops draw nutrients from the soil far in excess of those applied in the form of fertilizers. Indian soils are losing not only nitrogen, phosphorus, and potassium but also crucial micro-nutrients such as sulfur, zinc, iron, and boron. While the ratio of N, P, and K fertilizer use was never close to ideal in India, it has faced substantial dis-tortion during the past decade and a half. In 1991/92, immediately prior to

the decontrol of phosphatic and potassic fertilizers, that ratio was 5.9:2.4:1. After decontrol, the ratio deteriorated to 9.5:3.2:1 in 1992/93 (Venugopal 2004, 105). That ratio improved to 6.9:2.6:1 in 2003/04 (DoAC 2005, 48). Improving this ratio further and correcting the bias in favor of nitrogen remains one of the key objectives of policy reform.3 Increasing the price of urea to better reflect its production cost is seen as one way of bringing about a more balanced use of nutrients. Moreover, the recommended 4:2:1 ratio of nutrients is normative and fairly arbitrary: more extensive and specific soil testing is needed to determine the nutrient requirements for specific areas. Unbalanced use of fertilizers may be one of the factors responsible for the low productivity of Indian agriculture. According to the Indian Agricultural Statistics Research Institute (IASRI), the marginal productivity of soils in India, as measured by the overall crop response rate for fertilizer (kilograms of grain per kilograms of N, P, and K fertilizers applied), has steadily declined, from 7.5:1 in 1992/97 to 7.0:1 in 1997/99 and 6.5:1 in 1999/2000 (Planning Commission 2007, 149). More specific soil testing promises to generate more accurate prescriptions for fertilizer use and thereby correct imbalances and improve the response rate. The existing subsidy framework does not encourage the production and use of micronutrients, customized fertilizers, or more efficient forms of existing fertilizers. To increase productivity, the need to subsidize urea should be balanced with other concerns, such as the need to subsidize the use of micro-nutrients, better soil testing, and other technological improvements, and educating farmers about appropriate fertilizer products, dosage, and time and method of application. The existing subsidy framework can also be associated with other nega-tive environmental effects of high levels of nitrogen fertilizers, such as runoff and eutrophication (Painuly and Dev 1998). The carbon footprint of increased fertilizer use must also be considered. These problems have, so far, received less attention in the academic and the policy debate India than the nutrient imbalance problem.

Reducing Regional Disparities in Fertilizer UseIndian states vary considerably in the use of fertilizers. The intensity of fer-tilizer application in Punjab is more than double the Indian average of 94.52 kg/ha (MoF 2007b: 176). Farmers in northern India in general and in Punjab in particular use nitrogen more intensively than do farmers in southern Indian states, for example in Andhra Pradesh and Tamil Nadu. In Punjab, this leads

FERTILIZER POLICY: EVOLUTION AND REFORM 47

3 Interview with Ministry of Finance officer, New Delhi, July 26, 2007.

48 CHAPTER 5

to more waste of nitrogenous fertilizers and more groundwater pollution, and it ultimately lowers the crop response rate. In Andhra Pradesh, where there is deficiency in all soil nutrients and a higher crop response rate, yields might be increased with the aid of adequate infrastructure and a suitable policy environment that is able to balance the productivity concerns as well as the environmental and fiscal concerns. Such a policy environment would reduce fertilizer use in Punjab and increase it in those parts of Andhra Pradesh where the production can increase as a result of additional application of fertil-izer. Further, both Punjab and Andhra Pradesh have a lower crop response rate than the rest of India. Together, these data suggest that a combination of suitable policy, infrastructure, and technology can work toward a more consistent application of fertilizer across India (Vashishtha 2006). Moreover, intensive soil testing could lead to more judicious application of fertilizers and subsequent savings on fertilizer subsidy.

Improving Efficiency in the Allocation of Natural GasThe government aims to achieve its policy goal of fertilizer subsidy reduction without resorting to distortions in the allocation of resources in other mar-kets, most notably in the natural gas market. In the past, the government-owned hydrocarbon firms supplied domestically extracted natural gas to the fertilizer industry at a government-determined price, called the administered price. As the domestic supply of natural gas declined in the late 1990s and the government’s policy on hydrocarbon pricing was liberalized, the amount of gas available at the administered price to the fertilizer industry declined. Although new reserves of gas have been discovered since then, in keeping with the goals of liberalizaton, the government’s policy has been to make most of the newly found gas available at market prices. However, the govern-ment has also made a commitment to supply subsidized gas to the fertilizer industry by maintaining a part of the new gas supply under its administered-price mechanism.

Efforts to Reduce the Fertilizer Subsidy, 1991–2003Since 1991, the government has made several attempts to rationalize or reduce the fertilizer subsidy to address fiscal, distributional, and environmental con-cerns. This section discusses the government’s efforts to change that frame-work to bring about greater efficiency in the production of fertilizers, to reduce expenditure on the fertilizer subsidy, to bring about regional and nutritional balance in the use of fertilizers, and to better target the fertil-izer subsidy. Because the fertilizer subsidy to farmers is channeled through the fertil-izer firms, economists argue that both farmers and the industry receive a

portion of it (Gulati and Narayanan 2003). The government therefore has two options for rationaling fertilizer subsidies. One approach would be to increase the farmgate price—the price at which the farmer purchases the fertilizer—allowing the government to reduce the total amount spent on fertilizer sub-sidy. However, this move would be politically costly in a country where 80 percent of the farms are categorized as small or marginal (under 2 hectares). Although prices have increased over the past fifteen years, the increases do not reflect increases in the cost of production. An alternative pricing policy that might have less problematic distributional consequences would provide a fixed amount of subsidized fertilizer to all farmers and charge market prices for amounts over that quota. This scheme would effectively reduce the sub-sidy to the owners of large and medium-sized farms, who need to buy more (ERC 2000). A second way of reducing the government’s total expenditure on fertilizer subsidy would be to force higher efficiency standards on the domestic fertil-izer industry and change the policy governing the pricing and distribution of fertilizer (HPRC 1998; ERC 2000). This approach would require the govern-ment to transfer money directly to farmers and completely decontrol the fer-tilizer industry. Such restructuring would more fully address the distributional concerns raised by scholars and policymakers. Although the government has attempted to both increase the farmgate price and change the policy frame-work for fertilizer production and distribution, the resultant impact on the subsidy bill has not been significant. In the next two sections, we investigate the government’s attempts at altering the pricing mechanism and making the fertilizer industry more efficient.

Increases in the Farmgate Price of UreaAs mentioned earlier, the farmgate price of fertilizers, which is determined by the MoF, remained unchanged between July 1981 and July 1991. In August 1991, faced with a balance-of-payments crisis and a need to borrow from the IMF, the government announced an increase of 30 percent in the issue price of urea, raising it to Rs 3,060/ton. The selling price of urea was subsequently reduced in August 1992 by 10 percent, to Rs 2,760/ton, but increased again in June 1994 by 20 percent, to Rs 3,320/ton; by 10 percent in February 1997, to Rs 3,660/ton; by 10 percent in January 1999, to Rs 4,000/ton; by 15 per-cent in February 2000, to Rs 4,600/ton; by 5 percent in February 2002, to Rs 4,830/ton; and, finally, by 10 percent in February 2010, to Rs 5,310/ton. In addition to these increases, the government also attempted to increase the price of urea through the budgetary process in 1998 and again in 2003 but was unsuccessful. The budget presented in February 2003 announced an increase in the price of urea by a mere Rs 240/ton, which works out to a

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nominal increase of Rs 12 per bag of fertilizer. Even so, the government was forced to roll back the increase in response to opposition within and outside the party. Between 1977/78 and 2006/07, the weighted average cost of production of urea increased from Rs 1,340/ton to Rs 9,444/ton. However, during the same time, the MRP of urea increased from Rs 1,550/ton in 1977–78 to Rs 4,830/ton. Thus, while the production costs increased more than sevenfold, the MRP increased only threefold (Planning Commission 2007). This disparity has contributed to the continuous increase in the total expenditure on fertilizer subsidies. The increase is also attributed to “increasing production/consump-tion and increases in the costs of inputs of indigenous fertilizers and prices of imported fertilizers from time to time” (MoCF 2005a, 22). The increasing subsidies are further blamed on “cost of various inputs/utilities, such as coal, gas, naphtha, rock phosphate, sulfur, ammonia, phosphoric acid, electricity, etc.” (MoCF 2005a, 22). The farmgate price has been increased by governments of all party affilia-tions: by a government led by the Congress Party in 1991, 1994, and 2010; by the left-leaning coalition, the United Front (UF), in 1997; and by the National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), in 1999, 2000, 2002, and 2003. As discussed earlier, one way to reduce the subsidy is by increasing the farmgate price of fertilizer. In order to protect small and marginal farmers from price increases, this would have to be implemented in conjunction with a targeting mechanism.

Reforming the Retention Pricing SystemA second way of rationalizing the fertilizer subsidy involves increasing the efficiency of the domestic fertilizer industry, perhaps through decontrol that would lower costs. Throughout the 1980s, several government committees recommended that the RPS for all fertilizers be dismantled. Among these were the High PoweredCommittee of Secretaries on RPS (1986) and the BICP Report on NormativeRetention Price of Fertilizers (1992). However, this pricing framework remained unchanged until the 1990s.

Decontrol of P and K FertilizersIn 1991, faced with the balance-of-payments crisis, the newly elected Con-gress Party government under Narasimha Rao decided to re-evaluate its policy on fertilizers. Under the terms of India’s loan from the IMF, the govern-ment was required to reduce the fiscal deficit. The subsidy on fertilizers was

one of the areas that the government targeted for achieving this reduction. That year, the government decontrolled the production of low-analysis fertil-izers such as ammonium chloride, ammonium sulfate, and calcium ammonium nitrate and announced an increase in the price of urea. The price hike set off huge protests in Parliament and elsewhere. Eventually, the government had to scale back the increase from 40 percent to 30 percent. To protect small and marginal farmers from the impact of the price hike, the government pro-vided them with a subsidy that was equivalent to the difference between the 1990/91 price and the new, higher price. This targeted subsidy was imple-mented by channeling it through state governments (DoAC 1992). In addition, the government set up a Joint Parliamentary Committee (JPC) to review the existing method of computing retention prices for dif-ferent manufacturers of fertilizers and to suggest measures for reducing fertilizer prices. In 1992, following the recommendation of the JPC on fertil-izer pricing, the government decontrolled the production and importation of phosphate and potassium-based fertilizers and extended a flat-rate ad hoc concession of Rs 1,000/ton on these fertilizers—both domestically produced and imported. In 1994, the concession on imported diammonium phosphate (DAP) was withdrawn in order to encourage domestic production. In April 1997, the concession on domestically produced DAP was increased to Rs 3,750/ton, while that on imported DAP was increased to Rs 2,250/ton. The JPC, however, recommended that the subsidy framework for urea should be retained without any changes.

Dismantling the RPSAs a consequence of the JPC report, during the Congress administration (1991–96), the RPS on urea was left alone. During the UF administration that followed, however, a discussion paper prepared by the GoI in May 1997 pre-sented a critique of the subsidy regime in India and called it “unduly large, non-transparent, largely input-based and poorly targeted, generally regres-sive, and including waste and misallocation of resources” (Srivastava et al. 2003, 1). In addition, in January 1997, the government convened the High Powered Fertilizer Pricing Policy Review Committee in order to “review the existing system of subsidization of urea and suggest a rational, broad based, scientific and transparent methodology” (MoCF 1997). However, soon after the committee submitted its report, the UF government was replaced by a BJP-led NDA government in 1998. During its first term, the NDA government achieved little in the way of subsidy reform, though it attempted to raise the MSP on urea twice. Although its 1998 effort was unsuccessful and it had to roll back the proposed hike

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after the budget was called “anti-farmer,” it was able to increase the price in 1999 by announcing the price hike almost a month before the budget was presented. Until the 2004 elections, economic reforms did not play a major role in national electoral politics. In general, public awareness about economic reforms was very low, particularly among the poorer population, including but not limited to agricultural laborers and people belonging to lower castes (Kumar 2004). Economic policies, including those affecting agriculture and allied sec-tors, were major issues in the 1998 and 1999 elections, both of which were won by BJP-led coalitions. However, those who disapproved of economic reforms tended to vote for the BJP in these elections, while those whoapproved tended to vote for the Congress Party. This trend occurred despite the fact that the BJP had committed itself to economic reforms in its mani-festo for the 1999 elections (albeit with nationalist overtones). The manifesto made no specific commitments on farm subsidies besides promising to con-tinue them and to “maximize benefits to all sections of agricultural popu-lation” (National Democratic Alliance 1999). Moreover, when the BJP was returned to power in the 1999 elections, the government made “second-generation reforms” the centerpiece of the administration. It announced its intention to decontrol and deregulate the fertilizer industry in a phased manner. The BJP national executive, the group of leaders who set national policy for the party, favored paying the fertilizer subsidy directly to the farmers. As an alternative, it suggested that the subsidy be abolished and the minimum support price increased in proportion to the increased cost of fertilizers (Bharatiya Janata Party 2001; Business Line 2002). The government was willing to consider complete decontrol of the fertilizer sector. Although the eventual policy proposals did not recommended complete decontrol, the ensuing discussions led to at least a partial reform of the policy framework governing the production and supply of urea. In part, the willingness to review the subsidy issue can be attributed to the leaders of the MoCF: by all accounts, the minister, Suresh Prabhu, and the secretary, A. V. Gokak, were both committed to reform and decontrol. Partly as a result of his technocratic style and partly in response to impending removal of quantitative restrictions in conformity with a World Trade Organi-zation (WTO) mandate, Prabhu pushed the idea of decontrol of the fertilizer industry. Speaking at a meeting of the Fertiliser Association of India (FAI) in August 2000, he said that although the government was willing to help estab-lished fertilizer units to modernize or relocate to the coast in order to switch to natural gas, it could not, as the industry demanded, make special provisions for the problems “of all castes and sub-castes in the industry.” He was refer-ring to the industry’s demands for differentiated support to “pre-1990 and

post-1990 units” and “units established before the Retention Price Scheme (RPS) and post-RPS units” (Hindu 2000b).4 He emphasized that all segments of the industry would have to improve their efficiency and competitiveness. At the same meeting, Secretary Gokak rejected “assumptions” that dismantling the RPS and the existing subsidy mechanism would affect farmers and poverty-alleviation programs. At another meeting, Prabhu said that the issue of fertilizer subsidies had to be addressed because of their contribution to the country’s fiscal deficit and consequent effect on the overall growth of theeconomy (Economic Times 2000). Prabhu was successful in dealing with the prac-tice of “gold-plating,” or hiding higher production capacities, in the fertil-izer industry and thus in preventing fertilizer producers from drawing excess subsidy from the government (Hindu 2000a). The urgency for reform was prompted by the uncertainty associated with the impending removal of quantitative restrictions (QRs) on imports. Because India had lost its appeal at the WTO to postpone their removal, the government sought to negotiate appropriate tariffs for different fertilizers. A committee headed by Y. K. Alagh was set up to look at the potential impact of QR removal on the Indian urea industry (Business Line 2000b). In the end, although the QR on urea was lifted, imports of urea were channeled throughspecialized government agencies and did not occur on a large scale. The threat of WTO-led liberalization, however, did serve as an impetus to reform. In a background paper Prabhu presented on the long-term policy of the fertil-izer sector, he suggested complete decontrol of urea production by the end of 2007 (DoF 2000). This proposal necessitated the dismantling of the RPS for urea and replacing it with a scheme setting a single rate of concession across all urea units, irrespective of their feedstocks, by the year 2005. The proposal was based on replacing the RPS with a uniform normative referral price based on long-run marginal-cost methodology, as suggested by the Hanumantha Rao Committee on Fertilizer Pricing (DoF 2000; Economic Times 2000). Announcements by the finance minister reflected similar thinking. In the budget presented in February 2000 after the NDA government was voted back to power at the end of 1999, Finance Minister Yashwant Sinha proposed reforming the RPS because it created inefficiencies and channeled some of the subsidy to the producers rather than to the farmers. At the same time, he proposed a 15 percent rise in the issue price of urea (MoF 2000b). Sinha commissioned the ERC in April 2000 to suggest how the fertilizer subsidy could be rationalized. In 2001, he called for a wider political consen-sus for curbing the spiraling federal and state fiscal deficits, which had reached

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4 Prabhu and Gokak’s commitment to policy reform was attested to by others closely involved in the policy reform debate.

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an “unsustainable” level of 10 percent of the GDP (Business Line 2001). Promis-ing total decontrol by April 2006, Sinha proposed the following:• replacement of the unit-specific RPS by a group concession scheme;• continuation of the current MRP arrangement;• calibrating the concession for each group so as to enable the units to sell

urea at the stipulated MRP; and• linking the rate of concession for urea units based on naphtha, fuel oil (FO),

or low-sulfur heavy stock (LSHS) to international prices of these feedstocks (MoF 2001).

This announcement generated substantial opposition both within and outside the ruling party, from chief ministers of state governments (which are responsible for setting agricultural policy), and from interest groups such as the FAI. The FAI, which had been extremely critical of the HPRC report, also rejected the recommendations of the ERC. In response to criticism from these major stakeholders, the government withdrew from its position and completely abandoned the ERC recommendations. To diffuse the resistance and build a consensus, the government instead appointed a Group of Ministers (GoM) in June 2001 under the leadership of K. C. Pant, the chair of the Plan-ning Commission, to decide how to implement the ERC recommendations. TheGoM deliberated for more than a year and made its recommendations in Octo-ber 2002. The NPS, which the government announced in 2003, was based on these recommendations. The reports of both the HPRC (1998) and the ERC (2000) recommended that the RPS for urea be dismantled and that subsidies be more narrowly targeted so that they reached only the intended beneficiaries. Although the NPS, formulated in 2003, was supposed to move in that direction, no part of that scheme set out a path for decontrol. The following were the highlights of the new scheme:• The scheme was to be implemented in stages. Stage 1 was to last from

April 1, 2003, until March 31, 2004. Stage 2 was to extend from April 1, 2004, to March 31, 2006. The duration of stage 3 was to be decided by the DoF after review of the implementation of the earlier stages.

• The goal of the new scheme was to “encourage efficiency parameters of international standards based on the usage of the most efficient feed-stock, state-of-art technology and also ensure viable rate of return to the units” (DoF 2003).

• Existing urea units were divided into six groups, based on the year of incep-tion of the firm and the feedstock used. Concessions were set for each group rather than for each unit, as before.

• Each group was to have its own norm, the weighted average retention price for that group.

• The policy also specified how outliers (units whose retention prices were much higher or lower than the group norm) were to be treated (DoF 2003).

This scheme, as adopted, dealt with the issue of support to the industry and distribution of fertilizers without dealing with the issue of farmgate pricing. Attempts to deal with the latter were unsuccessful because of the political factors discussed in “Automatic Annual Increases in Farmgate Prices” in Chapter 6. The scheme also avoided the issue of feedstock pricing, particu-larly the crucial issue of natural gas pricing and availability.

The State of Policy Reform in 2010A working group under the chairmanship of Y. K. Alagh was constituted on December 10, 2004, to review the effectiveness of stages 1 and 2 of the NPS for urea units and to formulate a policy for urea units for stage 3. It was also asked to examine the formulation of feedstock policy with regard to nature, pricing, and availability; estimation of demand and supply of urea for the Eleventh Five-Year Plan; setting milestones for conversion of non-gas-based units to natural gas or liquefied natural gas; transfer of concession payments to urea units; decontrol of the movement and distribution of urea; and bal-anced fertilization through urea pricing, among other things (DoF 2004). An assessment of stages 1 and 2 showed an increase in efficiency, as reflected in improved utilization of existing production capacity and improvements in energy consumption (Planning Commission 2007, 35). In its December 2005 report, the Alagh Committee recommended several alternative strategies for rationalizing and trimming the fertilizer subsidy. Beyond the first-best strategy of moving toward one normative price for the entire industry, the report considered a second-best strategy of moving to two feedstock-specific normative prices and providing a one-time capital sub-sidy for conversion to natural gas, and a third-best strategy of continuing withthe second stage of NPS for a fixed period, by the end of which time the industry would have increased its efficiency further. The government accepted the third-best strategy. The committee emphasized the need to continue tosubsidize fertilizers but also pointed out that an alternative method was needed for delivering the subsidies directly to farmers. The government accepted this recommendation as well (MoF 2007a), and the DoF and the fertilizer industry were entrusted with determining how it could be achieved. At the same time, the government approved a policy for stage 3 of the NPS that aimed to promote further investment in the urea sector, maximize pro-

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duction from existing units, encourage joint ventures abroad, convert non-gas-based production units to gas, and improve the efficiency in the distribu-tion and movement of urea (DoF 2007, 20). Stage 3 would run until March 2010. Under this plan, all naphtha-based urea plants were required to switch to natural gas within the next three years. The framework was adopted on account of two factors. First, given the agrarian crisis of the past decade, the farmgate price of urea was left un-changed to encourage farmers to increase fertilizer use. Second, it was antici-pated that fertilizer consumption would have to increase to support the increasing demand for food. Given that the global price of urea was higher than the domestic price, and given that fertilizer was considered a strategic commodity, increasing dependence on imports was not considered an option. Emphasis was instead given to building domestic capacity for urea produc-tion. Neither the government nor the industry was entirely satisfied with the recommendations of the Alagh Committee.5

At present, urea is the only fertilizer whose production is controlled by government policy and which is sold at a government-fixed retail price. Decontrolled phosphatic and potassic fertilizers are sold at indicative retail prices, and the price of single superphosphate is determined by state govern-ments. Thus, discussion here of rationalizing fertilizer subsidies focuses ondecontrolling the nitrogenous-fertilizer sector and the pricing and distribu-tion policies that shape it. The existing price structure favors the purchase of nitrogenous over potassic and phosphoric fertilizers and has already led to an unbalanced use of fertilizers that may have negative consequences for crop productivity and the environment. In 2007, the government appointed a GoM consisting of then–finance minister P. Chidambaram, agriculture minister Sharad Pawar, and chemicals and fertilizers minister Ram Vilas Paswan. The GoM’s mandate was to rec-oncile the somewhat contradictory objectives of reducing the subsidy bill and meeting the increasing demand for fertilizer. At the time, the subsidy bill was expected to reach Rs 500 billion, while the winter cropping season was facing a shortage of fertilizers (Financial Express 2007a). The government also wanted to look into the feasibility of delivering the subsidy directly to the farmers. In its deliberations, this GoM started considering moving from a product-based subsidy regime to a nutrient-based subsidy regime (Jandhyala2007). Further, the crosscutting policy area of natural gas availability, allo-cation, and pricing continued to be an important part of the discussion on fertilizer subsidies (Mehdudia 2007). While these deliberations continued,

5 Interviews with government and industry officials, New Delhi, July 2007.

the government provided incentives to nongas fertilizer units to convert to natural gas while at the same time remaining committed to providing priority allocation of domestic natural gas to this sector (Damodaran 2009a). By July 2009, the government was close to announcing a move to a nutrient-based subsidy regime that would disburse the subsidy directly to farmers (Damo-daran 2009b; Hindu 2009). The government finally announced the adoption of a nutrient-based policy in February 2010 (Telegraph 2010). Under the new policy, the government will subsidize fertilizers on the basis of nutrient content, that is, content of nitrogen, potassium, and phosphorus. The subsidy regime on urea had led to overuse of urea and underuse of other nutrients; the goal of the new policy is to achieve balanced use of nutrients. Balanced fertilization is expected to increase agricultural productivity in India. Over time, the government hopes that this policy will play a role in bringing down the total subsidy bill (MoF 2010). The budget speech reiterated the government’s intention to move to a subsidy regime whereby the subsidy will be delivered directly to farmers. The policy is also expected to bring new investment into the sector.

SummaryThe discussion above seeks to illustrate that despite the government’s attempts during the past fifteen years to rationalize the subsidy on fertilizer, it has been unable to make a significant dent in the subsidy bill. To understand why the fertilizer subsidy has increased when several finance ministers since 1991 have suggested reducing it, we focus on the interests and roles of the various stakeholders in the debate on reform. In the following chapter, we examine the processes of setting farmgate prices and fertilizer policy reform.

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CHAPTER 6

The Politics of Fertilizer Supply to Agriculture: Analysis of Political Actors, Discourses, and StrategiesSURUPA GUPTA

This chapter begins by presenting stakeholder positions, as gleaned from interviews (see Table 3.1) and published sources. The literature pre-sented in Chapter 2 and the conceptual framework presented in Chapter

3 provided guidance for the data gathering and analysis presented in this chap-ter. The first section describes the major actors and their interests as well as their political resources and strategies. The second section discusses the role of interests and institutions in fertilizer-sector reform. The third section identifies major discourse coalitions and describes their belief systems and discourses. The fourth section reflects on the extent of policy learning across coalitions. This chapter provides the basis for an analysis of the political feasibility of dif-ferent reform options and strategies, which is presented in Chapter 7.

Major Actors and Their Interests, Political Resources, and StrategiesThis section presents the interests, political resources, and strategies asso-ciated with the major stakeholders in the reform process. This information is based on interviews with stakeholders and on published accounts of their positions and strategies.

Farmers’ OrganizationsAnalysis of interest articulation in the farm sector in India poses several challenges. First, although agricultural interests are well represented in Parliament—85 percent of the members of Parliament have rural agricultural constituencies—and everyone claims to speak for the farmer and rural India, such claims have not always translated into favorable policies, particularly for the small and marginal farmers who constitute the majority of Indian

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farmers. Agricultural interests are articulated mainly by large farmers, who are generally well represented in all major political parties and therefore in the Lok Sabha, the lower house of the Indian Parliament; accordingly, the interests of medium-sized and large farms are more accurately represented. Second, lobbying efforts by farmers’ interest groups are ad hoc and often poorly coordinated. These organizations include farmers’ unions with local influence, cooperatives, plantation owners’ associations, and commodity-specific groups, many of which have overlapping constituencies. A large number of farmers’ organizations exist, among them All India Kisan Sabha, Bharatiya Kisan Union, Shetkari Sangathana, and Karnataka Rajya Raitha Sangha. Ideologically, these cover the political spectrum from nationalist to liberal to leftist. However, because there is no apex interest group in India comparable to the apex business chambers such as the Confederation of Indian Industries (CII) or the Federation of Indian Chambers of Commerce and Industry (FICCI), their influence is unfocused and limited. At times, national-level policy-coordination bodies, such as the Kisan Coordination Committee and the National Coordination Committee of Farmers’ Movements, have been set up, but these cannot match the focus, continuity of purpose, organiza-tion, and resources of their counterparts in industry. Third, although all political parties claim to speak for farmers, particularly small and marginal farmers, this latter group lacks exclusive representation. This is due to the typical collective-action problem: the small and marginal farmers are too numerous and too beset with problems to have the time, information, and organizational ability to come together. Farmers’ groups such as the All India Kisan Sabha and a few other leftist farmers’ groups claim to be the true representatives of small and marginal farmers, but it is dif-ficult to verify their claims. The lack of formal membership lists of farmers’ associations—there is little effort behind regular membership drives—makes it difficult to identify groups that really represent these farmers.1

A number of NGOs also claim to speak for the farmers, but in these cases, too, it is unclear to what extent they represent farmers, particularly small and marginal ones. Finally, policy intervention on behalf of farmers is done primarily by elected political leaders identified with large and medium-sized farmers’ interests. Ajit Singh of Rashtriya Lok Dal (RLD) and Sukhdev Singh Dhindsa of Shiromani Akali Dal (SAD) are two examples. For this project, representatives of the following organizations were interviewed: the national-level Liberal Farmers Movement; Bharat Krishak Samaj, which is associated with the Congress Party; All India Kisan Sabha, the

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1Interviews with leaders of several farmers’ associations, New Delhi, June–July 2005 and July–August 2006.

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farmers’ organization associated with the Communist Party of India—Marxist (CPI-M); and Bharatiya Kisan Union (Tikait). These interviews and written sources presenting the organizations’ positions show clearly that though some farmers’ organizations do support certain reforms, the space for a discourse on liberalizing the agricultural sector and reforming the subsidy schemes is fairly limited. Given the overall problems in the farm sector during the past decade, any suggestion of increasing the farmgate price of urea is seen as antifarmer. Even liberal farmers in India point out that the Indian farmer can-not survive in a world in which developing countries are being asked to liber-alize farm trade even as developed countries continue to subsidize their own farm sectors. Some farmers’ groups argue that the government gives them a subsidy only to keep produce prices low. Those in favor of state intervention argue that lower subsidies would have to be associated with higher prices, particularly higher support prices, which would likely increase the price of food and hurt consumers, particularly those who are poor. These farmers also say that they cannot survive if the government withdraws from the market. In fact, faced with the choice between subsidies and larger capital investments by the government in agriculture, most farmers’ groups, predictably, argue that the government should offer both. Although the liberal farmers’ move-ment has moved away from its demand for free markets, it does advocate weaning farmers off the system of government support prices. Although the rural distress of the past decade suggests that farmers as a group are not as strong as they were in the 1980s and 1990s, no Indian poli-tician can afford to ignore farmers or come across as antifarmer. Farmers’ organizations derive their strength from their large numbers, which translate into votes, and from their capacity to organize large-scale demonstrations in cities. The NDA coalition lost the 2004 national elections in part because it was perceived as antifarmer (Suri 2004). In general, farmers’ groups do not depend on electoral strategies to attain their goals. However, electoral con-siderations do play a role because the central government is usually cautious about adopting policies that would jeopardize the prospects of the ruling party in state-level elections.

Fertilizer ProducersCurrently, there are 56 large manufacturing units in India that make nitrog-enous, phosphatic, and complex fertilizers. Of these, 30 units produce urea, 20 produce DAP and complex fertilizers, and seven units produce low-analysis straight nitrogenous fertilizers. Nine units make ammonium sulfate, and 72 small and medium-sized units produce single superphosphate (DoF 2007, 7). The 30 urea units form the focal point of this analysis. Fourteen are in the private sector, ten in the public sector, and six in the cooperative sector.

The question is whether some among those 30 have a higher interest in influ-encing the current policy process than others and whether they are, in fact, acting accordingly. Interests of urea-manufacturing units vary according to the feedstocks they use. Because energy costs make up between 60 and 70 percent of the total cost of production, the higher the feedstock price, the higher the cost of production. In general, plants that use natural gas as the feedstock pro-duce urea at the lowest cost. Plants that use naphtha, fuel oil, and other feedstocks have substantially higher costs of production on account of lower efficiency as well as higher supply costs. The vintage of the plant also affects its efficiency. Given that some of the urea plants are in the public sector, it is reasonable to assume that the reform of the government’s policy on urea production has intersected with the general discourse on privatization. It is also likely that, in general, urea plants demonstrate differences in interests based on the feed-stock used and the vintage of the plant. Given the small size of the domestic fertilizer industry, it can be expected that interest articulation and advocacy by the industry and its representatives will be focused and effective. The impact of the discourse on privatization on the debate on fertilizer policy is not easily discernible. However, concerns about possible privatiza-tion of public-sector units, such as National Fertilizers, may have played a role in the formulation of the NPS. It is also difficult to trace differences in positions according to feedstock use. At times, owners of gas-based plants have asked to be decontrolled. They argue that given the higher import par-ity price during the past few years, they have been subsidizing the farm sec-tor instead of receiving subsidy. In general, the industry is very organized and articulate in its lobbying efforts and rarely allows internal divisions to surface. The fertilizer industry articulates its interest and lobbies with the govern-ment through various channels. First, it has a representative trade body, the FAI, which acts as the industry’s representative on government committees such as the Fertilizer Industry Coordination Committee (FICC) on a regular basis and serves on other committees on an ad hoc basis. The FAI also lob-bies with the different ministries involved in developing policy on fertilizers and uses the media extensively to express its position.2 Second, individual owners of firms lobby their cases with specific ministers and ministries. Third and most important, the industry’s interests are the primary concern of the DoF within the MoCF. This is where the fertilizer industry gets most of its

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2 Interviews with FAI officials, New Delhi, June–July 2005.

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institutional power and influence. Finally, there is anecdotal evidence of the industry’s effort at influencing policy through graft—a widespread occurrence in most sectors of the economy. From all accounts, the last factor is crucial in shaping fertilizer policy. However, it is not possible to find hard evidence for the influence of graft. In the absence of such evidence, we have to rely mostly on published evidence of efforts of the FAI to influence policy through its role in the FICC and the DoF as well as through publicity. Interviews with representatives from the industry presented several argu-ments in favor of continuing subsidies. First, the industry believes itself to be a conduit for the subsidy that the government gives to farmers and consum-ers and, as such, argues that it is performing a public service. The majority of resource-poor farmers cannot afford urea at either cost or import-parity price, and the subsidy cannot be disbursed to them directly. These farmers are the primary reason why the subsidies are so large. Second, subsidies mitigate the high prices of feedstock that the fertilizer units face. Third, the fertilizer subsidies are small in comparison to the subsidies on water and power given to the farm sector by states, and the central government has focused an unnecessary amount of attention on the fertilizer subsidy. Finally, the industry points out that it is competitive in its use of energy. This claim is based on the findings of the Gokak Committee Report (MoCF 2003, 19–21), which found that the energy-consumption figures of Indian firms compared favorably with those from the United States and China, the world’s other two large urea producers.

Political PartiesIn India, no political party openly campaigns in favor of discontinuing the sub-sidy on fertilizer. However, it is possible to detect some variations between the positions of various parties. The positions of national parties are strongly influenced by the politics of their own state-level units as well as that of their coalition partners.

Bharatiya Janata Party (BJP)Although the BJP is one of the main national parties and not primarily an agricultural party, it is obliged, like every party in India with a substantial presence, to take a profarmer stand on agricultural issues. In its 1998 and 1999 manifestos, the BJP and the NDA coalition promised to continue with the subsidy, though in 1999, the NDA manifesto promised to make farm subsidies more direct, efficient, and specific. When it came to power, it promised to move toward decontrol of nitrogenous fertilizers as part of its second-gener-ation reform proposal. Interviews with party representatives suggested that

the party believes that the industry benefits from the subsidy almost as much as the farmers do. An alternative delivery mechanism needs to be created to provide subsidies directly to the farmers. The BJP is considered to be in favor of liberal economic reform, albeit with nationalist undertones. At the same time, having previously been perceived as antifarmer, the party wants to be careful about its public position on farm sector issues.

Congress PartyThe Congress Party, another national-level party, was responsible for the initial attempt at fertilizer-sector reform in 1991. At the time of writing, the govern-ment in New Delhi is led by the Congress-led United Progressive Alliance. Its policy on subsidies, according to the National Common Minimum Program,3 is to reduce subsidies so as to reduce market distortion on the one hand and protect small and marginal farmers and poor consumers on the other.

Rashtriya Lok Dal (RLD)The RLD mainly represents owners of medium-sized and large farms in west-ern Uttar Pradesh. When the NDA administration was engaged in fertilizer policy reform, the RLD chief, Ajit Singh, was the minister of agriculture. He was also a member of the Group of Ministers responsible for formulating the NPS. He sought to address the difficulties faced by farmers in the form of increased input prices and extremely high levels of indebtedness. In addition, he saw a strong need for reform of the fertilizer industry while realizing that at least 75 percent of fertilizer production had to continue to be domestic, in order to maintain a certain level of self-sufficiency.

Shiromani Akali Dal (SAD)The SAD primarily represents owners of medium-sized and large farms in Punjab. During the NDA administrations, two out of three fertilizer ministers were from SAD. One of them, S. S. Dhindsa, was also a member of the Groupof Ministers that formulated the NPS. An interview with a representative suggested that the SAD’s policy position was focused on achieving self-sufficiency in fertilizer production. Furthermore, it is influenced by the severe indebtedness of farmers and by the belief that the 7 percent price increase recommended by the ERC would impose further hardship on them.

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3 The National Common Minimum Program constitutes a set of principles and objectives for the United Front government that was formulated in May 2004 by the Congress and its fourteen allies, which made up the United Front, after the Front swept to power in the fourteenth Lok Sabha elections that year.

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The Public AdministrationWithin the GoI, the various stakeholders in the fertilizer policy process include the ministries of finance, chemicals and fertilizers, and agriculture. The inter-ests and the mandate of the Ministry of Petroleum and Natural Gas (MoPNG) are also significant. Other ministries that have at least a minor role are those of commerce, railways, and transportation.

Ministry of FinanceThe primary role of the MoF is to maintain the macroeconomic health of the country, with an eye on the overall performance of the economy. It prepares the annual budget for the federal government, identifies strengths and weak-nesses of the economy, and uses various fiscal instruments to plot the econo-my’s future path, in keeping with the vision of the political leadership. In doing its job, the MoF faces several challenges. First, it needs to con-tain the federal deficit. The ballooning fertilizer-subsidy bill contributes to the federal deficit, and the job of reducing it falls on the MoF. Because it is now clear that a large chunk of the subsidy goes to the fertilizer manufactur-ers as well as to large farmers whose claims on that subsidy can be contested, the MoF’s own mandate requires it to address the subsidy issue. The MoF has repeatedly recommended that the government limit the total amount of sub-sidies and ensure that subsidies go to the intended beneficiaries—that is, poor farmers and consumers (Srivastava et al. 2003; MoF 2004a). This view also reflects the UPA government’s commitment to target subsidies, as expressed in the National Common Minimum Program (GoI 2004, 19). Second, the minis-try needs to reconcile multiple long- and short-term government objectives. Thus, on the one hand, it supports the liberalization of hydrocarbon markets in India, but on the other, it has to review the short-term impact of this policy on the fertilizer industry and, by extension, on the farm sector. Interviews with members of this ministry reflected the concern about the size of the overall subsidy bill. The ministry, they argue, has acted in accor-dance with the National Common Minimum Program to target subsidies at the poor. Interviewees also questioned the need for continuing with the existing subsidy regime and suggested that a better-targeted regime might be more suitable to the current challenges facing Indian agriculture. The MoF looks at fertilizer as a tradable commodity and considers imports a viable option. However, it recognizes the other ministerial stakeholders’ positions in this debate as well as challenges associated with directly subsidizing farmers and with increasing the MSP. As of 2007, the MoF started advocating a nutrient-based fertilizer policy that presents an alternative mechanism for fertilizer pricing and for the delivery of subsidy.

Ministry of Chemicals and FertilizersIn India, an entire department, namely, the DoF within the MoCF, is devoted to the fertilizer sector. The department’s specific goal is to protect the inter-ests of that industry within the parameters of government policy.4 According to its website, it is committed to “structural reforms in the fertilizer sector including technological upgradation to make it efficient and price competi-tive by international standards within the broad framework of available feed-stock and other raw materials” (MoCF 2009b). Its main clients are public-sector undertakings, multistate cooperative societies, and private companies. Any policy that would damage the interests of a majority of its clients is likely to be unacceptable to the ministry. It negotiates on behalf of the fertilizer industry with other ministries whose constituents’ interests may conflict with those of the fertilizer sector. In consequence, its position on fertilizer subsidy differs from that of the MoF. Although in theory the ministry accepts the need for decontrol, in practice it finds the policy difficult to advocate, as decontrol would hurt the viability of the industry. The MoCF hosts a Fertilizer Industry Coordination Committee (FICC), which was created to administer and operate the RPS and continues to admin-ister the NPS for urea. The committee includes members from the industry, which therefore has a voice in the policy process and a forum for interacting with and influencing secretaries from the ministries of finance, industry, agriculture, and petroleum and natural gas and from the Tariff Commission. Although stakeholder consultation in policymaking is both necessary and beneficial, such close interaction between the industry and the MoCF makes it difficult to convince the ministry of the need for any change that would significantly hurt the industry’s interests. In its consultations with other min-istries, the MoCF has argued that given the limited availability and the alloca-tion of natural gas in India, the fertilizer units are performing at the highest efficiency possible. They would be more efficient if more of them were able to switch to natural gas from naphtha and other, more expensive and less efficient feedstock, but in light of the inadequate availability of natural gas and the need for India to produce urea domestically, it is unfair to blame the industry for the high subsidy bill. Further, it advocates self-sufficiency in urea production, arguing that given the size of the international urea trade, any changes in demand from India will affect prices significantly. The minis-try’s negative experience with cartelization by the DAP manufacturers after

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4 Representatives of the ministry identify this as a goal. It is consistent with the government’s commitment to producing urea domestically.

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the decontrol of DAP pricing shapes the ministry’s perception on urea price decontrol and liberalization of imports.

Ministry of AgricultureThe primary mission of the MoA is to protect the interests of Indian farmers.5 With respect to fertilizers, their interests lie in ensuring adequate and timely availability of fertilizers at an affordable price. It plays a role in fixing the farmgate price for fertilizer. It is also involved, as a stakeholder, in all dis-cussions and deliberations on policy matters. Although the ministry recognizes that there is room for prices to go up, it opposes such hikes because of the antifarmer perception associated with such a policy measure. Because the issue of farmgate price of urea is decided at the legislative level, the MoA has not had to openly fight to protect its core constituents, the farmers, in the same way that the MoCF has had to fight for the fertilizer industry. At the same time, the MoA tends to oppose policy change because of the associated uncertainty, including the possibility of supply disruptions and price increases.

Ministry of Petroleum and Natural GasThe last important player in the fertilizer pricing debate is the MoPNG, whose primary objective is to support the exploration and mining of hydrocarbons and to meet India’s growing demand for hydrocarbons. In doing so, it also protects the interests of its clients—the public-sector oil and gas production and distribution firms, some joint-venture firms, and private enterprises in the sector. According to the Vision 2020 document adopted by the govern-ment to restructure this sector, the ministry is mandated to bring prices of hydrocarbons to import parity levels. Naphtha prices, accordingly, were deregulated at the end of the 1990s. Although the price of natural gas has not been deregulated in such a public manner, the decline in availability of gas that is offered through the administered-price mechanism (APM) and the ability of private and public producers to charge market prices ensure that natural gas prices in India will increasingly be determined by market forces rather than by government fiat (Jackson 2005). Given this scenario, the MoCF has fought to make sure that the admin-istered price stays low. Its focus now is on securing an adequate supply of natural gas as well as securing as much of the APM gas as possible. It also does not want to see the APM mechanism replaced or phased out. The MoCF as well

5 Interviews with officials in the ministry confirm that they see this as their primary task.

as the fertilizer industry continues to lobby for a “rationalized hydrocarbon policy” that ensures priority allocation for APM gas and LNG at reasonable rates to cover the entire need of the fertilizer industry (Sriram 2005). As the debate on the availability, utilization, and pricing of natural gas in India has raged, the political leadership has repeatedly signaled that the fertilizer sec-tor would be given priority while decisions are made on allocating any new natural gas supply (Financial Express 2007b; Business Line 2008).

The Role of Interests and Institutions in Shaping Fertilizer SubsidiesIt is common practice in political economy, when analyzing why certain changes have not taken place, to identify potential winners and losers. The issue of sub-sidy rationalization in fertilizers has all the hallmarks of interest-group politics. A small group of highly organized and wealthy fertilizer firms will likely lose if the protection accorded to them is withdrawn. A second group of highly influential, politically well-connected, rich farmers also stand to lose from higher prices for inputs. The potential beneficiaries of reform, however, are difficult to identify: although numerous, they are widely dispersed and unaware of their interests. Political scientists also examine the political institutions through which the interests articulated by producer and consumer groups interact with the government’s own priorities and legislative procedures to produce policy out-comes. In this section, we look at the interests of consumers (farmers), produc-ers (fertilizer manufacturers), and the legislative and bureaucratic institutions through which these interests are mediated to bring about policy change. The section “Farmers’ Interests in Fertilizer Policy” discusses how interests and institutions have interacted in changing farmgate pricing. The section “The Role of Interests and Institutions in Determining the Policy Framework for Urea Producers” elaborates the role of interests and institutions in reforming the policy framework governing fertilizer producers.

The Role of Interests and Institutions in Determining the Farmgate Price of UreaAs discussed in Chapter 4, one way of limiting the size of the fertilizer sub-sidy bill is by increasing the farmgate price of fertilizers. Because the price is administered and not market-determined, proposed increases must go through the budget process, which is inherently political and deliberative. This section focuses on two aspects of the government’s attempt to increase the price over the past two decades: first, the attempts to increase the farm-gate price through the budget process, and second, the attempt to depoliti-cize the process by making yearly increases automatic, that is accepting the

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ERC recommendation of building in a 7 percent price increase every year. Analysis shows that the politics of farmgate pricing has been shaped by coali-tion politics and by strong farm interests represented at the cabinet level.

Farmers’ Interests in Fertilizer PolicyThe protectionist bias in agricultural policy in India is justified in the name of small and marginal farmers and poor consumers. Policymakers argue that the farmgate price of fertilizer needs to be kept low so that small and marginal farmers can purchase and use these inputs.6 They further argue that low input prices keep food prices low, thus protecting poor consumers. Although pro-tecting the interests of small and marginal farmers is indeed important in a poor country, it is not entirely clear that keeping the farmgate price of fertil-izers unchanged is necessary to ensure that end result. It has been suggested that the farmgate price of fertilizer be increased and that small and marginal farmers receive a direct subsidy to protect their interests. Although the veto on increasing the farmgate price comes from farmers regardless of farm size, the resistance to targeting the subsidy at small and marginal farmers comes, pre-dictably, from owners of medium-sized and large farms (see “Automatic Annual Increases in Farmgate Prices”). Here we focus on the use of fertilizers by differ-ent groups of farmers and the structures of farm-sector interest articulation.

Use of Fertilizers and Farmers’ InterestsIt is logical to expect that farmers, who are the biggest beneficiaries of the fertilizer subsidy, would be the most vocal opponents of price increases. How-ever, because use of the fertilizer subsidy is not uniform across regions or across crops, we can expect to see some variation in interest articulation by farmers. For example, farmers in northern states and those farmers inirrigated areas take more advantage of subsidies than those elsewhere (Singh 2004). Wheat, paddy, and sugarcane growers receive more than half of thesubsidy on fertilizers (Singh 2004). However, the intensity of fertilizer use on small farms matches or exceeds that on large farms, suggesting that small farmers indeed benefit from this subsidy. This finding would lead us to expect a higher degree of interest articulation by farmers from regions that receive larger subsidies and by growers of wheat and paddy. Although it is true that farm leaders from Punjab and Uttar Pradesh, among the largest users of the subsidy, are the most vocal opponents of price increases, this phenomenon has more to do with the fact that national agricultural ministers have historically

6 Interviews with officials in several ministries in New Delhi, June–July 2005 and August 2006.

hailed from these states than with substantial variation in positions across states. Information gathered through our interviews suggests that farmers fromother states take similar positions with respect to fertilizer subsidies and priceincreases.

Farmers’ Movements and Interest ArticulationDuring the 1980s and 1990s, regional farmers’ movements emerged in several states in India calling for higher support prices (Brass 1995; Assadi 1997; Varsh-ney 1998). These movements, which were largely apolitical, were led by local activists. Although these movements were led by owners of large and medium-sized landholdings, small and marginal farmers also joined, as there was an identity of interests among all farmers on that issue. Such a unified movement does not exist today, and farm-sector interest articulation is quite fragment-ed.7 Not surprisingly, however, there is strong unified support for keeping input prices low, regardless of the size of farms, and all political parties and farmers’ organizations demand that the farmgate price of fertilizers be main-tained at existing levels. As the discussion in the next section demonstrates, when fertilizers are made available through a pricing structure in which higher prices affect only owners of large and medium-sized farms, then we find clearer evidence of lobbying and exercise of veto from representatives of large and medium-sized farm owners from the northern states of Punjab, Haryana, and Uttar Pradesh. Such interest articulation takes place through the debates in the legislature, through incumbent politicians with strong farm-sector ties, and through ministry consultation with constituents.

The Role of the Executive and Legislature in Setting the Farmgate Price of FertilizersTo understand the role of government in setting fertilizer prices, it is nec-essary first to understand which Indian political institutions are involved. Through the budget process, the MoF sets the farmgate price and proposes increases in the price in consultation with the DoAC. The approval for such an increase has to come from the legislature. Within the executive branch, farmers’ interests are articulated by several cabinet ministers as well as the DoAC. In the legislature, a majority of the members of Parliament have pri-marily rural constituencies. In addition, various ministries consult with farm-ers’ groups during discussions on policy change in fertilizers.

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7 Interviews with leaders of farmers’ associations, New Delhi, June–July 2005 and July–August 2006.

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The Politics of Increases in Farmgate Prices, 1991–2010Attempts to increase the farmgate price of urea have succeeded in seven cases and failed in two. What lessons can we glean from these cases? First, we examine the cases in which the government was successful in increasing the price. In general, these changes were implemented when the minimum support prices of wheat and paddy were increasing at a slightly faster pace, thus acting as a quid pro quo for increases in fertilizer prices. Between 1990/91 and 2003/04, the minimum support price on paddy increased by 168 percent and on wheat by 193 percent, whereas the price of urea increased by 105 percent. Thus, farmers who sold their grains to the government’s food pro-curement system, mostly farmers with medium-sized and large farms from the northern states, were arguably not adversely affected by the increase in urea prices. It is important to note that on several occasions, price rises were successful when they were delinked from the budget process. In 1998 and 2003, however, the government was unable to increase the price as proposed and had to roll back the increase. The passing of the annual budget is a political process in which the government has a very high stake, as failure to pass it will cause the government to fall. At the same time, the opposition has higher involvement and visibility in the process. Because no politician in India wants to be seen as antifarmer, and because these debates took place at a time of widespread agrarian crisis and farmers’ suicides, opponents of urea price increases were able to play on politicians’ fears of negative publicity if they supported the measures. In both cases, substantial opposition came from within the coalition, particularly from the NDA partner SAD, of Punjab. In 2003, the proposed increase in fertilizer price had to be rolled back because senior members of the BJP, as well as key allies, openly opposed it (Hindu 2003; Telegraph 2003). A legislative majority in such a case is apparently a necessary but not sufficient condition for enacting a price increase.

Automatic Annual Increases in Farmgate PricesIn 2000, the ERC recommended an automatic increase of the farmgate price by 7 percent every year (ERC 2000). It also suggested a pricing structure whereby farmers would be permitted to buy 120 kg of fertilizer at subsidized prices (using tradable coupons) but would have to pay (higher) market pricesfor any additional quantities. This proposal would not have affected small and marginal farmers but would have required farmers with medium-sized and large farms to pay higher prices. These recommendations, intended to insulate the pricing mechanism from political pressures as well as to create a dual pricing structure, were rejected

because politicians associated with large and medium-sized farmers were in charge of the decisionmaking process: Ajit Singh (a cabinet minister in charge of agriculture) and S. S. Dhindsa (a cabinet minister in charge of fertilizers). Both were members of the Group of Ministers that formulated the NPS under the NDA government. The group was asked to evaluate the recommendations made by the ERC. Singh and Dhindsa vetoed the inclusion of a yearly increase in the farmgate price of fertilizers in the policy package.8 Singh argued that further subsidy reductions should be based on improving manufacturing effi-ciency rather than charging higher prices to farmers. Although all Indian farmers, regardless of farm size or region, have an interest in maintaining the subsidy on fertilizer, it is the northern farmers with medium-sized to large farms who would be hurt most if the targeting policy were adopted. By leaving farmgate pricing out of the new policy framework and, perhaps more crucially, by not making targeted farmgate price increases automatic, leaders in charge of the new policy framework were able to resist increases in farmgate prices for fertilizer and keep the price-increase mecha-nism under the legislature’s control. This allowed the official retail price of urea to remain unchanged from 2002 to 2009.

The Role of Interests and Institutions in Determining the Policy Framework for Urea ProducersBesides the two price-increase mechanisms discussed above, another way of reducing and rationalizing the subsidy on urea is to change the policies that govern its production and distribution. This approach is based on the argument that because the price of domestically produced urea exceeded the international prices for most of the 1980s and 1990s, the domestic urea producers were enjoying a part of the subsidy in the form of market protec-tion (Gulati and Narayanan 2003). Earlier we discussed the details of the RPS and the NPS that succeeded it. Here we analyze the major obstacles to reform of the RPS, obstacles that continued to plague the reform process in 2009. Several factors have slowed the reform process. First, the fertilizer indus-try has continuously lobbied to maintain the protection it receives from the government. Second, the industry’s efforts are aided by the existence of an entire government department devoted to protecting its interests. Third, the mandate of the energy sector to liberalize prices and the inadequate supply of natural gas pose real challenges to structural changes in the industry.

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8 Interviews with former ministers of agriculture, New Delhi, June 26, 2005, and August 7, 2006.

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The Fertilizer Industry, Variation in Feedstock Use, and Producer InterestAlthough the industry strongly influenced the debate on fertilizer subsidy and reforms, the inability of the government to decontrol urea is not entirely an outcome of the lobbying or financial power of the fertilizer industry: several other factors influence the issue. As discussed above, the cost structures of fertilizer units and the retention prices associated with them vary widely. Between 60 and 70 percent of the total cost of production goes to energy costs, and total spending on energy accounts for almost 90 percent of the variable cost of production of urea (FAI 1995). The retention prices of units reveal that units that use natural gas as feedstock have, on an average, lower retention prices than those that use naphtha, fuel oil, and other feedstock. To look at differences in interests, it makes sense to classify urea producers into categories according to feedstock use. Sixty-six percent of urea manufacturers use natural gas as feedstock, a little less than 30 percent use naphtha, and the rest use other feedstock, such as fuel oil and LSHS. The units that use natural gas are the most efficient and, in general, use a smaller subsidy than the naphtha-based manufacturers. Arguably, a high-cost producer is more likely to resist market-oriented reforms than a more efficient and lower-cost producer. Under a decontrolled policy framework for urea, the naphtha- and fuel-oil-based plants would not be able to compete with imported urea (ERC 2000). Thus there is a strong and obvious reason for the naphtha-based manufacturers to lobby for the continu-ation of the RPS. However, the nature of the interest articulation process in the fertilizer industry makes it difficult to prove that it is indeed only the naphtha-based manufacturers who have lobbied the government. Further-more, even gas-based manufacturers have a strong interest in lobbying for the status quo. The supply of subsidized natural gas has been decreasing, and the pricing of natural gas may likely be determined by market forces in the future. It is not clear how many producer units will remain viable in the face of imports if natural gas prices are completely decontrolled. Consistent with this expectation, we find that regardless of the feedstock used, urea manu-facturers lobby the government in order to protect their objectives. However, it would be wrong to conclude that only naphtha-based units had an interest in resisting a change in the subsidy regime. Because the pric-ing and availability of natural gas were uncertain, gas-based manufacturers also had reason to lobby for a continuation of the status quo until the govern-ment’s overall policy on fertilizers was clear. Overall, India’s gas-based manufacturers have been found to be globally competitive (Gokak Committee 2003, 19–21). However, that conclusion was

reached based on natural gas priced at Rs 2,850 per million cubic meters (mcm). The gas supplied to the fertilizer sector by domestic public-sector firms in 2009 was priced at Rs 3,200/mcm (MoPNG 2009). In 2009, the sup-ply of gas available at that price was not adequate for the entire fertilizer industry. The government has allowed new gas finds to be made available at market-determined prices. It is unclear what impact decontrol of prices will have on the competitiveness of the fertilizer industry. Although the total gas requirement for the existing gas-based units was 33.01 million standard cubic meters per day (MMSCMD) in 2004/05 and 34.72 MMSCMD in 2005/06, the actual average supply during those years was 23.79 MMSCMD and 28.48MMSCMD, respectively. Projections based on existing demand, proposed expan-sion, conversion from other feedstock to natural gas, and proposed revival of nonoperational plants suggest that the demand for natural gas will rise to 76.269 MMSCMD by 2011/12. The total projected supply of natural gas is also expected to increase to 191.42 MMSCMD in 2011/12 by the most conservative estimate (a more optimistic estimate puts the figure at 285.42 MMSCMD) (DoF 2007, 11; Planning Commission 2007, 128–130). However, although availabil-ity will increase, most of the future gas needed by the fertilizer industry will be available at market prices, not at administered prices. The prime minister has promised to prioritize APM gas allocation to the fertilizer industry, and the government has also made a commitment to continue with the APM for the foreseeable future.9

As long as the fertilizer industry is controlled by the government, when feedstock prices go up, fertilizer units can generally pass on the price hikes by charging higher retention prices. Any decontrol in the context of an inad-equate supply of natural gas would jeopardize the prospects of both gas- and non-gas-based plants. Producers in other countries, particularly in the Middle East, have access to cheap natural gas and thus lower costs of production. Given the uncertainty in the availability and pricing of natural gas, both naphtha-based and gas-based urea manufacturers have had an interest in lobbying against decontrol. In the future, even if the supply of natural gas increases, the fertilizer sector will have to compete with other sectors, includ-ing power and transportation, to procure the natural gas it requires.

Interest Articulation by the IndustryThe reform process itself is opaque and does not allow us to link specific reform outcomes to specific lobbying efforts. Under the circumstances, we can

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9 Interview with official in the MoCF, New Delhi, July 2007.

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identify the industry’s overall position and help establish that the fertilizer industry, through FAI lobbying, influences policy on fertilizers. However, we cannot determine which part of the industry (naphtha-based vs. gas-based) or which specific firms have played the most significant roles in shapingpolicy on fertilizer subsidies. A further analytical problem is that the argu-ments made against liberalization by the FAI are almost identical to the arguments made by bureaucrats and politicians, making it difficult to dem-onstrate that interest-group lobbying has played a determining role in stalling the reform process. During every reform effort, the industry has lobbied to stall reforms (Kumar 1999; Gupta 2000a, 2000b). Besides articulating its own positions at various venues and through the press, the industry has pursued four goals. First, it has made the case that the fertilizer subsidy is an inherent part of the gov-ernment’s concern for food security and as such cannot be reduced without heavy political costs. FAI officials argue, as do several members of the gov-ernment, that a reduction in the subsidy will jeopardize the objective of food security.10

Second, whenever a proposal has been made to deliver the fertilizer subsidy directly to farmers, the FAI has highlighted the logistical problems associated with such a task, again closely mirroring the views of several politicians and bureaucrats (Damodaran 2000; Gupta 2000c, 2003). Third, the industry has publicly exploited differences within the govern-ment to further its own agenda. In an opinion piece written shortly after Finance Minister Sinha announced that the government would implement the recommendations of the ERC, the FAI’s chief economist accused the finance ministry of going against the stated preferences of the DoF as well as of the chief ministers of several Indian states, all of whom had written to the finance minister and the prime minister to express their concerns about the implementation of the ERC recommendations and its impact on farmers and poor consumers. The FAI statement further highlighted the lack of coordina-tion of the ministries involved in the process. The FAI has also repeatedly argued that the fertilizer subsidy is, in reality, an intraeconomy transfer that benefits government-owned oil and gas companies. Through the subsidy, the government indirectly allocates money in the Annual Budget to public sector undertakings in the petroleum and gas sectors (Gupta 2000a, 2000b; Kaushik and Gupta 2003). In reality, the fertilizer industry is free to import its feedstock at competitive prices. Its argument that the petroleum and gas firms are charging them abnormally high prices can be easily countered by

10 Interviews with FAI and MoCF officials, New Delhi, June–July 2005.

asking the industry to secure sources of natural gas from abroad instead of depending on the domestic suppliers only. The ERC noted that the industry has not made vigorous efforts to secure sources of supply of natural gas, but has argued instead that the government should do so (ERC 2000, 45).

Interbureaucratic PoliticsAlthough the fertilizer industry’s lobbying power is not in doubt, it is neces-sary to investigate the institutional features of the Indian political system that enable it to further its goals. The existence of a separate DoF within the MoCF allows the fertilizer industry’s concerns to be heard both at the level of bureaucratic interactions and within the cabinet. Fertilizer policy reform is enacted by executive decision and does not require legislative approval. The reform process can best be understood by focusing on the various government stakeholders, identifying their positions, and reviewing the process for resolving conflict among these stakeholders. The efforts of the MoF to decontrol the urea sector have been thwarted in the past in part because of the sector-specific interests of the MoCF and the MoA. Several efforts to reform fertilizer subsidies have originated in the MoF. The call for a consensus on subsidy issues originated in this ministry. The MoF, for example, ordered the ERC report, and the call to adopt it in full came from the finance minister in 2001. In 2005, the MoF engaged in widespread consultation with stakeholders to find ways of cutting subsidies on food, fertilizer, and petroleum.11

Besides containing the deficit, the finance ministry allocates money to different sectors through the annual budget. Over the past decade and a half, agriculture has suffered from a lack of public investment. The MoF has argued that if new investments are to be made, resources must be freed from other parts of the budget, for example by reducing all subsidies, but particularly those for urea, which is where the most restructuring can take place.12 How-ever, the MoF does not have the authority to unilaterally enact cuts to the subsidies or to propose a policy structure in the fertilizer sector. For that it has to negotiate with the DoF on the one hand and the DoAC on the other. The MoF also plays a role in setting feedstock prices that affect the price of fertilizer and therefore the subsidy associated with it. In recent years, only the views of the Planning Commission on government spending have accorded with those of the MoF. All other ministries involved in the ratio-

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11 Interviews with officials in the Department of Economic Affairs, MoF, New Delhi, July 2005 and August 2006. Minutes of some of these consultations are available at http://finmin.nic.in/the_ministry/dept_eco_affairs/economic_div/foodsubs.htm.12 Interviews with MoF officials, New Delhi, July–August 2006.

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nalization of the fertilizer subsidy have different and sometimes conflicting interests. In 2003, the decision to adopt the NPS was successful because the immediate changes proposed were fairly limited: fertilizer units were encouraged to improve efficiency without substantially changing the policy framework. As noted earlier, the group of ministers who negotiated the NPS were able to safeguard the individual interests of the group members. Pub-licly, the ministers of finance, agriculture, and petroleum and natural gas had little reason to obstruct the NPS. Having safeguarded the interests of its constituents by breaking the reform process into three stages and leaving the most important, third stage undetermined, the MoCF also had no strong reason to object to the new policy. However, when the time came to adopt the Alagh Committee’s recommendations for the third stage of the NPS, the MoCF persistently opposed the first-best and second-best strategies discussed earlier.13 The government finally decided to continue with the groupwise concession scheme adopted in 2003. The MoF announced its intention to test direct delivery of subsidy to the farmer, but ultimately that initiative too was abandoned because the DoF, which was entrusted with it, decided against implementing it. Past efforts at fertilizer policy reform have been hindered not only because the fertilizer producers’ lobby has been well organized and active but also because the existence of the MoCF and DoF offers the fertilizer industry an exclusive channel through which it can articulate its interests at the ministe-rial as well as the cabinet level. However, the support for the status quo in policy has come not only from the DoF but also from the DoAC in the MoA. Support for change in policy has come only from the MoF and from the Plan-ning Commission. Given this balance of power, it would be tempting to con-clude that bureaucratic politics alone has derailed fertilizer policy reform. However, it is also necessary to ask why the Ministry of Finance has not been able to garner more support for its liberal position. Discussing interbureau-cratic politics in farm-sector policymaking, Varshney (1998, 181) observes that “the Finance Ministry in particular stands out in its influence over the conduct of economic policy.” Its power arises from its control over the government’s purse strings. Why, then, has the MoF not been able to successfully push fer-tilizer subsidy reform? Why, when reforms have taken place successfully in other sectors, have reforms in fertilizer stalled repeatedly? To answer these questions, we must look at the ideas and discourses that dominate the debate on fertilizer policy reform as well as the relative sizes, arguments, and posi-tions of the coalitions on both sides.

13 Interviews with MoF officials, New Delhi, July–August 2006 and July 2007.

The Role of Ideas: Self-Sufficiency in Fertilizer ProductionThere are two competing discourse coalitions on the issue of fertilizer policy. This section describes their core beliefs and the specific beliefs (see “Beliefs and Paradigms” in Chapter 3).

Core Beliefs (Paradigms)The core beliefs or paradigms that characterize the two discourse coalitions are referred to here as market-oriented and welfare-state-oriented. Apply-ing the labels that are commonly used in the policy debate in India, these paradigms could also be referred to as neoliberal and populist, but both these labels have a negative connotation in the Indian debate. Still, in view of their wide use, it is useful to briefly consider the meaning of these terms. Neoliberalism has been described as a political and economic philosophy associated with five basic values: the individual, freedom of choice, markets, a laissez-faire outlook, and minimal government (see Belsey 1996). These values are in fact central to the “market-oriented” paradigm. Although defi-nitions of populism remain contested, the term typically refers to the view that the instruments of the state should be applied in favor of the “common people,” who are oppressed by societal elites (see Canovan 2004). Populism may be associated with right-wing as well as left-wing political ideologies, religious fundamentalism, and other worldviews. Hence, the label populist is not appropriate to describe the core belief system that is charac-terized as welfare-state-oriented here. According to this paradigm, market forces do not automatically lead to socially desirable results. Hence, in the welfare-state-oriented paradigm, the state has a responsibility to guarantee the welfare of its citizens. Table 6.1 characterizes the main elements of the two core belief systems, or paradigms, as reflected in the interviews. As was apparent in some of the interviews, each paradigm is associated with a positive self-representation and a negative other-representation, which are also shown in Table 6.1. One has to keep in mind that the table presents stylized facts or “pure types” of the respective core beliefs.14 Individuals and groups typically hold positions that are somewhere in between, or combine elements of, the pure types described in the table. Proponents of each of these paradigms see food security as a necessary goal. However, they hold different views regarding the mechanisms that are appropriate for achieving food security: the market

POLITICS OF FERTILIZER SUPPLY TO AGRICULTURE 77

14 Introduced by the German sociologist Max Weber, a “pure type” or “ideal type” (Idealtyp) is an analytical construct, in which many discrete individual attributes are arranged and synthe-sized into a single category by emphasizing one feature of those attributes. Using pure types or ideal types is a common approach in sociological analysis.

78 CHAPTER 6

versus state intervention. Stakeholders also disagree on the definition of foodsecurity as well as its urgency and importance relative to other socioeconomic issues facing India. One could define a third paradigm that focuses on communities and civil society rather than on the state or the market. However, although some interviewees mentioned community-based approaches in some contexts, such as decentralization, they were not central to any of the interviews conducted for this study. Therefore, the community-oriented paradigm has not been included as a third paradigm in Table 6.1. However, as Chapter 11 argues, a stronger focus on the community-oriented paradigm—as a third way between state and market—could be very useful in identifying policy solutions, espe-cially for electricity subsidy reform. Table 6.2 presents major story lines related to fertilizer supply to agri-culture. The observations in this table are based on the interviews and serve to identify specific belief systems. They correspond to the market-oriented paradigm on the one hand and the welfare-state-oriented paradigm on the other. The story lines that emerged in the interviews were partly triggered by

Table 6.1 Core beliefs (paradigms) and self- and other-representations

Topic Market-oriented paradigm Welfare-state-oriented paradigm

Role of the state Markets are the only coordination Markets, while in principle useful as and the market mechanism that leads to efficient a coordination mechanism in the outcomes. economy, do not lead to socially Any state intervention has to be desirable results. designed in such a way that Market failures abound. Hence state markets are not distorted. intervention in markets is State failures abound. Hence state necessary to ensure socially intervention in markets should be desirable results. minimized. Nature of state The state should play only a coordi- The state should play an active role intervention nating, facilitating, and regulating and engage in the provision of role in markets. basic services.Approach to Market-based instruments should be Regulatory instruments should be environmental used (such as price mechanisms used (such as restrictions on problems and tradable permits). activities).Positive self- Defender of a well-managed Defender of the common people/ representation economic system (which, by the poor and their livelihoods. implication, ensures poverty reduction). Negative other- They don’t understand the basic They enjoy their own privileges and representation principles of economics. don’t care for the common people They represent the interests of the or the poor and their livelihoods. corrupt state bureaucracy. They represent the interests of global capital.

Source: Authors.

interview questions. Like Table 6.1, Table 6.2 presents ideal types of these story lines. The two discourse coalitions differed on the ways they interpreted the agricultural and economic context in which policy was to be changed, the appropriateness of specific policies, the need for and shape of fertilizer policy reforms, the importance of self-sufficiency in urea production, and the consequences of policy change. Almost all the interviewees who identified with the welfare-state discourse pointed out that 80 percent of farms were small and marginal and that those farmers needed government help to purchase inputs. They further pointed out that given the widespread reporting of suicides in the countryside, end-ing the subsidy would be politically infeasible and inappropriate. They also observed that this policy benefited the poor, as it kept the price of food grains low and helped achieve self-sufficiency in foodgrain production. Such views were presented by people from diverse backgrounds: former directors of the FAI, the chief executive of a fertilizer company, and former secretar-ies of the DoAC. A former Minister of Agriculture said, “Input cost needs to be reduced for the small farmer, who won’t benefit from liberalization.”15 A farm-association representative said that the government subsidized farmers because it wanted to maintain lower food prices, given the large number of poor consumers in India. If the government increased the support prices or allowed farmers to seek market prices, then the subsidy perhaps would not be necessary. However, the same person said that farmers could not surviveif the government withdrew from the market. A former director of the FAI said that the association had challenged the government to eliminate the fertilizer subsidy completely and asked how many farmers would be able to afford decontrolled fertilizers. Members of the market-oriented discourse coalition, on the other hand, asked why the fertilizer sector should remain protected when liberalization has brought gains in other sectors, such as telecommunications. This group, which includes, among others, liberal economists in think tanks, in the press, and in the private sector, ask whether continuing with the fertilizer subsidy is the “best way to raise agricultural production,” given that the marginal return on government spending on fertilizer subsidy is very small (Gulati 2007). This group is fairly unanimous on the idea that farmers’ and fertilizer-producers’ lobbies inhibit reform. As to the importance of fertilizer subsidy, the market-oriented discourse argued that rationalization of fertilizer subsidy was necessary to reduce the

POLITICS OF FERTILIZER SUPPLY TO AGRICULTURE 79

15 Interview with a former minister of agriculture, New Delhi, June 26, 2005.

80 CHAPTER 6Ta

ble

6.2

Maj

or s

tory

lin

es a

nd s

peci

fic

belie

fs:

Fert

ilize

r po

licy

Agr

icul

tura

l si

tuat

ion

in g

ener

al

Mar

ket-

orie

nted

par

adig

m

Wel

fare

-sta

te-o

rien

ted

para

digm

Gen

eral

sit

uati

on o

f ag

ricu

ltur

e (f

)a Lo

w g

row

th r

ate

in a

gric

ultu

re,b

lead

ing

to i

ncre

asin

g

Agr

aria

n cr

isis

, in

dica

ted

by h

igh

suic

ide

rate

s an

d

ru

ral–

urba

n in

com

e di

spar

ity.

high

lev

els

of i

ndeb

tedn

ess.

Reas

ons

for

prob

lem

s in

the

Be

caus

e re

form

s ha

ve n

ot g

one

far

enou

gh,

larg

e Ec

onom

ic r

efor

ms

have

har

med

far

mer

s, e

spec

ially

agri

cult

ural

sec

tor

(f)

in

effi

cien

cies

rem

ain.

smal

l an

d m

argi

nal

farm

ers,

for

exa

mpl

e by

red

ucin

g

Subs

idie

s cr

owd

out

prod

ucti

ve i

nves

tmen

ts.

ac

cess

to

inst

itut

iona

l cr

edit

and

ext

ensi

on.

To

o m

uch

emph

asis

is

plac

ed o

n fo

odcr

ops

(whi

ch c

ould

M

inim

um s

uppo

rt p

rice

s ar

e to

o lo

w.

be i

mpo

rted

).

Land

ref

orm

s ha

ve n

ot b

een

impl

emen

ted.

Fa

rm l

obby

pre

vent

s re

form

.

Fert

ilize

r su

bsid

ies

to a

gric

ultu

re

Role

of

fert

ilize

r su

bsid

ies

(f,

p1)

Fert

ilize

r su

bsid

ies

are

one

of t

he f

acto

rs r

espo

nsib

le

Fert

ilize

r su

bsid

ies

are

an i

mpo

rtan

t in

stru

men

t fo

r

fo

r lo

w p

ubli

c in

vest

men

t in

agr

icul

ture

and

alle

viat

ing

the

cris

is i

n th

e ag

ricu

ltur

al s

ecto

r.

th

eref

ore

for

the

cris

is i

n th

e fa

rm s

ecto

r.

The

farm

-sec

tor

cris

is c

an b

e al

levi

ated

wit

hout

To

alle

viat

e th

e cr

isis

, ra

tion

aliz

atio

n of

fer

tili

zer

fert

ilize

r re

form

.

su

bsid

y is

nee

ded.

Mag

nitu

de o

f th

e su

bsid

ies

(p2)

Ve

ry h

igh.

Co

nsid

erab

le,

but

not

one

of t

he m

ajor

cau

ses

of t

he

A d

rain

on

the

nati

onal

gov

ernm

ent’

s fi

nanc

ial

nati

onal

gov

ernm

ent’

s fi

nanc

ial

woe

s or

the

reso

urce

s.

pr

oble

ms

in t

he f

arm

sec

tor.

M

ajor

rea

son

for

high

fis

cal

defi

cit

and

low

pub

lic

inve

stm

ent

in a

gric

ultu

re.

Targ

etin

g of

sub

sidi

es (

p2)

If s

ubsi

dies

are

pro

vide

d at

all,

the

y sh

ould

be

targ

eted

Ri

ch f

arm

ers

(“la

ndlo

rds”

) sh

ould

pay

hig

her

pric

es f

or

an

d pr

ovid

ed i

n a

way

tha

t do

es n

ot d

isto

rt m

arke

ts

fe

rtili

zers

, or

all

farm

ers

shou

ld b

e ab

le t

o ge

t

(f

or e

xam

ple,

as

dire

ct i

ncom

e tr

ansf

ers

or a

s

su

bsid

ized

fer

tili

zers

to

keep

foo

d pr

ices

low

.

tr

adab

le e

ntit

lem

ents

).

Dis

trib

utio

nal

dist

orti

on d

ue t

o

Larg

e fa

rmer

s re

ceiv

e m

ore

of t

he s

ubsi

dy t

han

do

Subs

idy

to l

arge

far

mer

s ha

s w

elfa

re c

onse

quen

ces

in

subs

idy

on u

rea

(f,

p1)

sm

all

and

mar

gina

l fa

rmer

s.

th

e fo

rm o

f ch

eap

food

.

Som

e st

ates

, es

peci

ally

nor

ther

n st

ates

, re

ceiv

e m

ore

U

se o

f ur

ea b

y fo

od-p

rodu

cing

sta

tes

has

wel

fare

subs

idy

than

oth

ers.

impl

icat

ions

for

oth

er s

tate

s be

caus

e th

e la

tter

re

ceiv

e fo

od g

row

n in

the

for

mer

.

POLITICS OF FERTILIZER SUPPLY TO AGRICULTURE 81

Rela

tion

ship

bet

wee

n se

lf-s

uffi

cien

cy i

n fe

rtili

zer

prod

ucti

on a

nd f

ood

secu

rity

Self

-suf

fici

ency

in

urea

Se

lf-s

uffi

cien

cy i

s no

t a

nece

ssar

y go

al.

It i

s ne

cess

ary

to b

e se

lf-s

uffi

cien

t.

pr

oduc

tion

(p2

) Th

e ne

ed f

or u

rea

can

be m

et t

hrou

gh d

omes

tic

D

epen

denc

e on

im

port

s m

ay a

ctua

lly

incr

ease

the

prod

ucti

on a

nd i

mpo

rts.

expe

ndit

ure

on t

he s

ubsi

dy r

athe

r th

an d

ecre

ase

it.

Rela

tion

bet

wee

n se

lf-s

uffi

cien

cy

Food

sec

urit

y ca

n be

mai

ntai

ned

even

if

need

ed u

rea

Fo

od s

ecur

ity

wil

l be

thr

eate

ned

by d

epen

denc

e on

in

ure

a pr

oduc

tion

and

foo

d

is

im

port

ed.

ur

ea i

mpo

rts.

se

curi

ty (

p1)

W

ith

impo

rts,

pro

duct

ion

may

fal

l, a

nd t

he p

rice

of

fo

od m

ay g

o up

.

Fert

ilize

r po

licy

refo

rms

Mod

el f

or r

efor

ms

(p1)

Li

bera

liza

tion

, pr

ivat

izat

ion,

and

com

peti

tion

Pr

ice

deco

ntro

l of

dia

mm

oniu

m p

hosp

hate

has

sho

wn

are

esse

ntia

l.

th

e pr

oble

ms

asso

ciat

ed w

ith

such

pol

icie

s.

The

tele

com

sec

tor

prov

ides

an

exam

ple

of s

ucce

ssfu

l

Giv

en t

he c

urre

nt a

vaila

bilit

y of

nat

ural

gas

, de

cont

rol

refo

rms.

of u

rea

wou

ld w

ipe

out

som

e In

dian

ure

a co

mpa

nies

,

Com

plet

e de

cont

rol

is a

n ap

prop

riat

e go

al.

fu

rthe

r lim

itin

g se

lf-s

uffi

cien

cy i

n pr

oduc

tion

.

Feed

stoc

k su

pply

to

urea

uni

ts (

p1)

It i

s th

e re

spon

sibi

lity

of u

rea

unit

s to

pro

cure

nat

ural

It

is

the

gove

rnm

ent’

s re

spon

sibi

lity

to

obta

in

ga

s an

d to

pay

mar

ket

pric

es f

or i

t.

su

bsid

ized

gas

for

ure

a un

its.

Dom

esti

c fe

rtili

zer

com

pani

es (

p1)

Enjo

y pr

otec

tion

and

con

sum

e ab

out

two-

fift

hs o

f

Perf

orm

a p

ubli

c se

rvic

e an

d ar

e no

t co

mpe

nsat

ed

the

subs

idy.

adeq

uate

ly f

or d

oing

so.

Farm

gate

pri

ce o

f ur

ea (

p2)

Any

viab

le r

efor

m o

ptio

n m

ust

inco

rpor

ate

a gr

adua

l

Supp

ly-s

ide

refo

rm a

nd f

arm

gate

pri

ce i

ncre

ases

can

incr

ease

in

the

farm

gate

pri

ce o

f ur

ea.

be

kep

t se

para

te.

Dir

ect

subs

idy

to f

arm

ers

(p2)

W

ould

rat

iona

lize

the

subs

idy

grea

tly

and

poss

ibly

W

ould

be

logi

stic

ally

cha

llen

ging

and

lik

ely

to f

ail

redu

ce g

over

nmen

t ex

pend

itur

e on

sub

sidi

es.

be

caus

e of

lea

kage

s. E

xpen

ditu

re o

n su

bsid

ies

th

eref

ore

mig

ht n

ot d

ecre

ase.

Sour

ce:

Auth

ors.

a Typ

e of

bel

ief:

f,

fact

ual

and

caus

al b

elie

fs;

p1,

cent

ral

polic

y be

liefs

; p2

, in

stru

men

tal

polic

y be

liefs

.b I

talic

ized

ter

ms

are

key

wor

ds o

r ph

rase

s th

at a

re o

ften

use

d to

ref

er t

o th

e en

tire

sto

ry l

ine.

82 CHAPTER 6

budget deficit and bring about equity in subsidy distribution. One former agri-culture minister (perhaps the only one identified with the market-oriented discourse) said that because of the subsidy and the protected regime, “you make farmers pay more and then pay them more.” Further, this informant asked, “Why not import manufactured fertilizer rather than just the feed-stock? Why not ask the fertilizer sector to face [the free] market?”16 Members of this coalition recognize, however, that advocating a flat or reduced sub-sidy immediately makes one “antifarmer.” Those on the welfare-oriented side argue that other groups receive bigger subsidies and that rationalization of the fertilizer subsidy is not necessary to solve the problems in the farm sector. One economist suggested that whenfarm incomes are going up by only 1–1.5 percent, it becomes difficult to talk about subsidy reform because the government is not giving anything in return. The two discourse coalitions differed on whether self-sufficiency in fertil-izer production is necessary for self-sufficiency in foodgrain production. A former secretary of the agriculture ministry argued that the government had promoted self-reliance in fertilizer in order to increase the supply of foodgrain. One liberal economist from the private sector argued that although the fer-tilizer industry may help ensure food security, it is not its “sole custodian.” Another liberal economist employed by the government stated that the need for self-sufficiency was accepted to a certain degree and that there was a genuine fear that erosion of self-sufficiency in fertilizer production would jeopardize food security. One bureaucrat pointed to a further problem in the link between fertilizer subsidies and food security: if the fertilizer price increased, then the support prices would also have to increase because of political pressures, and the subsidy on food would also rise, thereby negating the deficit-easing impact of the fertilizer price increase. A former secretary of the DoF said that food-security concerns motivated the department’s argu-ments for continued subsidy to the industry. The market-oriented point of view was provided by another MoF bureaucrat, who argued that because India had adequate foreign-exchange reserves, it should not be difficult to import urea rather than emphasize self-sufficiency. The two sides also differed on their attitudes toward the fertilizer indus-try and its prospects. Those from the welfare-oriented coalition argued that liberalization would wipe out some Indian manufacturers, thereby further restricting self-sufficiency. Almost all representatives of the fertilizer indus-try and ministry made this argument. They were also unanimous that the government’s supply of subsidized natural gas ensured the industry’s survival.

16 Interview with a former minister of agriculture, Gurgaon, June 28, 2005.

The other side argued that fertilizer units, either individually or in groups, should negotiate gas contracts with foreign suppliers and not depend on gov-ernment protection. As to the perception of the role of these firms in the distribution of sub-sidies, the market-oriented discourse identifies them as major recipients of the fertilizer subsidy, whereas members of the fertilizer industry and others identified themselves as entities engaged in public service. A former official of the FAI said that the fertilizer companies were conduits for channeling the subsidy to the political constituents of the MoA and the MoPNG. The fertilizer companies were also seen as conduits for transferring subsidies from the gov-ernment to the farmers. Understandably, this group also tends to think that if the industry withdrew from the distribution of fertilizers, the entire system would collapse as a result of corruption, nepotism, and logistical difficulties. This position counters the market-oriented position that the subsidy needs to be given directly to the farmers to avoid leakage. The coexistence of these discourses and the presence of substantial coali-tions backing each one pose a major challenge to policy reform. Although a consensus on economic liberalization seems to dominate the rhetoric on eco-nomic policy in India and even discussions on fertilizer policy, the consensus on a number of positions from the pre-1991 reforms also seems unchanged. This paradox makes it difficult, if not impossible, to translate the liberal rheto-ric into political action. In fact, it often appears that the Indian policy process is moving in opposite directions (Bardhan 2003). Each of the discourse coalitions can claim membership from several cat-egories of stakeholders (although no one in the fertilizer industry seemed to belong to the market-oriented coalition). The coalition in favor of change is smaller than that advocating maintenance of the status quo. The latter also articulates its case more forcefully and benefits from the fact that its oppo-nents’ position is less clearly defined and less assertive.

The Coalition in Favor of ChangeThe coalition that advocates a more market-oriented policy framework for nitrogenous fertilizers comprises the MoF, some members of the Planning Com-mission, international financial institutions such as the World Bank, some farm-ers’ organizations and political leaders, a section of the English-language print media, and individual economists. The positions of these entities are neither identical nor constant. For example, since 2004 the MoF has focused less on reducing subsidies than on targeting them. As the fertilizer-subsidy bill balloonedin 2006, the focus shifted again more sharply to subsidy reduction.17 Such

POLITICS OF FERTILIZER SUPPLY TO AGRICULTURE 83

17 Interviews with MoF officials, New Delhi, July 2005 and August 2006.

84 CHAPTER 6

variation in the ministry’s emphasis is also evident from successive issues of the annual Economic Survey, brought out by the ministry before the announcement of the annual budget. Although the MoF does not consider self-sufficiency in urea production essential, it has not advocated strongly in favor of import liberaliza-tion or even partial decontrol of the sector. It has to balance these objectives with the need to attract further investment in the fertilizer sector. The Planning Commission also emphasizes the need for better targeting of all kinds of subsidies but is more concerned with the distortions and deleteri-ous effects on natural resources and cropping patterns exacerbated by the fertilizer subsidy (Planning Commission 2002). However, a recent paper from the Planning Commission suggests that fertilizers need to be treated as a stra-tegic sector and thus need special protection (Planning Commission 2007). The World Bank has repeatedly identified subsidization of agricultural input as a major obstacle to India’s efforts to fight poverty and to re-energize the agricultural sector. In recent reports, it has endorsed the position taken by the MoF on fertilizer subsidy rationalization and has urged the government to scrap the RPS (World Bank 2004c). However, in policy debates in India, bureaucrats and politicians do not cite the recommendations of international financial institutions while advocating for liberal policies because doing so can be politically counterproductive.18

The Indian media have also supported reform efforts by the government. Editorials of publications such as Business Line, Indian Express, and Economic and Political Weekly have noted that the fertilizer subsidy has added to budget deficits and that the rise in subsidies has led to a steep fall in public investment in agriculture, which in turn has limited growth in the farm sec-tor. However, its position has not been consistent, and, given the restricted readership of the English-language press in India, it cannot be considered rep-resentative of public opinion in rural areas. Therefore, the media’s support for a liberal policy framework can easily be dismissed in policy debates as not entirely relevant to the welfare of the rural population. Although several economists who favor liberal policies have made recommendations as heads of government-appointed committees, their advisory role constrains their influence in the absence of political support.

The Coalition in Favor of the Status QuoThe coalition that advocates the continuation of the existing policy frame-work for fertilizers consists of the MoCF, the MoA, political parties, farm-

18 Interviews with several bureaucrats and politicians, New Delhi, June–July 2005 and July–August 2006.

ers’ groups, and the FAI. Here, too, the various entities express divergent views, but they generally share the view that self-sufficiency in nitrogenous fertilizer production is necessary for maintaining adequate production of foodgrains and thereby India’s food security. The DoF, which is charged with the responsibility of setting fertilizer policy, carries substantial weight in any policy debate. The DoF is also the main advocate for self-sufficiency in fertilizer production. Its 2007 annual report states that the government’s professed policy has been to achieve the “maximum possible degree of self-sufficiency in the production of nitrog-enous fertilizers based on utilization of indigenous feedstock” (DoF 2007, 4). The MoA, which also wields substantial influence as the representative of farmers’ interests, supports MoCF’s position. Thus, in debates at the ministe-rial as well as the cabinet level, there are usually two strong voices in favor of the status quo. The idea that self-sufficiency in urea production is neces-sary for maintaining foodgrain production and thus food security has not been seriously challenged at the policymaking level.

Policy-Oriented Learning across CoalitionsAlthough the members of each discourse coalition share ideas and views, it is unclear how much sharing happens across coalitions. Without some level of exchange and consensus on key issues, progress toward policy reform is impos-sible. In this section, we point to the areas where consensus already exists, which may present avenues for future reform. At the beginning of this decade, there was consensus across coalitions that the urea industry was in need of reform. This common idea offers the different coalitions a starting point for discussion and negotiation. Such a consensus was completely absent in the 1990s. Second, the coalitions generally agree that the subsidy should be targeted at small and medium-sized farmers and that it should be given directly to the farmers. Both express doubts, however, as to whether such a method of distribution would work. Third, the two groups agree that the distribution and use of fertilizers needs improvement. Both coalitions recognize that some technological improvements, such as the balanced use of nutrients and aggressive use of micronutrients, might reduce urea use and therefore the subsidy bill. Finally, there is a consensus that better problem identification and defini-tion will help foster a constructive exchange of ideas. The idea of food security underpins most debates on the farm sector in India. Since the 1970s, how-ever, India has been growing enough foodgrains to achieve food security (Varshney 1998). The current problem is a “paradox of persistent hunger” (Pinstrup-Andersen 2002). According to estimates by the Food and Agriculture Orga-

POLITICS OF FERTILIZER SUPPLY TO AGRICULTURE 85

86 CHAPTER 6

nization in 2001, more than 225 million Indians remained chronically under-nourished, while the government strained its budget to procure and store 58–60 million tons of foodgrains. The existing food-management paradigm can mitigate India’s new food-security problem only partially. Therefore, India’s food-security problem today is different from the problems it faced in the 1960s and requires a different solution. If self-sufficiency in urea production is defined as a priority, then the menu of options for reform is substantially restricted. All committees appointed by the government have recommended policy changes within the parameters of maintaining self-sufficiency, such as moving toward a uniform normative price and eventual conversion from other feedstocks, such as naphtha, to natural gas (HPRC 1998; ERC 2000). However, because the supply of natural gas is inadequate to meet the needs of all fertilizer units, such reform has not taken place. Although the debate on subsidy reduction in India is at least fifteen years old, the need to reform the policy structure governing nitrog-enous fertilizers was not accepted by the policy community until the end of the 1990s. In 1997, the United Front government first suggested that a reduc-tion in the size of the subsidy was necessary, and following this realization the Hanumantha Rao committee was set up. It seems reasonable to concludethat a consensus on the need for the liberalization of the fertilizer industry has not replaced the broad consensus on the need for self-sufficiency in fer-tilizer production.

CHAPTER 7

Policy Implications of Fertilizer Subsidy ReformSURUPA GUPTA

This chapter presents the policy implications of the analysis in the previ-ous sections. Here we consider various options available for changing the policy framework that governs the production of nitrogenous fertil-

izers in India, as well as for reducing and rationalizing the fertilizer subsidy. Fertilizer policy change and fertilizer subsidy reduction and rationaliza-tion have proved extremely difficult for all finance ministers since 1991. Although several policy options have been suggested (HPRC 1998; ERC 2000; Gulati and Narayanan 2003), some of which have been attempted, progress has been marginal. Therefore, it is useful to consider various reform options and assess them for their effectiveness in addressing specific policy goals as well as for their political feasibility. Table 7.1 displays a qualitative assess-ment of the reform options according to effectiveness, and Table 7.2 contains an assessment of these options and their political feasibility.

Assessment of Different Reform OptionsThis section gives an overview of different reform options, distinguishing between options for changing the policy framework for urea producers and options for increasing the farmgate price for fertilizers. The assessment cri-teria are derived from the stated goals of the GoI. The various objectives of policy reform include the need to deal with fiscal issues, correcting distributional inequities, correcting imbalance in nutrients, encouraging efficiency in the fertilizer industry, and encouraging efficient allocation of scarce resources, such as natural gas. In addition, given the importance of the food-security argument in the public debate, Table 7.1 also evaluates the impact on food prices.

87

88 CHAPTER 7

Tabl

e 7.

1 R

efor

m o

ptio

ns e

valu

ated

acc

ordi

ng t

o m

ulti

ple

crit

eria

: Fe

rtili

zer

polic

y

Sm

all

and

Fa

rmer

s’

mar

gina

l

Dom

esti

c

Fisc

al

inco

me:

fa

rmer

s’

fe

rtili

zer

Nut

rien

t

sust

aina

bilit

y ge

nera

l,

inc

ome,

firm

s’

bala

nce

(s

tate

) sh

ort

term

sh

ort

term

Fo

od p

rice

sa i

ncom

es

in s

oil

Mai

ntai

ning

sta

tus

quo

(gro

upw

ise

–

+ +

– (?

) +

–

rete

ntio

n sc

hem

e an

d cu

rren

t

farm

gate

pri

ce o

f ur

ea)

Opt

ions

for

cha

ngin

g th

e po

licy

fram

ewor

k fo

r ur

ea p

rodu

cers

(fa

rmga

te p

rice

unc

hang

ed)

Libe

raliz

ing

impo

rt o

f ur

ea

–/+b

0 0

–/+b

– fo

r no

n-ga

s-

–

(dec

anal

izin

g)

ba

sed

plan

ts

Part

ial

deco

ntro

l of

fer

tiliz

er

+ 0

0 –

(?)

– fo

r no

n-ga

s-

–

indu

stry

alo

ng w

ith

adop

tion

base

d pl

ants

of

sin

gle

prod

ucer

pri

ce

+/0

for

gas-

base

d pl

ants

Sett

ing

up u

rea

plan

ts a

broa

d +

0 0

– (?

) –

for

non-

gas-

–

base

d pl

ants

0

for

gas-

base

d

pl

ants

IMPLICATIONS OF FERTILIZER SUBSIDY REFORM 89

Pref

eren

tial

nat

ural

gas

pri

cing

–

0 0

– (?

) +

for

non-

gas-

–

fo

r do

mes

tic

urea

ind

ustr

y

base

d pl

ants

0

for

gas-

base

d

pl

ants

Opt

ions

for

cha

ngin

g fa

rmga

te p

rice

(no

cha

nge

in p

olic

y fo

r pr

oduc

ers)

Incr

ease

far

mga

te p

rice

Wit

hout

tar

geti

ng

+ –

– +

0 +

Wit

h ta

rget

ing

+ –

0 +

0 +

Opt

ions

for

im

prov

ing

nutr

ient

bal

ance

wit

hout

cha

ngin

g po

licie

s an

d pr

ices

Usi

ng t

echn

olog

y an

d kn

owle

dge

+

+c +c

– +

+

to i

ncre

ase

prod

ucti

vity

Sour

ce:

Auth

ors.

Not

es:

+, w

ill i

ncre

ase

or i

mpr

ove;

–,

will

dec

reas

e or

det

erio

rate

; ?,

eff

ect

is u

ncer

tain

; 0,

will

hav

e am

bigu

ous

or n

o ef

fect

. O

utco

mes

sha

ded

in g

ray

will

im

pede

ref

orm

.a E

ffec

ts o

n fo

od p

rice

s al

so d

epen

d on

oth

er p

olic

y de

cisi

ons.

b Dep

ends

on

the

inte

rnat

iona

l m

arke

t pr

ice

of u

rea.

Bas

ed o

n lo

ng-t

erm

tre

nds

in p

rice

s, i

t m

ay b

e ar

gued

tha

t fi

scal

sus

tain

abil

ity

impr

oves

.c I

ncom

es m

ay i

ncre

ase

wit

h te

chno

logy

-bas

ed p

olic

y ch

ange

s.

90 CHAPTER 7

Stak

ehol

ders

(by

mat

eria

l in

tere

sts)

Tabl

e 7.

2 P

olit

ical

fea

sibi

lity

of r

efor

m o

ptio

ns:

Fert

ilize

r po

licy

Feas

ibili

ty

acco

rdin

g to

par

adig

ms

W

elfa

re-

La

rge

Smal

l Fe

rtili

zer

Gas

Mar

ket-

st

ate-

fa

rmer

s fa

rmer

s co

mpa

nies

su

pplie

rs

Taxp

ayer

s or

ient

ed

orie

nted

Mai

ntai

ning

sta

tus

quo:

gro

upw

ise

+

+ +

0 –

– +

re

tent

ion

sche

me

and

curr

ent

fa

rmga

te p

rice

of

urea

Opt

ions

for

cha

ngin

g th

e po

licy

fram

ewor

k fo

r ur

ea p

rodu

cers

(fa

rmga

te p

rice

unc

hang

ed)

Libe

raliz

ing

impo

rt o

f ur

ea

0 0

– 0

+ +

–

(dec

anal

izin

g)

Part

ial

deco

ntro

l of

fer

tiliz

er

0 0

0 (g

as-b

ased

0

+ +

+

indu

stry

, al

ong

wit

h ad

opti

on o

f

pl

ants

)

sing

le p

rodu

cer

pric

e

–

(non

-gas

-

ba

sed

plan

ts)

IMPLICATIONS OF FERTILIZER SUBSIDY REFORM 91

Sett

ing

up u

rea

plan

ts a

broa

d 0

0 0

(gas

-bas

ed

0 +

+ +

plan

ts)

–

(non

-gas

-

ba

sed

plan

ts)

Pref

eren

tial

nat

ural

-gas

pri

cing

0

0 +

– –

– +

fo

r do

mes

tic

urea

ind

ustr

y

Opt

ions

for

cha

ngin

g fa

rmga

te p

rice

(no

cha

nge

in p

olic

y fo

r pr

oduc

ers)

Incr

ease

far

mga

te p

rice

W

itho

ut t

arge

ting

–

– 0

0 +

+ –

W

ith

targ

etin

g –

0 0

0 +

+ +

Opt

ions

for

im

prov

ing

nutr

ient

bal

ance

wit

hout

cha

ngin

g po

licie

s an

d pr

ices

Use

of

tech

nolo

gy a

nd k

now

ledg

e

+ +

0 0

+ +

+

to i

ncre

ase

prod

ucti

vity

Sour

ce:

Auth

ors.

Not

es:

+, f

avor

; –,

opp

ose;

0,

neut

ral.

Out

com

es s

hade

d in

gra

y w

ould

lea

d to

the

gro

up o

ppos

ing

refo

rm.

92 CHAPTER 7

Options for Changing the Policy Framework for Urea ProducersComplete Decontrol of the Fertilizer IndustryComplete decontrol of the fertilizer industry would entail dismantling the existing group retention prices framework and decanalizing the importation of urea.1 Such decontrol would more than double the farmgate price of urea. The most immediate impact of this policy option would be to improve the efficiency of the domestic fertilizer industry. Some domestic producers, par-ticularly those using non-gas feedstocks, would be unable to survive such a policy change unless, as the government has proposed, they convert to natu-ral gas. At least three units would face the possibility of closure even with such assurances because of the limited supply of gas. Adopting this policy would prevent the subsidy from going to the domestic fertilizer industry, thus remedying some of the distributional concerns associated with the subsidy. This policy option is consistent with the government’s objective of liberaliz-ing hydrocarbon prices. It could be implemented only when the international price of urea was lower than the domestic price.

Partial Decontrol of the Fertilizer Industry along with Adoption of a Single Producer PriceThe second policy option is to move the entire industry toward increased efficiency by paying subsidies on the basis of one normative cost instead of sev-eral. This approach would not be accompanied by decanalization of imports. It would achieve the twin objectives of increasing efficiency and reducing the subsidy paid out. To survive, all non-gas-based units would need to convert to natural gas. If an adequate supply of natural gas were not available, this policy option would also lead to closure of some non-gas-based units. The distributional concerns associated with the current regime would be cor-rected for the most part. By 2007–08, partly because of the high international price of urea, the industry’s resistance to using the import parity price as the normative price had decreased. However, no movement in this direction has taken place.

Continuation of the Existing Groupwise Concession SchemeThe third policy option is to continue with the groupwise concession scheme. This gives industry more time to transform itself. Under this option, which is essentially the choice the government has adopted, existing units will be asked

1 In India, decanalizing refers to liberalizing imports by removing restrictions on agencies or persons that can import a certain product; prior to decanalizing, the product could be imported only by government-owned or government-approved agencies.

to convert to gas, thus increasing the overall efficiency of the industry. This conversion requires an adequate supply of natural gas. Apart from efficiency gains, the only other savings may come from better application of knowledge and technology, such as better soil mapping, increased use of micronutrients, and more balanced use of fertilizers (Vashishtha 2006; Planning Commission 2007).

Setting Up Urea Plants AbroadA fourth option is for Indian producers of urea to locate their production outside India, in the form of joint ventures with buy-back arrangements, in areas close to sources of natural gas. This option would allow the government to reduce its expenditure on subsidy while maintaining self-sufficiency in the production of urea. While three such joint ventures for phosphoric-acid pro-duction exist, only one venture produces urea.

Gradually Increasing the Level of Imports while Keeping the Policy Framework UnchangedA fifth option would be to increase urea imports so that in years when the international prices were lower, the government could take advantage of that. Given the political climate and the consensus on self-sufficiency, no government in India would explicitly adopt such a policy. However, since 2003, because of the lack of growth in domestic capacity, the government has been increasing the level of imports. By 2007–08, the level of imports reached 25 percent of total consumption (MoCF 2009a).

Policy Options for Increasing Farmgate PricesIn the absence of any interventions in farmgate pricing, the first two policy options—decreasing the subsidy and increasing the efficiency of the fertilizer industry—would lead to a substantial increase in urea prices, a decrease in the incomes of farmers, a decrease in urea use, and a subsequent fall in food production. Although these consequences could lead to the correction (and possibly overcorrection) of unbalanced urea use in northern India, they would definitely worsen the balance in the south, where nitrogen use is low. How-ever, no government would contemplate adopting this policy without some intervention in determining the farmgate price of urea. The options for such a change are discussed below.

Yearly Increase in Farmgate Price of UreaAn incremental yearly increase in the farmgate price of urea over five years is one way of decreasing the expenditure on fertilizer subsidy. This policy option

IMPLICATIONS OF FERTILIZER SUBSIDY REFORM 93

94 CHAPTER 7

would also help correct the unbalanced use of nitrogen in northern India. Such a price increase might lead to an unwarranted decrease in urea use in the south. However, urea use in the rest of the country could be encouraged by replicating the conditions that created the first Green Revolution, when urea use increased as farmers were providing better irrigation opportunities, seeds, and extension services. It is possible that an increase in the price of urea would lead to a decrease in foodgrain production, thereby affecting food security; however, it is also possible that a more balanced use of fertilizers might actually increase foodgrain production.

Targeting Fertilizer Subsidies at Small and Marginal FarmersTargeting also merits attention in discussions about the rise in farmgate price of urea. Targeting the subsidy toward small and marginal farmers would notonly decrease the subsidy bill but also effectively address distributional con-cerns. Because raising the farmgate price of urea is economically and politi-cally difficult, it has been suggested that farmers be subsidized directlythrough fertilizer coupons or cash transfers. However, the logistical and admin-istrative difficulties associated with this option are considered prohibitive. Further, if the price of urea increased for medium-sized and large farmers, food prices would also increase, leading to a rise in the procurement price for the government and an eventual rise in the food subsidy bill. Vashishtha (2006), however, argues that if such changes were accompanied by appropri-ate technology and a suitable policy environment, food security would not be affected. The concern that a rise in the urea price would lead to a fall in farmers’ incomes could be remedied by a small increase in support prices for grains. The option described above involves changing the delivery mechanism so that the subsidy is given directly to the farmer instead of being routed through the fertilizer producers. This delivery mechanism continues to face strong resis-tance from several stakeholders.

Nutrient-Based PricingA third option is to change the pricing policy such that instead of pricing fertil-izers such as urea, DAP, and muriate of potash, the prices of the basic nutrients—nitrogen, phosphorus, and potassium—would be fixed, and fertilizer prices would reflect the prices of the nutrients and the ratios in which they contain them. This pricing policy might allow the government to correct nutrient imbalances by sub-sidizing some nutrients more than others. This approach would work particularly well if combined with aggressive soil analysis and customization of fertilizers. The government of India made a move in this direction in early 2010.

Political Feasibility of Policy OptionsTable 7.2 presents an assessment of the political feasibility of the reform options discussed in the previous section. Because the analysis has shown that both interests and ideas matter in this debate, the table assesses not only the impact of different reform options on the material interests of different stakeholders, but also the extent to which each option is consistent with the market-oriented paradigm on the one hand and a welfare-state-oriented paradigm (emphasizing foodgrain self-sufficiency) on the other.

Options for Changing the Policy Framework for Urea ProductionAlthough it was considered a possibility by the MoF at one point, complete decontrol along with decanalization of urea imports has never been given much serious attention. This option would force the government to recon-sider its commitment to achieving self-sufficiency in urea production, which would require a paradigm shift in government thinking. Thus serious consider-ation of this option would require the delinking of self-sufficiency in fertilizer production and food security in policy discussions. Our interviews show little evidence that such a change has yet taken place, and thus the option finds little support among stakeholders in the policy process. Moreover, although this option might ease budget constraints (assuming that international prices would be lower than domestic prices), it would also be likely to face very stiff political challenges. The second option, partial decontrol with a single producer price and no decanalization of imports, has been suggested by several government reports. To maintain existing levels of self-sufficiency, this option would require that most domestic urea units convert to natural gas. In view of the existing short-age of natural gas, the fertilizer industry and the DoF are strongly opposed to this option. Fearing a disruption of urea production, the MoA also opposes it. However, it seems more viable in the medium term, as natural-gas avail-ability is likely to increase. This option would also ease budgetary pressures. The fertilizer industry and the MoCF, however, have always opposed this option and would be likely to maintain their position even if more natural gas were to become available. Other stakeholders would have little reason to oppose it. Recently the government has chosen to continue with the existing group-based pricing. Although this choice does not face much political opposition, its ability to relieve the fiscal stress associated with the fertilizer subsidy will depend on the pace at which non-gas-based urea plants convert to gas as feedstock and therefore on the availability of natural gas. In previous debates, the MoF, along with international institutions, the media, and several econo-

IMPLICATIONS OF FERTILIZER SUBSIDY REFORM 95

96 CHAPTER 7

mists have argued in favor of greater liberalization, while the DoF, the MoA,and the fertilizer industry have supported the welfare-state-oriented paradigm. The option of locating units abroad near feedstock sources has been tried successfully in Oman. This is a win-win situation: most stakeholders support it, and it could lead to a decrease in the fertilizer subsidy. However, representa-tives of the domestic fertilizer industry have found it difficult to replicate the Oman example.

Policy Options to Increase the Farmgate Price of FertilizerAn analysis of one-time increases in urea prices suggests that yearly increases in urea prices would face substantial opposition in Parliament. However, on a majority of occasions in the past, when support prices were increased, a rise in the urea price was successfully implemented. When price hikes were opposed, the resistance came from within the government, from either coali-tion members or the ruling party, or both. The stakeholders who actively advocate an increase in farmgate price include the fertilizer industry andmost ministries. Given that the government would not be able to enact large price increases, the immediate budgetary impact would be small; but in thecurrent environment of a crisis-ridden farm sector, automatic yearly increases would have substantial political opposition. Opposition to targeting subsidies at small and marginal farmers comes from medium-sized and large farmers as well as from bureaucrats in the MoA and DoF. Although the idea has been suggested by several sources, includ-ing members of the Planning Commission and bureaucrats in the MoF, pilot projects across the country would be needed to evaluate its suitability and feasibility. Since 2007, no new policy on urea has been adopted, though the government adopted a new policy governing other fertilizers and raised the farmgate price of urea in 2010 (Hindu 2010). Increasing the price of urea is associated with a possible decrease in foodgrain production. At the same time, it is clear that the effectiveness of urea use can be increased by better-integrated nutrient management. To increase productivity in the face of price hikes for urea, substantial research and dissemination of information in the farm sector would be needed. Chapter 13 discusses political various strategies that could help overcome the political challenges inherent in the various reform options explored here.

PART 3

The Political Economy of Electricity Supply to Agriculture

CHAPTER 8

Electricity Supply to Agriculture in Andhra Pradesh and Punjab: An OverviewREGINA B IRNER AND NEERU SHARMA

Whereas in India fertilizer policy is the responsibility of the federal government, electricity policy is a joint responsibility of the cen-tral government and the states. This chapter provides an overview

of the two states that have been selected for the empirical analysis of elec-tricity supply to agriculture: Andhra Pradesh and Punjab.

Profile of the Two StatesTable 8.1 displays some basic socioeconomic and agricultural data on Andhra Pradesh and Punjab. Andhra Pradesh is the fourth largest state in India by area and the fifth largest by population. It occupies the middle ground in terms of economic performance and social indicators. Its growth rates are lower than those of the neighboring Indian states of Karnataka and Tamil Nadu (World Bank 2003b). However, some social indicators are favorable: the poverty rate is lower than the all-India average, and the gender ratio, a measure of dis-crimination against women, is above average. Punjab is India’s most developed state, with the lowest poverty rate. Its development has been driven by the Green Revolution, but in the 1990s the state experienced a considerable decline in agricultural and overall growth rate, partly as the result of a decade of social unrest (see Chapter 9). In spite of its relatively high income level, Punjab scores comparatively low on social indicators, such as the gender ratio. Table 8.2 displays the percentage of households that use electric pumps and the percentage of arable area in which pumps are used. In Andhra Pradesh, the percentage of small and marginal farmers using electric pumps and the per-centage of the area they cultivate are close to the all-India averages, whereas in Punjab these percentage are slightly below the all-India averages.

99

100 CHAPTER 8

As Table 8.1 shows, the size of the average land holdings in Punjab is much larger than the all-India average, and the average income of the farm households is more than double the all-India average. In 2002/03, Punjab, which covers only 1.5 percent of India’s geographical area, produced about 22 percent of the coun-try’s wheat, 12 percent of the rice, and 17 percent of the cotton (GoP 2006).

Electricity Supply to Agriculture and Groundwater UseFigure 8.1 shows access to groundwater irrigation and electricity tariffs by state. In the diagram, the states are ordered according to the level of the electricity tariff. The lower the tariff, the higher the subsidy per electricity unit that a state provides to agriculture. The figure includes both house-holds that own pumps and households that buy irrigation water from pump owners. The figure also shows the percentage of farmers who own diesel pumps. Except in Haryana, states that had larger percentages of farmers who used groundwater than did other states tended to have larger electric-ity subsidies.1 The figure also shows that a substantial percentage of farm-ers purchase groundwater from well owners. Depending on the modalities

Table 8.1 Socioeconomic and agricultural data for Andhra Pradesh and Punjab

Andhra Pradesh Punjab India

Total population, 2000/01 (millions) 75.7 24.35 1,028.61Population density (persons/km2) 277 313 313Population below poverty line (percent) 15.8 6.2 26.1Gross state domestic product (GSDP), 999,320 448,620 13,183,620 2003/04 (million Rs) Agricultural-sector production as percentage 24.7 38.7 21.5 of GSDP, 2003/04 Government debt as percentage of GSDP, 2000/01 25.62 40.66 30.69Growth rate of GSDP, 1993/94–2000/01 (percent) 5.31 4.96 6.13Growth rate of agricultural sector, — 6.29 9.1 2003/04 (percent) Gender ratio (women per 1,000 men) 978 865 933Households with access to electricity (percent) 60 89 44Average size of landholding (ha) 1.25 4.03 1.39Annual total income of farm households (Rs) 19,608 59,520 25,380Annual cultivation income per household (Rs) 8,916 33,864 11,628Percentage of households reporting debt 82.0 65.4 48.6Indebtedness of farmers, amount (Rs) 23,965 41,576 12,585Average paddy yield (kg/ha) 3,011 3,584 —

Sources: Rao and Dev (2003), MoF (2004b), GoP (2006).

1 This is an interesting deviation from the classic argument that agricultural price subsidies tend to be higher where farmers constitute a small group and are hence better able to overcome collective-action problems.

of the groundwater market, these farmers also benefit from the electricity subsidies; hence they should not be ignored in any analysis of the political economy of electricity supply to agriculture. The National Sample Survey asked whether farmers experienced problems with inadequate supply of electricity or groundwater that prevented them from using pumps. The results are displayed in Figure 8.2. The percentage of farmers experiencing problems was highest in Andhra Pradesh for both elec-tricity and groundwater. Figure 8.3 displays the extent of groundwater development and ground-water overexploitation in selected states for 2006. Punjab’s stage of ground-water development exceeds 100 percent, whereas the corresponding figure for Andhra Pradesh is below 50 percent. The stage of groundwater develop-ment is defined as the ratio between the annual groundwater draft and the net annual groundwater availability (for details of the calculation, see Chat-terjee and Purohit 2009). Punjab faces severe problems of overexploitation of groundwater, as indicated by the high percentage of blocks (administrative units) that are classified as “critical and overexploited.” In these blocks, the stage of groundwater development exceeds 90 percent and there is a

ELECTRICITY SUPPLY: AN OVERVIEW 101

Table 8.2 Percentage of households using electric pumps and area irrigated with pumps, 1998

Total area irrigated with Small and Medium Small and Medium electric marginal and large marginal and large pumpsStates farmsa farmsb farms farms (million ha)

Andhra Pradesh 66.14 33.86 32.49 67.52 3.13Assam 90.05 9.95 91.70 8.83 0.02Bihar 79.62 20.38 32.62 67.38 0.60Gujarat 63.83 36.17 29.10 70.90 2.64Haryana 55.33 44.68 24.73 75.27 2.10Karnataka 44.40 55.60 18.60 81.40 2.06Kerala 93.31 6.69 61.14 38.86 0.21Madhya Pradesh 46.40 53.60 16.09 83.91 7.25Maharashtra 49.79 50.21 20.60 79.40 4.09Orissa 80.14 19.86 56.03 43.97 0.09Punjab 54.78 45.22 21.38 78.62 3.30Rajasthan 51.24 48.76 20.20 79.80 4.72Tamil Nadu 81.59 18.41 51.73 48.28 1.71Uttar Pradesh 83.58 16.42 51.79 48.21 6.19West Bengal 92.93 7.07 68.75 31.25 0.51All India 66.11 33.90 29.03 70.97 38.71

Source: World Bank (2004c) using data from the National Sample Survey, 54th round.Notes: Marginal, <1 ha; small, 1–2 ha; medium, 2–4 ha; large, >4 ha.

Households using electric pumps (percent)

Area irrigated with pumps (percent)

102 CHAPTER 8

long-term decline in the water level (GoI 2007b, 7). In Andhra Pradesh, the problem is also serious but not to the same degree as in Punjab. A comparison of Figures 8.2 and 8.3 shows that farmers’ perceptions are not closely linked to the actual groundwater situation. In particular, the percentage of farmers reporting problems with groundwater availability is much higher in Andhra Pradesh than in Punjab. The reasons for this difference in perceptions are unclear. Farmers in Andhra Pradesh might perceive that they have more water shortages because they apparently have less access to electricity (Figure 8.2) and to diesel pumps (Figure 8.1). Hence limited access to power sources for pumping water may create the impression of water shortages, even though overexploita-tion of groundwater is not yet a major problem in that state.

Size and Distribution of Electricity Subsidies to AgricultureTable 8.3 compares the size of the electricity subsidies to the agricultural sector (as calculated in Vashishtha 2006) with other categories of public

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Figure 8.1 Households with access to groundwater and electricity price by state

Source: National Sample Survey Organization (1998).Notes: States are ordered by ascending size of agricultural tariff. The figure includes

the major states for which data were available. Because lower subsidy rates are associated with higher agricultural tariffs, the rate of electricity subsidy to agriculture declines from the left-hand side to the right-hand side of the figure.

ELECTRICITY SUPPLY: AN OVERVIEW 103

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Figure 8.3 Status of groundwater exploitation and development in selected states, 2006

Source: GoI (2007b), based on Central Groundwater Board (2006).Notes: States other than Andhra Pradesh and Punjab are included for comparison’s sake.

The stage of groundwater development is defined as the ratio between the annual groundwater draft and the annual groundwater availability. Blocks (i.e., administrative units) are classified as “critical and overexploited” if the stage of groundwater development exceeds 90 percent and there is a long-term decline in the water level.

Table 8.3 Electricity subsidy as a share of state expenditure in Andhra Pradesh and Punjab, 2002/03

Andhra Pradesh Punjab

Total amount of electricity subsidy to agriculture (million Rs) 29,312 14,604Total state expenditure (million Rs) 831,508 198,307Electricity subsidy to agriculture as percentage of total state 3.53 7.36 expenditure Irrigation and flood control as percentage of total state 17.88 1.76 expenditure Health services as percentage of total state expenditure 2.64 3.27General education as percentage of total state expenditure 2.88 2.42

Sources: GoP (2004), GoAP (2005), Vashishtha (2006a).

ELECTRICITY SUPPLY: AN OVERVIEW 105

spending. Both Andhra Pradesh and Punjab spend more on this subsidy than on health or general education. As a percentage of total state expenditure, the subsidy in Punjab is more than double that in Andhra Pradesh. The table shows that Andhra Pradesh spends a considerably larger percentage of the state budget on surface irrigation. Tables 8.4 and 8.5 show the distribution of the electricity subsidy by farm size. Predictably, larger farmers benefit more from the subsidy than smaller farmers do. As a comparison between the tables shows, this effect is more pronounced in Andhra Pradesh. When interpreting the tables, one has to keep in mind that the situation has changed since the data were collected because of the introduction of the free-power policy (see Chapter 9). Moreover, these figures take only pump owners into account. The effect of the subsidy on farmers who purchase groundwater is not considered.

Table 8.4 Distribution of electricity subsidy by farm size in Andhra Pradesh, 2003/04

Subsidy Subsidy Percentage of total Farm size per hectare (Rs) per holding (Rs) electricity subsidy

Marginal (<1 ha) 2,370 1,517 0.9Small (1–2 ha) 2,771 4,020 4.2Medium (2–4 ha) 3,937 10,677 21.9Large (4–10 ha) 4,390 25,406 46.9Very large (>10 ha) 3,947 60,774 26.1All groups 4,039 16,696 100.0

Source: Vashishtha (2006a).

Table 8.5 Distribution of electricity subsidy by farm size in Punjab, 2003/04

Subsidy Subsidy Percentage of total Farm size per hectare (Rs) per holding (Rs) electricity subsidy

Marginal (<1 ha) 3,844 2,671 1.9Small (1–2 ha) 4,615 4,764 4.4Medium (2–4 ha) 3,967 9,223 19.9Large (4–10 ha) 3,804 20,434 45.4Very large (>10 ha) 3,361 47,843 28.4All groups 3,725 15,142 100.0

Source: Vashishtha (2006b).

106 CHAPTER 8

Status of Power-Sector Reform and PerformanceThe national Electricity Act of 2003 provides the framework for power-sector reform at the state level. Among other provisions, it requires the establish-ment of an independent electricity regulatory commission at the state level and the separation of its transmission activity from the state electricity board (a minimum unbundling requirement). Table 8.6 compares the current status of the reforms in Punjab and Andhra Pradesh. It shows that reforms in Andhra Pradesh have advanced further, especially as it has unbundled the SEB and created separate organizations for power generation, transmission, and distribution. Table 8.7 lists key perfor-mance indicators for the power sector. According to the performance rating by the Investment Information and Credit Rating Agency (ICRA) and Credit Rat-ing Information Services of India Ltd. (CRISIL), independent rating agencies, Andhra Pradesh ranks 1st and Punjab ranks 13th among the 29 states included in the ranking. Punjab’s score (an overall measure of the performance of the electricity utilities, measured on a scale from 0 to 100) was only half the total score of Andhra Pradesh. Punjab’s rank in the middle of the spectrum is due to the rather low performance of the majority of states according to this score. In terms of plant load, an indicator of technical efficiency in power generation, both Andhra Pradesh and Punjab rank above the all-India average. In terms of transmission and distribution losses, both states also outperform the all-India average. This average is, however, rather dismal by international standards, as one-third of all power produced is lost or stolen. Unfortunately, data on the performance of the electricity supply to agriculture, such as average hours of supply and quality of supply, are difficult to obtain. Hence, the figures in Table

Table 8.6 Status of electricity reform in Punjab and Andhra Pradesh

Andhra Punjab Pradesh

Reform bill passed — April 1998Setting up of an independent ERCa Members appointed 2000 1999Unbundling of the state electricity board Pending (Punjab cabinet approved 1999 unbundling in 2010) Number of tariff orders passed by the 4 6 ERC through 2005/06 Feeder metering achieved (percent) 100 100Consumer metering achieved (percent) 84 91

Sources: Andhra Pradesh Electricity Regulatory Commission website (http://www.ercap.org) and Punjab State Electricity Regulatory Commission website (http://pserc.nic.in/), both accessed September 30, 2006.

aElectricity regulatory commission.

ELECTRICITY SUPPLY: AN OVERVIEW 107

Table 8.7 Performance of the power sector in Punjab and Andhra Pradesh

All-India Andhra Pradesh Punjab average

Rank of state in overall economic performance (out of 29 states) 1 13 —Performance score of power sector (1–100) 55.8 27.7 —Transmission and distribution losses as percentage of power generated 27.7 26.0 32.5Plant load factor (percent) 88.0 80.2 69.0

Sources: ICRA and CRISIL (2005) and India, Ministry of Power, Central Electric-ity Authority website (www.cea.nic.in) and GoP website (http://punjabgovt.nic.in), both accessed September 30, 2006.

8.7 represent performance from an investor’s perspective, not necessarily from the perspective of the farmers or the rural poor.

SummaryAs the preceding sections show, Punjab and Andhra Pradesh differ in both economic performance and reform orientation. In both states, more than half of the small and marginal farmers use electric pumps for groundwater irrigation. Both states maintain comparatively high electricity subsidies to the agricultural sector, in spite of the fiscal burden and the fact that this measure benefits the larger farmers disproportionately (an effect that is more pronounced in Punjab). Andhra Pradesh has managed to engage rather successfully in a reform of its power sector, emerging first in an investment-oriented performance ranking, whereas Punjab has chosen a slower reform path. Both states face serious problems of groundwater depletion, but on an aggregate scale this problem is more pronounced in Punjab. The next section outlines the policy processes that have led to these outcomes.

CHAPTER 9

Electricity Supply to Agriculture in Andhra Pradesh and Punjab: Evolution and Reform InitiativesREGINA B IRNER AND NEERU SHARMA

This chapter describes the political processes related to electricity sub-sidies, power-sector reforms, and irrigation- and groundwater-manage-ment policies.

Andhra Pradesh

OverviewTo understand the evolution of the policies related to the electricity supply to agriculture in Andhra Pradesh, it is useful to consider three major phases:1. the period between 1977 and 1991, in which electricity subsidies and

the flat-rate tariff were established as part of a welfare-oriented policy agenda;

2. the period between 1991 and 2004, in which efforts were made to reduce the electricity subsidies as part of an economic-reform agenda; and

3. the period since 2004, in which the government introduced free electricity while continuing the reforms in the power sector.

The major policy developments, which are analyzed below, can be sum-marized as follows. Electricity subsidies, and—importantly—the flat-rate tar-iff, were first offered as an election promise by the Congress Party in 1977, against the background of declining terms of trade in agriculture, which led to the emergence of a strong farmers’ movement. Subsequently, electricity subsidies became an important component of the “pro-peasant” policies of Chief Minister N. T. Rama Rao, a cinema idol who created the Telugu Desam Party (TDP), the first regional party in Andhra Pradesh that was able to chal-lenge Congress Party rule. Rama Rao’s successor, Chandrababu Naidu, tried to reduce the electricity subsidies to agriculture as part of his well-publicized

108

agenda of economic and governance reforms, but he was confronted with unexpectedly strong political protest. Nevertheless, he managed to set the power sector on a successful reform path. He also introduced far-reaching legislation to conserve groundwater resources and to promote participatory irrigation management. In the 2004 elections, the Congress Party candidate Y. S. Rajasekhara Reddy promoted a free-electricity policy in his efforts to win rural voters, thereby capitalizing on Naidu’s reputation for having an urban bias. In spite of the free-power policy that Rajasekhara Reddy implemented immediately after being elected, the power sector has remained on a success-ful reform path under his rule. However, as Chapter 10 shows, many problems inherent in the electricity supply to agriculture have remained unresolved.

1977–91: Emergence and Establishment of Electricity Subsidies and Flat-Rate TariffsAccording to Dubash and Rajan (2001, 3369), Andhra Pradesh may have been the first state in India where electricity subsidies and a flat-rate tariff were used as political tools.1 In its efforts to get re-elected in 1977 after the tumul-tuous time of Emergency, the Congress Party offered a flat-rate tariff and electricity subsidies to farmers as an election promise. Electricity subsidies became even more prominent in the elections of 1983, the first elections in Andhra Pradesh in which a regional party was able to challenge Congress rule. Although regional parties emerged in some other states in the 1960s, such a party did not emerge in Andhra Pradesh until 1982, when Rama Rao formed the TDP. The party came to power in record time, just nine months after its creation. Rama Rao denounced the Congress Party as “pro-merchant” and “anti-peasant,” accusing it of failing to guarantee remunerative prices to farmers and to supply electricity at subsidized rates. The TDP also accused the Congress Party of misrule, corruption, inefficiency, and rampant faction-alism. Against this background, the TDP adopted a manifesto for the 1983 elections that has been described as “a strange mix of social democracy and pro-market philosophy” (Suri 2004, 1486). The manifesto combined ele-ments that are nowadays referred to as “good governance,” such as a clean, corruption-free, and efficient government and downsizing of the state; lib-eralization policies aimed at industrial development, such as deregulation in the industrial sector and efforts to attract capital from outside the state; and protectionist policies to promote “pro-peasant” agricultural development and a range of welfare policies. To the surprise of the Congress Party, which had not taken Rama Rao very seriously, the TDP won the 1983 elections. In 1984, the Congress Party used

ELECTRICITY SUPPLY: EVOLUTION AND REFORM 109

1 According to Singh (2005, 1), the idea of flat-rate tariffs was first proposed in Punjab.

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the authority of the central government to suspend state governments but finally reinstated him in the face of an angry but peaceful mass agitation. Thiswas, in fact, the only such instance in Indian history of a state government’s being reinstated after the central government had suspended it (Suri 2004). During Rama Rao’s rule from 1983 to 1989, TDP implemented its election prom-ise of electricity subsidies, along with a range of social policies such as midday meals for schoolchildren and construction of pucca (decent quality) houses for poor communities (Suri 2004). Most notably, TDP introduced the famous Rs 2 per kilo of rice scheme, which subsidized rice for consumers. Although these policies have been widely referred to as populist, the use of this term isproblematic (see “Core Beliefs (Paradigms)” in Chapter 6, and the distinctionbetween “legitimate” and “distorted” populism drawn by Lal [2006], discussed in “The Political Economy of Power-Sector Reforms” in Chapter 2). The emergence of electricity subsidies in Andhra Pradesh and other states in the late 1970s has to be seen in the context of the Green Revolution, which started in the mid-1960s, and the debate about declining terms of trade that emerged in the 1970s. The provision of surface-water irrigation and electricity for groundwater irrigation was an essential condition for the Green Revolu-tion. When electricity connections for pump sets were first introduced, they were metered, and farmers had to pay a volumetric price. To what extent the electricity supply to agriculture was subsidized from the beginning is difficult to reconstruct because of various measurement challenges (for example, the problem of correctly valuing off-peak power supply). In any case, subsidies in support of the Green Revolution were initially part of a strategy to achieve the national goal of food self-sufficiency. They gained prominence again in the 1970s as a political strategy to win farmers’ votes. As studies showed at the time (for example, Tyagi 1987), the net barter terms of trade for agriculture declined during the 1970s, as the prices paid by the agricultural sector increased faster than the prices received. This factor contributed to the emergence of a farmers’ movement that demanded subsidies as compensation, especially in regions that had initially benefited from the Green Revolution (see, for example, Srinivasulu 1999; Gill 2000). In Andhra Pradesh, various crop-specific farmers’ organizations were established in the 1970s. For example, the Andhra Pradesh Sugarcane Grower Association was founded in 1973/74 and the Andhra Pradesh Cotton Growers Association in 1976/78. Led mostly by educated rural youth from farm families, these organizations focused on economic issues, especially more remunerative prices (Baba, Naidi, and Rao 1994, 49–50). The developments in neighboring Tamil Nadu in the late 1970s are par-ticularly relevant for understanding the introduction of electricity subsidies in Andhra Pradesh. In Tamil Nadu, electricity subsidies were at the center of a large and violent agitation by the Tamil Nadu Agriculturists Association.

The association was mostly led by large-scale farmers who demanded better terms of trade. The chief minister first responded by ordering the police to fire on the farmers, but later he introduced a progressive tariff structure that made electricity cheaper. Indeed, under this scheme free electricity was offered to small-scale farmers for the first time in India. The electoral promise of a flat-rate tariff by the Congress Party in Andhra Pradesh in 1977 may have led to support for similar policy decisions in other states (Dubash and Rajan 2001). According to K. Gopal Iyer (personal com-munication, 2006), the Tamil Nadu Agriculturalists Association had never demanded “free” electricity; neither had they demanded special concessions for the small farmers. Tamil Nadu’s chief minister, M. G. Ramachandran, how-ever, adopted this policy with the intention of splitting the farmers’ move-ment while at the same time “playing the card of equity” (Iyer, personal communication, 2006). As in Andhra Pradesh, electricity subsidies in Tamil Nadu were part of a wider set of “populist” welfare policies introduced by Ramachandran. As Suri (2004) points out, Ramachandran, also a former cin-ema idol who became the leader of a regional party, was in many ways a role model for Rama Rao in Andhra Pradesh. The introduction of electricity subsidies and the abolition of metering was, however, not limited to these two states and their “populist” leaders. As Dubash and Rajan observe:

Subsequently, political leaders in Maharashtra, Karnataka and elsewhere began to view the entitlement per se as a remarkably effective political device, in part because of the growing political power of backward rural communities and the rise of a middle-class farmers’ movement. In many states, a flat-rate tariff, rather than free electricity, was offered, but in either case, existing meters were no longer monitored or were simply removed and returned to the SEBs. This was driven in some measure by outright opposition to metering but also by the high transactional costs of such non-remunerative monitoring and meter installations for new connections. (Dubash and Rajan 2001, 3369)

1989–2004: Efforts to Reduce Electricity Subsidies and Reform the Power Sector

1989–94In spite of the welfare and “populist” policies that Rama Rao’s government implemented on a large scale between 1983 and 1989, the party lost the 1989 elections to the Congress Party. After 1991, the Congress Party, which then ruled both at the national level and in the state, started to engage in economic liberalization. Even though the TDP manifesto of 1983 had already

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called for some liberalization and deregulation (see “1977–91: Emergence and Establishment of Electricity Subsidies and Flat-Rate Tariffs”), Rama Rao launched a major attack on the reform policies of the Congress Party at both the national and the state level. In the election campaigns for the 1994 elec-tions, he promised to restore the Rs 2 per kilo of rice scheme and to prohibit the sale of liquor (a measure especially appealing to women, who had agi-tated for this measure for years). Electricity subsidies to farmers were also an important element in Rama Rao’s election campaign.2 Prime Minister P. V. Narasimha Rao played a major role in the Congress Party’s election campaign in his home state. Contrasting “development” with “populist welfare,” he argued that Rama Rao’s proposals would hinder development (Suri 2004). Eventually, however, Rama Rao’s campaign prevailed, and he won the 1994 elections. Once elected, he immediately introduced some of the liber-alization policies he had attacked during the election campaign. This strategy is quite in line with Lal’s (2006) observation quoted above: that politicians use “populist” slogans before elections but become reform politicians after the elections. In the power sector, Rama Rao’s government promoted IPPs, which were characteristic of the first phase of power-sector reforms.

TDP Rule under Chandrababu Naidu, 1995–99The liberalization reforms of the TDP gained momentum when Rama Rao’s younger son-in-law, Chandrababu Naidu, replaced him in office in 1995, in what has been described as a palace coup. While the leaders of this coup justified their action by pointing to the massive influence that Rama Rao had permitted his wife to exert in public affairs, the event remains a paradox in the politics of Andhra Pradesh, considering the massive electoral victory that Rama Rao had achieved just a year before (Suri 2004).3

Though TDP had won the 1994 elections on an antiliberalization ticket, Chandrababu Naidu emerged as one of India’s most outspoken and interna-tionally acclaimed champions of liberalization and good-governance reforms.

2 Rama Rao’s electoral promises were associated with a strongly populist rhetoric. He frequently used formulations such as “Society is my temple and people are my god” and “I am waging a war for the welfare of the common man.” Such statements fitted well with his image as a movie idol, especially as he often played the divine roles of Rama and Krishna. As Suri (2004) com-ments: “In 1989, he declared himself ‘rajarshi’ [philosopher-king] and began to wear the robes of a sanyasi, a Hindu religious mendicant. Really, there was some kind of divine madness in his thinking and political practice.”3 In contrast to the situation in 1984, when the central government removed Rama Rao from office, there was no widespread popular protest against his removal from power in 1995, in spite of his own efforts to organize it. Suri (2004) speculates that protest was minimal because the event was seen as a family affair, because of the rise of an elite that increasingly consid-ered Rama Rao’s populist welfare schemes to be unproductive, and because many party leaders were dissatisfied with his autocratic leadership style.

Different arguments have been advanced to account for this paradigm shift: Naidu’s personality, which represented a different generation of policymakers,and the efforts of TDP to actively disassociate itself from Rama Rao’s policyagenda, style, and symbols after his replacement (Srinivasulu 1999, 211). Lal’s (2006) argument that politicians speak to two different audiences (see “The Political Economy of Power-Sector Reforms” in Chapter 2) may also partly explain this change in TDP politics. Moreover, fiscal constraints and other external factors may have promoted the reforms, as was the case at the national level. In pursuing his reform agenda, Naidu’s government (led by the TDP in coalition with the BJP) benefited from a favorable non–Congress Party gov-ernment at the national level. Unlike other reform politicians, Naidu did not pursue his reforms in a “stealthy” manner (see Jenkins 1999, quoted in Chapter 2). Moreover, unlike other states (see Mahalingam 2005, discussed in “The Political Economy of Power-Sector Reforms” in Chapter 2), Andhra Pradesh did engage in the unpopular second phase of power-sector reforms under his rule. The reform process in Andhra Pradesh started with a high-level committee report in 1996. In support of the recommended reforms, the Andhra Pradesh State Electricity Board (APSEB) made efforts to reach out to the public, for example, by distributing various bulletins in English and Telugu and by distributing a film to reach illiterate audiences (World Bank 2003a). APSEB also managed to negotiate with all but one labor union. As a consequence, 90 percent of the more than 70,000 electricity sector employees supported the reform process. In 1998, the Andhra Pradesh Elec-tricity Reform Act was passed. In February 1999, an election year, APSEB was restructured into two independent corporations (AP Transco for trans-mission and distribution, and AP Genco for generation); and in March 1999,the independent Andhra Pradesh Electricity Regulatory Commission (APERC) was formed. In the process of reforming the power sector, the Naidu govern-ment also took unpopular measures, such as increasing electricity prices to all sectors. Resistance from the farming community took violent forms. In 1997, the response to a spontaneous farmers’ uprising in the Coastal Belt was police gunfire, in which three farmers lost their lives (Srinivasulu 1999, 222). In addition to pursuing liberalization reforms, the Naidu government tookmeasures that have been classified as “new populism in the age of neo-liberalism” (Krishna Reddy 2002). In 1997, the TDP government launched the Janmabhoomi (“motherland”) program, which promoted a wide range of devel-opment activities focusing on citizen participation and accountability in public administration. It has been criticized as a “government sponsored ‘grassroots movement’” (Srinivasulu 1999, 222) and an effort to circumvent elected localgovernment (panchayati raj) institutions. Similar criticisms were launched against the government’s irrigation policy. In 1997, the Andhra Pradesh Farmers

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Management of Irrigation Systems Act (APFMIS) was passed, a landmark law for participatory irrigation policy, which gave farmers’ organizations full authority over the management of canal infrastructure at the minor (secondary) level and below. In July 1997, the government started the first phase of irrigation transfer by creating more than 10,000 water-user associations.

The 1999 ElectionsIn an interesting reversal of the roles assumed in the 1994 elections, the Congress Party pursued a populist agenda in the 1999 election campaign, whereas TDP continued to pursue its proreform agenda. Most notably, the Congress Party promised to provide free electricity to farmers. Arguing that “free power is no power,” Naidu defended his reform course, which explic-itly included electricity charges. They asserted these positions when the state was in the middle of the power-sector reform process. Still, during the months prior to the elections, the Naidu government did introduce a number of “populist” schemes, which the opposition tried to dismiss as “scheme gim-micks.” The schemes included programs aimed at dalits (members of “sched-uled castes,” the term used for castes traditionally considered untouchable), other economically disadvantaged groups (officially referred to in India as “other backward castes” or “other backward classes”), tribal people, minori-ties, women, the handicapped, and other disadvantaged sections of the soci-ety. The TDP won the 1999 elections, and Naidu interpreted this victory as a popular approval of his reform policies.

TDP Rule under Chandrababu Naidu, 1999–2004Based on the power-sector reform steps taken since 1996, the TDP–BJP coali-tion government launched a power-sector reform program in 1999, which envisaged the full privatization of electricity distribution by 2005. To support its implementation, the government requested a loan from the World Bank (using the instrument of multiphased adaptable program lending). A first project, involving a US$210 million loan, was launched in 1999 (World Bank 2004d). As a consequence of the government’s decision to reduce the subsidy to the power sector, the newly created APERC was responsible for approv-ing a tariff hike. APERC first convened meetings in the three largest cities to discuss a “philosophy paper” on tariff policy. According to a case study on participation in policy reform by the World Bank’s Participation and Civic Engagement Team, “The nature of the meetings, however, did not lead to a constructive exchange of views on the problems and how to resolve them. Instead, an unwieldy total of over 300 interested participants gathered in each city. Farmers, in particular, dominated the discussions, drowning out other voices and flatly opposing a tariff increase” (World Bank 2003a, 5).

In April 2000, after announcing the proposed tariff increases, APERC con-ducted a forum with approximately 80 organizations and a four-day consulta-tion with 26 organizations, including representatives of agriculture groups, domestic households, businesses, large-scale industry, railways, and others. According to the World Bank study:

This time, there was a substantive exchange of views with groups putting forward proposals for changes in the system of billing, using competing arguments of equity and fairness. There was a recognition by many users that the mounting losses in the system needed to be addressed but many remained unconvinced that all cost-saving mea-sures had been taken to minimize the need for a tariff increase. Farm-ers continued to hotly contest estimates of unmetered agricultural use. The press was not given access to the proceedings, presumably due to lack of space in APERC premises, and was provided summary information in the evening. (World Bank 2003a, 5)

In July 2000, APERC issued a tariff order increasing average tariffs by 15 percent, agricultural tariffs by 50 percent, and residential tariffs by 69–300 percent (World Bank 2004d). The tariff structure also included incentives for farmers to switch from a flat rate to metering, which created a steady stream of applications (World Bank 2003a). APERC argued that it had altered the tariff structure to address several concerns expressed in the consultations, and the government pointed out that more than 60 percent of the households (with usage below a certain amount) were not affected, but these measures were not sufficient to prevent massive public protest. The opposition parties helped organize the protest, which included hunger strikes, demonstrations, and assembly walkouts. Eventually, the demonstrations turned violent, and three activist members of the CPI-M were killed by police gunfire on August 28, 2000.4 Although the government did not roll back the tariffs, it made no further major efforts at cost recovery in subsequent years (World Bank 2004d). Otherwise, however, the government continued with its power-sector reform program, which included the creation of four distribution companies (DISCOMs), institutional-capacity building, and other measures to increase the efficiency of the sector. In the field of water and irrigation policy, the Andhra Pradesh Water, Land and Trees Act (APWALTA) was passed in 2002. This has been described as “one of the most comprehensive pieces of legislation on water conservation

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4 See Hindu (2006c).

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and green cover implemented by any state” (Economic and Political Weekly 2002). This policy can be seen as another element of Naidu’s progressive reform agenda. Under this law, wells have to be registered with a new authority that can prohibit groundwater pumping in certain areas and even order closure of wells. This legislation followed the “Neeru-Meeru” program created in 2000, an ambitious project to conserve water across 10 million acres of land in dif-ferent climatic and geophysical zones. The program acknowledged the need to coordinate the conservation efforts of different government departments—forestry, irrigation, rural development, horticulture, animal husbandry, min-ing, and groundwater.

The 2004 ElectionsAfter escaping an assassination attempt by the communist People’s War Group, Naidu opted for an early election, hoping to capitalize on voters’ sympathy. Consequently, the TDP election campaign was centered on him. As Srinivasulu (2004, 12) observes, Naidu facilitated this process by declaring the election a referendum on his nine-year rule. Accordingly, the TDP campaign focused on the reform agenda, next to law and order and political stability. The Congress Party campaign, by contrast, focused on what had become widely accepted as the “crisis of the agrarian sector,” both in Andhra Pradesh and throughout the country (see Suri 2006). Two factors contributed to the prominence of this topic on the political agenda in Andhra Pradesh: the drought in 2002/03 and the problem of farmers’ suicides. The media, farmers’ organizations, and the left-wing parties sustained the debate on the issue. Because of this electoral focus on agrarian distress, electricity supply to agriculture became an important topic. In view of the social unrest that they had caused, the tariff hikes of 2000 became an obvious campaign issue. The Congress Party renewed its promise to provide free power to the farmers. As the analysis by Srinivasulu (2004) shows, this electoral promise carried much more weight in the 2004 elections than it had in the 1999 elections. Critical to this change was the praja prasthana padayatra, or pilgrimage by foot, that the opposition leader, Rajasekhara Reddy, had undertaken in summer 2003. His journey of 1,500 kilometers on foot helped him to establish rapport with the rural poor, to emerge as a charismatic leader of the Congress Party, to boost the morale of the party, and to create a self-image that contrasted starkly with that of Naidu (Srinivasulu 2004). Naidu was known for calling himself the CEO of the state, carrying his laptop everywhere, and traveling by plane. Guarded by heavy security, he had rather limited opportunities for interacting directly with the people. Naidu’s government also received strong criticism from the left-wing parties, who accused him of the “surrender” of his party to the World Bank,

pointing to the loan that the Naidu government had accepted to support the power-sector reforms. As Srinivasulu (2004, 24) notes, the World Bank also became a shorthand expression for various reforms of the Naidu government that the Left criticized in their campaign. The TDP was soundly defeated in the 2004 elections. The number of TDP members in the assembly dropped from 180 to 47, while those of the Congress Party increased from 91 to 186 (Srinivasulu 2004). It would require an analysis of election-survey data to assess the importance of the power-sector reforms and the election promise of free electricity in contributing to this outcome.5 After the TDP’s nine years in power, anti-incumbency sentiment certainly played a role as well.

2004–06: Combining Free Electricity with Power-Sector ReformsImmediately after taking the oath of office, the newly elected Chief Minister Rajasekhara Reddy fulfilled his election promise and declared free electric-ity for all farmers. He also waived the electricity dues of the farmers and approved other relief measures. In November 2004, he declared that the government would continue free power supply to agriculture pump sets “till the farming by farmers becomes viable” (Hindu 2004). Rajasekhara Reddy’s government did, however, introduce some targeting of the electricity subsidy in 2005 by excluding approximately 5 percent of the farmers from the free power supply, based on criteria such as large hold-ings, having more than one pump set, and having nonfarm income. The gov-ernment also promoted measures to save energy by making compulsory the use of capacitors (energy-saving devices) for pump-set owners. Rajasekhara Reddy announced that farmers who failed to install capacitors by March 2006 (a deadline that was later extended) would be deemed ineligible for the free-power scheme (Hindu 2005a). As a measure to save both water and electricity, the Rajasekhara Reddy government announced in 2005 that farm-ers would not be eligible for the free-power scheme if they grew paddy in the rabi (winter) season. In the face of stiff protest by opposition parties and farmers’ organizations, however, this plan was not implemented (Kurmanath 2005). The government also reduced the hours of power supply to controlthe level of subsidies it had to pay out. Predictably, the TDP criticized this move (Hindu 2006a). These restrictions and targeting measures received com-paratively little publicity, suggesting that they may have been “stealthy” elements in the reform process (see Jenkins 1999).

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5 Unlike data for Punjab (see “Emergence and Establishment of Fertilizer Subsidies, Late 1977 to 1991” in Chapter 5), the available election-survey data for Andhra Pradesh do not include infor-mation on voters’ opinions regarding free electricity.

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Although Rajasekhara Reddy’s Congress Party–led government did not further pursue the privatization of the power sector, as of 2007 it remained committed to reforms that improve the sector’s performance. Because the government has, so far, reimbursed the utility providers for the electricity subsidy to agriculture, two major problems caused by the subsidies—the financial strain on the utilities and the disadvantages of the respective cross-subsidization—were effectively removed. From the perspective of the utilities, this arrangement has the advantage of saving the transaction costs involved in billing the agricultural pump-set connections. In the public discourse, Rajasekhara Reddy emphasizes that power-sector reform and free electricity are highly compatible. When the 2006 CRISIL rating was announced, accord-ing to which Andhra Pradesh again was rated first among all Indian states, the Hindu reported: “Chief Minister Y. S. Rajasekhara Reddy on Tuesday hailed the CRISIL rating of State power utilities as ‘vindication’ of his ‘path-breaking’ initiative of providing free power to the agriculture sector as an input subsidy. According to an official release, Union Power Minister Sushil Kumar Shinde telephoned Dr. Reddy in the morning and congratulated him for securing the top rating in spite of the Government implementing the free power scheme” (Hindu 2006b). The Rajasekhara Reddy government also massively increased the invest-ment in surface-irrigation projects. In the budget of 2006/07, 51 percent of the Plan Expenditure (expenditure approved by the Planning Commission as part of Five-Year and Annual Plans) was allocated to irrigation proj-ects (GoAP 2006). When the budget was discussed in the state assembly, the opposition, led by Chandrababu Naidu, launched a series of protests, including walkouts, against alleged corruption related to irrigation proj-ects. Regarding groundwater conservation, the Rajasekhara Reddy govern-ment pursued amendments to the APWALTA to increase the monitoring of groundwater resources and to include bore wells for drinking water (Hindu Business Line 2004b).

Punjab

OverviewTo understand the evolution of policies related to electricity supply to agri-culture in Punjab, it is useful to consider the following phases:1. the period prior to 1984, in which a strong farmers’ movement, the Bharatiya

Kisan Union (BKU), demanded subsidized electricity;2. the period 1984–97, which was characterized by social unrest, president’s

rule, and an election boycott in 1992; and

3. the period since 1997, in which identity politics declined and a “populist” policy agenda that included free electricity emerged.

The major developments in Punjab can be summarized as follows. As in Andhra Pradesh, electricity subsidies and a flat-rate tariff became political issues in the first half of the 1980s, against a background of declining farm incomes that led to the emergence of a strong farmers’ movement. During the period 1984–92, civil unrest and identity politics dominated the political agenda, and farmers’ mobilization was not allowed. By the time of the 1997 elections, however, identity politics had declined, and social and economic policies dominated the electoral campaigns. The SAD–led government that came to power in 1997 introduced free electricity for agricultural produc-ers. The Congress Party–led government that won the elections in 2002 first continued the free-power policy but then withdrew it before reintroducing it before the 2007 elections. In spite of a memorandum between the govern-ment of Punjab (GoP) and the GoI on power-sector reforms, progress has been limited, as has progress in developing policies for the more sustainable man-agement of groundwater.

1966–84: Emergence and Establishment of Electricity Subsidies and Flat-Rate TariffsThe existing state of Punjab was created through a reorganization in 1966 that made the Sikh community the majority in the state. Since then, political power has always alternated between the Congress Party and coalitions led by the SAD, the party representing the Sikhs. No ruling party has ever been re-elected to a consecutive term in Punjab (Verma 2002). The SAD, formed in 1920, is one of the oldest regional parties in India and has been of crucial importance for the Sikh community in the assertion of its cultural and lin-guistic identity. The Green Revolution—which started in Punjab in 1966 with the first planting of high-yielding varieties (HYVs) of wheat imported from Mexico—resulted in a change of the leadership of the SAD. Until the 1950s, the SAD leaders were upper-caste, middle-class Sikhs or of urban background. Since the 1960s, the SAD leadership has been dominated by the Jat Sikhs, the large peasant caste that became economically empowered during the Green Revolution (Kumar 2004). As in Andhra Pradesh, the provision of electricity for groundwater irriga-tion was a prerequisite of the Green Revolution. Electric pump sets were metered when they were first introduced, and farmers paid a volumetric price. In the second half of the 1970s, the net income of the farmers from wheat production in Punjab declined considerably. This change stimulated

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the emergence of a powerful farmers’ movement, the BKU, in Punjab as well as in other states. As analyses by Gill (2000, 2004) have shown, the BKU was led by better-off, enterprising, and educated farmers. Unlike earlier farm-ers’ movements in Punjab, BKU was not dependent on any political party, and it succeeded in mobilizing large and medium farmers, as well as small farmers, thus marginalizing the farmers’ organizations led by the communist parties. The BKU’s success was due to several factors. All classes of farmers had benefited from the Green Revolution and developed high expectations based on their initial experiences. Moreover, they all shared a common interest regarding input and output prices. In addition, the majority come from the same caste, the Jat (Gill 2000, 360). The BKU proclaimed independence from political parties, although it always remained closer to the SAD. Still, when the SAD government did not satisfy the farmers’ demands, BKU chose not to support it in the 1980 elections, thus indirectly benefiting the Congress Party (Gill 2000, 356). The failure of BKU leaders to adhere to the principle of political independence later led to the fragmentation of the association (Gill 2004). In view of deteriorating price relations between agricultural and nonagri-cultural products in the 1970s, one of the BKU’s major demands in the early 1980s was to link farm prices to an index of prices with the base year 1967/68 and to lower the prices for inputs, including fertilizer, diesel, and electricity. BKU also demanded good-governance measures, such as preventing extortion from the farmers by officials of revenue and cooperative departments and the SEB. In spite of its image as a populist movement, however, BKU never took the lead in advocating for special provisions for poor farmers, agricul-tural workers, or women (Gill 2000, 366–367). The electricity supply to agriculture was an important focus of BKU activities in the early 1980s (K. Gopal Iyer, personal communication, 2006). A decision to increase the electricity rates led BKU to launch a protest on January 20, 1983. BKU demanded the withdrawal of the increased electricity rates and demanded better access to new connections and the withdrawal of restrictions on the use of electric motors for purposes other than irrigation. It also started a move for the nonpayment of electricity bills to push for a withdrawal of the tariff increase. An agreement was reached in 1984 that approved eight of the BKU’s demands regarding electricity supply, including a considerable reduction of connection charges and line-service charges, and a commitment to establish new electricity connections within three months fol-lowing the agreement. The recovery of electricity bills for tube wells was also postponed. The switch from metered connections to a flat rate had already

been proposed by the Punjab SEB at a high-level meeting in 1977, in spite of the concerns expressed at that time by the chairmen of other SEBs regarding the long-term effects of such a policy (Singh 2005, 1).6

The organizational capacity of the BKU to mobilize farmers is obvious from the campaigns conducted in support of their demands. As Gill (2000, 368) reports: “The outstanding example of culmination of this process has been a successful siege of Punjab Governor’s residence at Chandigarh between 12–18 March 1984 in which 50 to 60 thousand farmers almost took over the state capital. . . . Following this, the Union [BKU] almost took over the entire rural Punjab and entry of officials of the state Electricity Board and cooperative department, revenue staff and police was banned without the permission of BKU. Finally, the Union decided to block the movement of wheat outside the state from June 10, 1984.” The campaign, which took place in a tumultuous political period, came to a sudden end on June 3, 1984, when the national government decided to bring Punjab under the control of the army and subsequently launched the military action at the Golden Temple of Amritsar (Operation Bluestar), in which almost 500 civilians died (Walia 2007). These events were followed by a decade of militancy in which the secessionist Khalistan movement was highly active. The dispute between Punjab and the national government regarding the sharing of river waters with other states was an important factor in this conflict.

1984–97: Militancy and Identity PoliticsThe period of militancy lasted until 1992. During this period, Punjab was under president’s rule except for a period between 1985 and 1987, when the SAD ruled without a coalition partner for the first time. Farmers’ mobilization was not allowed until the return of democracy in 1992. The BKU managed to make its existence known, mainly through newspaper reports (Gill 2000, 370), but during this period it underwent a fragmentation. The government made efforts to co-opt some BKU leaders, for example by offering them member-ship on the SEB and other committees, and these actions created jealousy among BKU leaders (Gill 2000, 369). Moreover, as was the case at the national level, the farmers’ movement became divided over the question of inter-

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6 “It was at a high-level seminar in 1997, in which several chairmen of electricity boards partici-pated, that the then chairman of the Punjab State Electricity Board presented his plan for doing away with metering of electricity for farmers and charging a flat rate based on the horse-power of pump-set installed. Several arguments against the proposal failed to convince the delegation from Punjab of the long-term dangers of such an approach. This started a countrywide trend where state after state indulged in irresponsible populism by first moving to a flat rate and then, in several cases, to zero tariffs power” (Singh 2005, 1).

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national trade liberalization and the negotiations over the General Agree-ment on Tariffs and Trade (GATT). Two interstate coordination committees of farmers emerged at the national level: one led by Sharad Joshi, who favored liberalization, and the other led by Mohinder Singh Tikait, who opposed it. In 1989, Punjab’s BKU split into two factions, one of which sided with Joshi. A further split occurred in 1994, so that three BKU groups emerged: one aligned with the economic liberalization reforms, one engaged in party politics, and one drifting toward the leftist farmers’ organizations (Gill 2000, 2004). The group involved in party politics cooperated with the SAD and promoted the boycott of the state assembly elections in 1992. The Congress Party won these elections as a consequence of the boycott. The first competitive assem-bly elections eventually took place in 1997. Between 1984 and 1997, concerns grew over the sustainability of Punjab’s agricultural development. As early as 1985, the GoP had appointed a commis-sion led by the distinguished agricultural economist S. S. Johl. The commis-sion argued for crop diversification and recommended a reduction of at least 20 percent of the area under rice and wheat. The committee acknowledged a need for subsidized electricity but emphasized that the costs should at least partly reflect the scarcity value of the resource so as to create incentives for efficient use. Other recommendations included the checking of electricity theft and the contracting out of electric supply at the village transformers to local unemployed graduates. Given the political circumstances, however, neither the recommendations regarding electricity nor those regarding crop diversification were implemented.

1997–2007: Electoral Competition and the Rise of the Free-Electricity Policy

1997–2002: SAD-Led GovernmentBy the 1997 elections, identity politics had lost its appeal, and economic and social issues started to dominate the election campaigns (Jodhka 2000; Kumar and Kumar 2002). The SAD took a “secular turn” (Narang 1999). Moreover, agitation against the national government, which had been a major theme for the party, lost its importance (Kumar 1999). Instead, subsidies became a focus of the 1997 election campaigns. The Congress Party, which governed between 1992 and 1997, also switched from liberal market reforms to a focus on subsi-dies for various sections of society. A committee report found that the explicit subsidies doubled between 1994–95 and 1996–99 (Kumar 1999, 304). As in Andhra Pradesh, before the elections, all parties declared themselves in favor of subsidies, even those that had previously been committed to liberalization. As Kumar (1999, 304) observes: “Interestingly, all the dominant political par-

ties, that is, the Congress, BJP and the Akalis, approved market reforms in principle, but made electoral promises against these reforms. In these elec-tions, votes were sought for subsidies and people have voted for it.” The Akali–BJP alliance won the elections and subsequently introduced free electricity to all farmers, together with free canal water, in spite of the state’s precarious financial situation. As a consequence, the World Bank stopped funding projects in Punjab (Deccan Herald 2005). The coalition gov-ernment was led by Parkash Singh Badal, himself a large-scale farmer. Dur-ing the time of the Akali–BJP rule, from 1997 to 2002, the area irrigated by canals decreased by 40 percent, which added considerably to the pressure on groundwater resources (World Bank 2003b, 43). Unlike Andhra Pradesh and other states, Punjab did not adopt a policy to devolve authority in irrigation management. The government developed a state water policy in 1997 and drafted the Punjab Groundwater (Control and Regulation) Act in 1998. This measure, however, remained in draft form as of 2007. In the power sector, efforts were made to attract IPPs to remedy the grow-ing shortage of power generation in the state, a typical phase 1 reform activ-ity. The Punjab State Electricity Regulatory Commission (PSERC) was created in 2000. Since then, the amount of the electricity subsidy to agriculture has been explicitly stated in the state budget, and compensations to the SEB have been made. No steps toward unbundling were undertaken during this period.

The 2002 ElectionsAs in the 1997 elections, all parties in the 2002 elections promised subsidies. In addition, the campaigns were rife with personal attacks and allegations of corruption, nepotism, and mismanagement. The electoral battle between the Akali–BJP alliance and the Congress–CPI alliance grew so heated that the Election Commission warned both parties to exercise self-restraint (Kumar and Kumar 2002). As in Andhra Pradesh, farmers’ suicides and the agrarian crises were important topics. A representative survey showed that out of the 65.5 percent of the respondents who had heard about the suicides of cottonfarmers in Punjab, almost 60 percent either held Badal’s SAD-led government squarely responsible for it or blamed the SAD along with the national govern-ment, which was aligned with it (Kumar and Kumar 2002). Nevertheless, the policy of the Badal government to supply free electricity to all farmers turned into a controversial topic. The measure was criticized as populist, as contributing to the fiscal deficit, and as serving the rich rather than the poor. For example, Tavleen Singh, a noted columnist and political reporter, was quoted in an article in the Tribune as saying: “India’s tragedy is that we continue to elect Chief Ministers who believe that short-term populist measures are more important than doing real good to the state they rule. So

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even as we watch Andhra Pradesh’s collapse on account of idiotic policies of its government, we have Parkash Singh Badal take almost the same route in Punjab. No sooner was he back in power than he announced that farmers would not need to pay for electricity they use in tubewells and that canal water would also be free” (quoted in Dhillon 2001). Singh is also quoted as indicating that Badal had forgotten “the well-known maxim that rampant populism breeds poverty” (Dhillon 2001). In fact, after its introduction following the state assembly elections in 1997, the policy had been criticized during the campaigns for the 1999 national parlia-mentary elections (Jodhka 2000). As Surinder Awasthi reported in the Times of India: “Apart from creating resentment in the urban middle classes, the scheme also created divisions between the tube-well owning cultivating landowners and others in the countryside. While free power is being supplied to the existing about seven lakh [700,000] tube-well connections, there are more than three lakh applications for tube-well connections pending with the electricity board for a long time” (quoted in Jodhka 2000). Jodhka (2000) also observes that “many dalit leaders have also protested against giving electricity free to farmers while asking the poor dalits to pay their bills.” The dalits are an important group of voters, constituting more than one-quarter of the population in Punjab. In 1999, the government initiated a scheme of providing free electricity for domestic consumption to the members of scheduled castes and tribes and other backward classes. Although no limits were applied to farmers, this scheme was limited to connections of not more than 300 watts and 30 units per household per month (Jodhka 2000). The Congress Party–led alliance won the 2002 assembly elections. A post-election opinion poll showed that more than half of those who voted for them felt that the policy of supplying free electricity to farmers was unjustified, while only 19 percent considered it fully justified. In contrast, 59 percent of those voting for the SAD-led coalition considered the free-electricity policy fully justified (see Table 9.1). As Table 9.2 shows, the Congress Party–led coalition has its base among the poorer and urban strata of society, whereas the opposite is the case for the SAD-led coalition. The voting preferences displayed in Table 9.1 may help to explain why the Congress Party–led government discontinued these subsidies soon after assuming office in 2002.7 Still, the Congress Party did consider it politically

7 On its website, the Punjab government explained this policy as follows: “The Congress had promised to continue free supply of electricity to the agriculture sector because it believed that the farmers do need subsidies, particularly when their counterparts in the West are given hefty subsidies. But the previous Akali–BJP coalition government’s misconceived policies had reduced the state to the level of near bankruptcy. The Congress government was, therefore, left with no alternative but to restore power tariff” (http://www.punjabgov.net/roadmap.asp, accessed September 30, 2006).

necessary to take up the policy as an election promise in the 2002 elections and to reintroduce free electricity in 2005 in view of the 2007 elections. According to a newspaper report: “This time the government intends to grant the sop to only small and marginal farmers owning less than five acres of land. Another difference will be in the nomenclature as the sop would not be dubbed as ‘free power’ but an ‘energy bonus’ of Rs 300 per month to the farmers. Sources said this had been apparently done to appease international funding institutions” (Deccan Herald 2005).

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Table 9.1 Opinion on policy of supplying free electricity to farmers, by party affiliation

Opinion about free electricity to farmers INC–CPI SAD–BJP–DBSM BSP Panthic Morcha Total

Unjustified 56 17 4 4 36Somewhat justified 39 27 11 6 23Fully justified 19 59 2 5 36

Source: Kumar and Kumar (2002).Notes: Coalition partners—BJP, Bharatiya Janata Party; BSP, Bahujan Samaj Party; CPI, Com-

munist Party of India; DBSM, Dalit Bahujan Samaj Morcha party; INC, Indian National Congress (Congress Party); SAD, Shiromani Akali Dal (state party in Punjab).

Party voted for in 2002 assembly elections (percent)

Table 9.2 Socioeconomic status, locality, and voting preferences of voters

Party voted for in 2002 assembly elections (percent)

INC–CPI SAD–BJP–DBSM BSP Panthic Morcha

Socioeconomic class Poor 51 18 12 — Lower middle 41 30 7 5 Upper middle 41 27 5 6 Rich 31 50 1 5 Very rich 23 45 2 6Locality Rural 31 37 6 8 Urban 49 30 4 —

Source: Kumar and Kumar (2002).Notes: Coalition partners—BJP, Bharatiya Janata Party; BSP, Bahujan Samaj Party; CPI, Com-

munist Party of India; DBSM, Dalit Bahujan Samaj Morcha party; INC, Indian National Congress (Congress Party); SAD, Shiromani Akali Dal (state party in Punjab). Percent-ages do not add up to 100 percent. The missing percentages were not included in the original sources.

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In resorting to this policy, the party may have hoped to attract votes from swing voters among the Jat Sikh farming community. As Table 9.3 shows, the percentage of voters who decided how to vote during the campaign or on the polling day itself was particularly large among those who voted for the Congress Party–led coalition. In addition, the party may have been swayed by protests by farmers’ organizations against the withdrawal of the free-power policy. The protests included urging farmers not to pay electricity bills. As Gill (2004) observes, this was one of the few instances where the different factions of the fragmented farmers’ movement in Punjab worked together. Having made governance a major topic of the election campaigns, the Congress Party–led government undertook some bold measures in this regard. It passed the Fiscal Responsibility and Budget Management Act (making Punjab the second state in India to do so), reduced the revenue deficit in 2003, encouraged public-private partnerships in infrastructure development, announced plans for significant decentralization in primary health and educa-tion services, and took some high-level measures against corruption (Front-line 2003; World Bank 2004a). However, a World Bank report that acknowl-edges these initiatives points to problems of subsequent implementation: “The urgency to reform and the hectic pace of policymaking, unfortunately, appears to be fading away” (World Bank 2004a, 7). To promote the power-sector reforms, the government appointed an expert committee, led by Gajendra Haldea. Its recommendations included open access (removing entry barriers for private sector companies to engage in power generation, transmission, and distribution); reducing power theft through specific legislation; increasing tariffs for all categories of consumers; metering the power supplied to agriculture; reducing the staffing levels of the PSEB; and restructuring its debts. As the government notes on its website: “The Haldea committee, which has studied the post-reform power scenario in

Table 9.3 Timing of voting decisions, by party affiliation

Party voted for in 2002 assembly elections (percent)

Timing of voting decision INC/CPI SAD/BJP/DBSM BSP Panthic Morcha

During the campaign 39 23 3 6On polling day 35 27 10 4

Source: Kumar and Kumar (2002).Notes: Coalition partners—BJP, Bharatiya Janata Party; BSP, Bahujan Samaj Party; CPI, Com-

munist Party of India; DBSM, Dalit Bahujan Samaj Morcha party; INC, Indian National Congress (Congress Party); SAD, Shiromani Akali Dal (state party in Punjab). Percent-ages do not add up to 100 percent. The missing percentages were not included in the original sources.

the various reforming states, has gone beyond recommending the commonly followed formula. It has suggested introduction of real competition in the system” (http://www.punjabgov.net/roadmap.asp, accessed September 30, 2006). Unlike the Congress Party–led government of Andhra Pradesh (GoAP), which does not link its reform agenda to a need for privatization (see above), the Congress Party–led GoP has pursued a privatization strategy, in spite of the strong resistance from employees in the sector, including the Engineers Association.8 The GoP also signed a memorandum of understanding with theGoI to implement the power-sector reforms. While important steps have been taken, such as reduction of cross-subsidies and restructuring of debt, farther-reaching measures such as unbundling had not been achieved as of 2006. To diversify crops, a measure that would reduce the use of groundwater, the government engaged in an ambitious contract-farming program (see S. Singh 2004). Moreover, the government tried to promote water-saving agri-cultural management practices and experiments with groundwater recharg-ing. The Punjab Assembly also unanimously passed the Punjab Termination of Agreements Bill in 2004, which constituted a unilateral termination of the river-sharing agreements with the states of Haryana and Rajasthan.

The 2007 ElectionsIn the elections of 2007, electricity supply to agriculture expectedly emerged again as an important topic. The SAD, which had, according to Kumar’s (2007, 273) analysis, “won the elections in 1997 on the promise of free power and water scheme for the farmers,” included in their manifesto for the 2007 elections the promise to enhance power generation to ensure 24-hour, free electricity to farmers and to weaker sections of the society within three years (Kumar 2007, 273). They also promised that the free-power entitlement to the dalits would be doubled from 200 units to 400 units. The manifesto of the Congress Party also promised to supply free electricity to the farming sector as well as provide tube-well connections to small and marginal farmers within 12 months, and enable Punjab to generate an electricity surplus by 2012 (see Kumar 2007). As in the 2002 elections, electoral promises such as free power were criticized as populist in the press. As Kumar (2007) put it: “Both the Congress and the SAD continued to compete against each other in holding out populist promises, without revealing the programmatic efforts to be taken in the event they came to power.”

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8 The Punjab government notes on its website, “The PSEB employees have come out with alter-native suggestions, but these cannot take care of such a grim situation” (http://www.punjabgov.net/roadmap.asp, accessed September 30, 2006).

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In a closely fought battle, the 2007 elections brought the coalition of the SAD and BJP parties back to power. This result can be attributed partly to anti-incumbency sentiment, which is particularly strong in Punjab. However, in his analysis, Kumar (2007) also identified as one of the most important factors “the failure of Congress in adding to the power generation capacity during the last five years [which] made it unpopular among the farmers criti-cally dependent on mechanized irrigation.”

Summary and ImplicationsThe cases of Andhra Pradesh and Punjab largely confirm the general analysis of the challenges, presented in Chapter 2, of reforming the electricity supply to agriculture (especially Dubash and Rajan 2001; Lal 2006; Dubash 2007). There are interesting state-specific variations, such as the prominent role of the BKU and the dominance of the Jat Sikh (representing the better-off farm-ers) in the leadership of the SAD Party in Punjab, and the specific roles that N. T. Rama Rao and Chandrababu Naidu played in Andhra Pradesh. However, the basic factors that account for the unresolved situation are remarkably sim-ilar: (1) the establishment of a flat-rate tariff and the subsidies since the end of the 1970s, following massive protests by farmers’ organizations in Green Revolution states against increasingly unfavorable price relations; (2) the per-ception that subsidies were necessary to alleviate agrarian distress; and (3) the perceived need of all parties to engage in “populist” policies in order to contest elections, even if they were otherwise committed to reforms. The two cases also indicate that state-level processes are part of a larger national dynamic. There is obviously a strong contagion and demonstra-tion effect, because the policy of providing electricity at a flat rate or free first spread to neighboring states and then to other Indian states. Efforts to change this policy also need to be seen as part of a larger national dynamic, as they are linked to a collective-action problem. At national conferences of the concerned ministers, state governments have made commitments at the national level to change the policies governing the electricity supply to agri-culture. However, in their efforts to win state elections, party leaders have frequently defaulted on this commitment. As the evidence shows, neither the national government nor the central leadership of the national parties has the means to enforce any agreement. For example, the Congress Party leader Sonia Gandhi tried to convince state party leaders not to back the free-power policy, without success.9

9 As Sharad Joshi (2002) noted in a newspaper article, “[Gandhi] has started addressing letters to her Chief Ministers on the lines of those her grand father-in-law [sic] used so often and with great effect. Mrs. Sonia Gandhi has sent a missive to her Chief Ministers urging them to desist

The case of Andhra Pradesh also indicates that providing free electricity to farmers is not necessarily an obstacle to power-sector reforms, especially if political leaders can insulate the power sector from the potential negative effects of providing highly subsidized or free electricity to agriculture by measures such as compensating the electricity utilities for the subsidy, set-ting up a separate distribution system for agricultural connections, and mea-suring agricultural electricity consumption at the feeder (local distribution line) level. Andhra Pradesh used all three strategies, and Punjab has moved in the same direction. However, the case of Andhra Pradesh also shows that power-sector reforms that are judged successful from an investor’s perspec-tive (as indicated by the CRISIL rating) do not necessarily provide a better electricity supply to farmers. To move beyond this impasse, strategies have to take into account the roles, perceptions, and resources of the different stakeholders. Using the framework presented in Chapter 3, the next two chap-ters deal with these questions.

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from freeing electricity for farmers. It is a bold step and serious rebuff to the populist policies followed by the Badals, the Chautalas and the NTRs.”

CHAPTER 10

The Politics of Electricity Supply to Agriculture: Analysis of Political Actors, Discourses, and StrategiesREGINA B IRNER AND NEERU SHARMA

This chapter presents the information derived from the stakeholder inter-views, guided by the conceptual framework presented in Chapter 3. The first section describes the major actors and their interests as well as

their political resources and strategies, with the exception of the major polit-ical parties, which are discussed in Chapter 9. The second section identifies major discourse coalitions and describes their belief systems and discourses. The third section reflects on the extent to which policy learning across coali-tions has taken place or could take place. This information provides the basis for an analysis of the political feasibility of different reform options and strategies, which is presented in Chapter 11.

Major Actors and Their Interests, Political Resources, and Strategies

Farmers’ OrganizationsInterviews were held with representatives of the following organizations: (1) Liberal Farmers Movement at the national level; (2) the Farmers’ Forum Bharat Krishak Samaj, which is associated with the Congress Party; (3) All India Kisan Sabha, the farmers’ organization associated with the CPI-M in both states and at the national level; (4) the Federation of Farmers’ Associations in Andhra Pradesh (FFAAP), an umbrella organization of 750 farmers’ groups; (5) BKU (Ugraha), an example of the BKU organizations in Punjab; and (6) farmers’ groups organized by the Kheti Virasat Mission in Punjab, an NGO that promotes environmentally sustainable farming. The choice of these organiza-

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tions was intended to cover the political spectrum from proliberalization to antiliberalization, or “Left” to Right.”

InterestsObviously, farmers have a strong interest in access to reliable energy at low cost. Interestingly, none of the farmers’ organizations discussed here origi-nally demanded free electricity. Once political parties had begun proposing this policy, however, some of the farmers’ organizations also started to argue for it. Major concerns expressed by the farmers’ organizations included the limited, irregular, and inconvenient (mostly night-time) hours of electricity supply and the problem of voltage fluctuations that damage pumps.

Resources and Political StrategiesThe conceptual framework presented in Chapter 3 shows how resources can be used to create political capital and influence political outcomes. Farm-ers’ organizations use a variety of strategies to create political capital for their positions. One is organizing public protests such as demonstrations: this was the main strategy used in the 1980s (see Chapter 9), and it remains important. Various resources are required to organize public protest, includ-ing a network of members or followers (a form of social capital), charismatic leadership, and the political skills to mobilize farmers around a certain topic (a form of human capital). Not all farmers’ organizations have formally reg-istered members. One leader argued that the lack of formal membership is a strategy to avoid political repression. Apparently the number of farmers whom the organizations can easily mobilize for demonstrations has declined since the 1990s. This trend may be related to the fragmentation of the farm-ers’ movement (see Chapter 9). Lobbying political decisionmakers is another important strategy. The re-sources needed include the ability to mobilize the farmers’ votes and personal connections with politicians (a form of social capital). Farmers’ organizations asso-ciated with a particular political party can use this channel for influencing politi-cal decisionmaking. Some of the farmers’ organizations produce newsletters or other print material to influence their membership and public opinion. Farmers’ interests are also represented through the members of Parlia-ment. Many members of the state legislative assemblies in Punjab and Andhra Pradesh have an agricultural background, as do some leading politicians: for example, the Chief Minister of Punjab from 1997 to 2002 and since 2007 is a large-scale farmer. India’s political system provides few formal channels through which farm-ers’ organizations can voice their interests. In the two states examined here,

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farmers’ organizations were not formally invited to relevant hearings of the state assemblies. Conventionally, the farmers’ commissions are composed of academics and officials who may be “farmer-friendly,” but they do not nec-essarily include leaders of farmers’ organizations (Gill, personal communica-tion, October 17, 2006). This practice may be changing, as the Expert Group on Ground Water Management and Ownership (2007) included the leader of a farmers’ organization. The ERC has undertaken an important institutional innovation by providing a formal forum in which farmers’ organizations and other stakeholders can participate. Because farmers constitute a considerable share of the electorate, mobiliz-ing farmers’ votes is obviously useful for creating political capital. As Chapter 9 shows, various political parties have used electricity pricing for agriculture as an effective strategy for attracting farmers’ vote. Placing the topic of agrarian distress high on the political agenda before elections is another strategy for creating political capital in the form of electoral leverage.

Agricultural Labor OrganizationsAgricultural laborers represent a considerable proportion of the rural popula-tion and, accordingly, of the rural voters. According to the 2001 Census, 34 percent of the rural population in Andhra Pradesh are agricultural laborers; in Punjab, the figure is 16 percent (GoI 2001). Many laborers are represented by the All India Agricultural Workers Union, which is associated with the CPI-M. A representative in Andhra Pradesh and a representative at the national level were interviewed for this study.

InterestsThe interviewed representatives consider policies that make agricultural production more profitable as being in the agricultural laborers’ interest, as profit creates employment opportunities. They observed that agricultural laborers benefit indirectly from electricity subsidies to agriculture and the free-power policy, even though these are, in principle, not policies the union endorses. After the 2004 elections in Andhra Pradesh, the union complained that the agricultural laborers had to pay their household electricity bills in spite of their poverty, whereas even the rich farmers did not have to pay for electricity for agricultural uses. To some extent, policymakers addressed this concern. In the overall strategy of the union, however, electricity is a less significant concern than access to land (especially in Andhra Pradesh, where land reform is an important political issue), the implementation of minimum wages, and better access to health services and education.

Resources and Political StrategiesDespite their numbers, especially in Andhra Pradesh, agricultural workers appeared less able to create political capital than farmers’ organizations. The public discourse on agrarian distress focuses on the farmers and farmers’ suicides to the virtual exclusion of the situation of agricultural laborers. This neglect occurs despite the fact that the agricultural laborers are organized. The Agricultural Workers’ Union in Andhra Pradesh can draw on more than a million members (a form of social capital) to mobilize votes, organize protests, and engage in lobbying. As discussed below, the union joined the People’s Monitoring Group on Electricity Regulation (PMGER) and used its political resources to promote the goals of this group.

Energy-Sector EmployeesIn Andhra Pradesh, interviews were conducted with representatives of the unbundled units of the former APSEB. A member of the Engineers’ Association was interviewed in his function as a member of the PMGER. In Punjab, inter-views were held with the Electrical Engineers’ Association and the Technical Services Union of the PSEB.

InterestsAs indicated in Chapter 9, the employees of PSEB opposed the unbundling and privatization of the power sector. Obviously, such reforms affect the interests of energy-sector employees, as they have implications for job security and working conditions. As the discourse analysis in the section “Identifying Belief Systems” indicates, energy-sector employees also argue that privatization is not in the public interest. In Andhra Pradesh, initial opposition to unbundling was overcome through negotiations with the labor unions, which basically guaranteed that the interests of the employees would be protected. It also appears that the energy-sector employees supported the free-electricity policy as a strategy to prevent privatization (see Box 10.1 below). In fact, none of the interviewed energy-sector employees in Andhra Pradesh and Punjab opposed the free-electricity policy as long as the state governments compensated the utilities for the revenue losses. The interviews in Andhra Pradesh also indicated that the management of the utilities consults closely with the government regarding priorities in times of power shortages. In critical phases of the crop-production cycle, agricul-ture receives priority, and station managers have discretion in adjusting the hours of power supply to meet the specific needs of the cultivators. Even though this argument is not directly related to the interests of the employ-ees, they still used it to defend their position.

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Resources and Political StrategiesEnergy-sector employees’ organizations have two major resources with which to generate political capital: their technical and organizational knowledge (human capital) and their extensive membership (social capital). In both states, the engineers’ associations have engaged in lobbying, bringing to bear their expertise on electricity issues. For example, the Engineers’ Association of the PSEB has produced various documents that analyze the reform experi-ence in other states and propose alternatives to privatization, such as func-tional unbundling. The employees’ organizations can also exercise the threat of going on strike. In Andhra Pradesh, this power has allowed them to enter into negotiations and a tripartite agreement that protects their interests. In Punjab, the Technical Services Union has cooperated with the Kisan Sabha (farmers’ organization) in campaigning against privatization.

Nongovernmental Organizations (NGOs)

People’s Monitoring Group on Electricity Regulation (PMGER)This NGO, which brings together a wide spectrum of organizations, has played an interesting role in influencing electricity policy in Andhra Pradesh. Box 10.1 provides background information on this group.

Interests. PMGER’s policy recommendations represent an interesting example of “packaging” various measures to address the interests of the different constituents. Before the 2004 elections, PMGER recommended that electric-ity for pump irrigation should be made free, which would be in the interests of farmers and agricultural laborers. Energy-sector employees also supported this measure as a strategy to prevent privatization. PMGER emphasized that the free-electricity policy should be accompanied by measures to save elec-tricity and control groundwater extraction, such as the installation of capaci-tors, and restrictions on new bore wells. Obviously, these measures address the primary interests of the environmental groups. However, one interviewee representing Prayas, a Pune-based NGO engaged in energy sector reforms that is a member of PMGER, explained that his organization does not consider free electricity to be an appropriate policy in the long run, but regarded it as currently necessary to address the crisis in the farm sector.

Resources and Political Strategies. PMGER can draw on the combined organi-zational capacity of its member organizations as an important source of social capital. The group’s political strategies include media campaigns, lobbying, and educational activities. Before the 2004 elections, the group supported free electricity, associated with energy- and water-saving measures, by issu-

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Box 10.1 The People’s Monitoring Group on Electricity Regulation (PMGER)

PMGER was formed in 1999 by a group of individuals and organizations that were concerned about growing momentum of power-sector reforms and privatization. According to its mission statement, PMGER aims at “increasing people’s participation in power sector reforms and regula-tion through different forms. This includes all those vulnerable sections who are normally outside the decision-making structures such as poor, disadvantaged, farmers, women and consumers.” The group’s strategy is to develop, analyze, and distribute information on different aspects of the power-reform agenda. In its own words, “PMGER hopes to reach out to as many people as possible, striving to reach the Mahatma Gandhi’s ‘last person.’” In fact, PMGER has been able to bring a wide spectrum of organizations together that do not necessarily collaborate. They include the Centre for Environment Concerns, an NGO working on development issues; the Prayas Energy Group, Pune; the Banjara Development Society, Hyderabad; the Andhra Pradesh State Electricity Board Engineer’s Association; the United Electricity Employees Union (with approximately 8,000 members); two farmers’ organizations (with approximately 200,000 members); and an organization of farm laborers (with approximately 500,000 members). PMGER uses the opportunities for participation created by APERC and aims at influencing electricity policies through other strategies, such as using the media and interact-ing with members of the State Legislative Assembly.

Sources: PMGER website (http://www.pmger.org), accessed December 18, 2009; interviews with PMGER members on September 3, 2006.

ing press statements and organizing meetings with members of the State Legislative Assembly. The group also works with farmers to educate them about ways to save energy.

Kheti Virasat MissionKheti Virasat Mission is an NGO that was established in 2005. It is run by a group of environmental and social activists and operates out of the Faridkot District in Punjab.1

1 See http://www.khetivirasatmission.org. Accessed November 28, 2009.

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Interests. This NGO aims to promote environmentally sustainable agricultural production in Punjab. It encourages organic farming and the sustainable use of soil and water resources. It also seeks to reduce the high levels of pesticide use in Punjab and their negative consequences for human health and the environment. This NGO does not favor free electricity, which it sees as contributing to the overexploitation of groundwater. It is one of the few organizations interviewed for this study that stressed a need to invest in renewable energy sources, such as microhydroelectric plants, bioenergy, and solar energy.

Resources and Political Strategies. In addition to working with farmers and farmers’ groups directly to promote sustainable agricultural production, the NGO uses a variety of communications strategies, including open letters, press statements, and an email-based discussion forum. Although the organi-zation does not directly lobby political decisionmakers, it tries to influence public opinion.

The Public AdministrationIn setting fertilizer policy (see “Major Actors and Their Interests, Political Re-sources, and Strategies” in Chapter 6), different ministries at the national level were shown to be actors that pursued different objectives to protect their con-stituents’ interests. At the state level, these differences were less pronounced, perhaps because of the strong role in state government played by the chief min-ister, who has executive power. The public administration generally addressed problems related to electricity and groundwater with technical solutions.

Agricultural AdministrationIn both Andhra Pradesh and Punjab, representatives of the departments of agriculture were interviewed. In both states, the interviewees emphasized that the free-electricity policy was a political decision taken to mitigate agrarian distress, implying that the agriculture departments had not strongly supported this decision. The interviewees of the Punjab agricultural admin-istration stressed that the primary concern of the farmers was a reliable electricity supply. In both states, the interviewees saw the department’s role as increasing the productivity and sustainability of agricultural production, pointing to the wide range of programs and activities established to advance this goal.

Groundwater AdministrationInterviews were held with staff of the Groundwater Department in Andhra Pradesh and the Groundwater Board at the national level. Their main

responsibilities are to monitor and promote the sustainable use of ground-water resources. The interviewees did not take a position on the relationship between electricity pricing and groundwater extraction, and they reported no specific activities to examine this relationship. As with the agricultural administration, the interviewees of the groundwater administration in Andhra Pradesh described the free-electricity policy as a political decision. Even though the groundwater administration could, in principle, be a target of lobbying by environmental groups, this study found no evidence that this strategy plays a role.

Energy-Sector AdministrationEnergy administration at the state level differs considerably between Andhra Pradesh and Punjab. Whereas Andhra Pradesh has pursued the types of reforms envisaged by the national Ministry of Power, Punjab had not yet started unbundling as of 2007. The secretary of the national Ministry of Power was interviewed for this study. One of the ministry’s main objectives is promoting state-level reforms, using strategies that include enforcing legal provisions (such as the 2003 Electricity Act) and providing funding. The Accelerated Power Reform and Development Programme (APRDP) is an example of such a funding initiative. States can access this funding source only if they commit to electricity sector reforms.

International Financial Institutions and Donor AgenciesInternational financial institutions and donor agencies can influence policy processes by providing funding, engaging in policy dialogues, and providing knowledge. Interviews were conducted with energy and agricultural experts of the World Bank and energy and governance experts of the United King-dom’s Department for International Development (DFID). Both organizations have supported energy-sector reform in Andhra Pradesh. The World Bank has also conducted a study on electricity supply to agriculture in Andhra Pradesh and Haryana (see Chapter 2). Both organizations favor unbundling, meter-ing agricultural connections, and increasing the price paid by farmers for electricity. However, the free-electricity policy in Andhra Pradesh did not lead to a suspension of funding and technical assistance, which implies that the bank’s interest in continuing this assistance was stronger than its objec-tions to this policy. The United States Agency for International Development (USAID) has funded a pilot project in joint community-based management of water resources and electricity in Andhra Pradesh and other states.2

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2 http://www.waterenergynexus.com/. Accessed January 18, 2011.

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Discourse CoalitionsUsing the approach applied in “The Role of Ideas” in Chapter 6, this section identifies the discourse coalitions involved in the electricity supply to agri-culture and analyzes the belief systems and story lines that characterize each of the coalitions. As explained in “Discourse Coalitions” in Chapter 3 and “The Role of Ideas” in Chapter 6, discourse coalitions are groups of actors that share a particular set of arguments and story lines, which point to common underlying value and belief systems. As with the investigation of fertilizer subsidies, analysis of the interviews and additional data sources led to the identification of two major discourse coalitions: “market-oriented” and “welfare-state-oriented” (see “TheRole of Ideas” in Chapter 6). In a nutshell, the market-oriented discourse coali-tion favors increases in the electricity price and the introduction of metering to improve efficiency and reduce the fiscal burdens on the government, whereas the welfare-state-oriented discourse coalition defends electricity subsidies as a policy instrument of intersectoral income redistribution to mitigate agrarian distress. Table 10.1 identifies the major actors in the two discourse coalitions, based on interview information and a review of documents, such as the 10th Five-Year Plan of the GoI, the reports of various commissions, and several World Bank publications. As the table shows, the two coalitions cut across

Table 10.1 Electricity policy discourse coalitions: Major actors, Punjab and Andhra Pradesh

Market-oriented coalition Welfare-state-oriented coalition

Proliberalization farmers’ movement at the national levelFarmer’s commissions at the national level and in PunjabMembers of the Planning CommissionManagement of the unbundled power utilities in Andhra PradeshTelugu Desam Party in Andhra Pradesh under Chandrababu NaiduCongress Party in Punjab and at the national levelMajor international financial institutions and donors (World Bank, Department for International Development [U.K.], United States Agency for International Development)Public administration officials, especially in the Ministry of FinanceResearchers and academics

Source: Authors.

Most farmers’ organizations in both states, except the proliberalization farmers’ movementCommission on Farmers’ Welfare in Andhra PradeshOrganizations representing the energy-sector employeesCommunist parties in both states and at the national levelCongress Party in Andhra Pradesh under Y. S. Rajaskekhara ReddyPeople’s Monitoring Group on Electricity RegulationPublic administration officials in the agricultural, energy, and environment

sectorsResearchers and academics

almost all the different stakeholder groups. For example, the Liberal Farmers’ movement clearly endorses the market-oriented paradigm, whereas the All India Kisan Sabha is associated with the welfare-state-oriented paradigm. In addition to the market- and the welfare-state-centered discourse coali-tions, a number of interviewees also referred to community-based approaches, although none associated themselves exclusively with this paradigm. Because it did not emerge as a dominant theme in the interviews, this paradigm is not included in Tables 10.1 and Table 10.2. However, the community-oriented para-digm is described in the section “Decentralization and Electricity Cooperatives.” Among the organizations covered in this research project, only one group could be identified that in fact engaged in sustained joint action and could therefore be considered as an advocacy group, as defined by Sabatier and Jenkins-Smith (1993; see “Discourse Coalitions” in Chapter 3): the PMGER in Andhra Pradesh (see Box 10.1). The organizations that constitute PMGER belong mainly to the welfare-state-oriented discourse coalition, but they represent different sectors: agriculture, energy, and the environment. These groups came together mainly to oppose the privatization of the power sector. The position that this coalition has promoted—free electricity for agriculture in combina-tion with water- and energy-saving measures—can be considered as a pack-age that addresses the concerns of different constituents: farmers, who are interested in financial relief; environmentalists, who acceded to the farmers’ demands as a temporary emergency measure, but do not want to see sustain-ability goals compromised; and energy-sector employees and engineers, who consider public-sector reform a better model than privatization. As in the case of fertilizer subsidy reform, the interviews indicate that each discourse coalition is associated with a positive self-representation and a negative other-representation (see “The Role of Ideas” in Chapter 6, and Table 6.1). For example, a member of the market-oriented discourse coali-tion commented: “Well, there are . . . anachronistic farmers’ organizations, which want to continue with the old way. They would say that the govern-ment should protect them even now. But what I call the mainstream farmers’ movement has succeeded in educating the farmers . . . that the government help ultimately comes out to be very expensive.”3 One academic interviewee identified international organizations as the adversarial “others”: “I would say, it [that is, subsidies to farmers] is an economic measure which is driven by an economic necessity. . . . And of course, all these big shots then come from the U.S. and say it’s all terrible, when they are living very subsidized lives.” This interviewee also criticized reform proponents who defend tax

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3 Interview with representative of the Liberal Farmers’ Movement, New Delhi, January 10, 2006.

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Table 10.2 Major story lines and specific beliefs: Electricity supply

Market-oriented Welfare-state-oriented coalition coalition

Core beliefs

Role of state intervention State should play only a State should play an active coordinating, facilitating, role. and regulating role. Income inequality justifies In case of market failure, redistributive policies. services should be outsourced In case of market failure, the or provided under public– state should engage in the private partnerships. provision of basic services. Approach to environmental Market-based instruments, Regulatory instruments (such as problems including the price restrictions on activities) are mechanism, should be used appropriate to deal with to deal with environmental environmental problems. problems. Using the price mechanism may Natural resources should be disadvantage the poor. priced.

Specific beliefsAgricultural situation in general

General situation of The low growth rateb in The agrarian sector is in crisis, agriculture (f)a agriculture leads to an as indicated by high suicide increasing income disparity rates and high levels of between rural and urban indebtedness. populations. Reasons for problems Because reforms have not Economic reforms have harmed in the agricultural gone far enough, large farmers, especially small and sector (f) inefficiencies remain. marginal farmers, by, for Subsidies crowd out productive example, reducing access investments. to institutional credit and Too much emphasis is placed extension. on foodcrops, which could Minimum support prices are be imported. too low. The farm lobby prevents reform. Land reforms have not been implemented.

Electricity subsidies to agriculture

Role of electricity Electricity subsidies create a Electricity subsidies are an subsidies (f, p1) vicious cycle leading to low important instrument for quality of electricity supply alleviating the crisis in the and low incomes. agricultural sector. Subsidies are a major obstacle Subsidies are not an obstacle to power-sector reform. to power-sector reform, if it is a public-sector reform.Magnitude of subsidies (p2) Subsidies are very high. Subsidies are considerable, They are a drain on state but not a major strain on financial resources. state financial resources They are a major reason for compared to the loss of high fiscal deficits and low resources due to problems investment in infrastructure such as tax evasion. and social services.

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Table 10.2 Continued

Market-oriented Welfare-state-oriented coalition coalition

Targeting of subsidies (p2) If subsidies are provided at Rich farmers (“landlords”) all, they should be targeted should pay for electricity. and provided in a way that Implementing targeted does not distort markets subsidies, though desirable, (for example, as direct is difficult. income transfers or tradable entitlements).

Energy–groundwater nexus and related groundwater–surface irrigation nexus

Relation between Flat rates and free electricity Flat rates and free electricity flat-rate or free policy are major causes of ground- are not the causes of and groundwater water overextraction. groundwater overextraction. extraction (f) If the marginal cost of It is not in the farmers’ own extraction is zero, there is interests to overuse water. no incentive to save water. Time restrictions on electricity supply prevent over- extraction of groundwater.Relevance of metering Metering is absolutely necessary Metering is preferable, but diffi- (f, p2) to improve efficiency in both cult to implement because energy and water use. of high transaction costs.c

Strategies to save Institutional: Increase Institutional: Use regulatory groundwater (p2) electricity price and intro- instruments such as duce water pricing; promote restrictions on bore wells (or water markets, if electricity introduce state ownership pricing is not sufficient. of wells). Technical: Introduce water- Technical: Introduce water- saving technologies; promote saving technologies; promote crop diversification. crop diversification, but only if food self-sufficiency can be maintained.Strategies for crop Promote contract farming. Establish minimum support diversification (p2) Reduce minimum support prices and public prices for staple foods. procurement for additional crops. Do not promote contract farming, which exploits farmers.Link between groundwater Reduce subsidies for surface- Increase public investment in and surface irrigation water irrigation and take surface irrigation. (c, p1) other steps to promote more Provide more equitable access efficient management. to surface-water irrigation. Coordinate management of Coordinate management of both water resources. both water resources. Power-sector reforms

Reform model for the Liberalization, privatization, Orissa model has shown power sector (p1) and competition are negative consequences of essential. privatization.

(continued)

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Table 10.2 Continued

Market-oriented Welfare-state-oriented coalition coalition

The telecommunications sector Reform of the public sector is provides example of success- needed and feasible. ful reforms. Reduction of theft (p2) Theft by all categories of con- Theft is mainly committed by sumers should be reduced. large-scale users and should be reduced.

Unbundling (p2) Unbundling is essential. Unbundling is not a useful It improves efficiency even strategy. without privatization. It is imposed because it is neces- sary for privatization. Role of regulation (p2) Independent regulation can be Independent regulation is introduced to address market useful if it ensures people’s failure. participation. Regulators should mediate between industry and consumers. Decentralization (p2) Decentralization should Decentralization should be be tried through tried through strategies strategies such as such as community-based franchising and private- management and sector involvement. involvement of panchayats.Role of international They provide necessary They represent the interests financial institutions, resources and valuable of international capital, donors, and technical assistance. especially the World Bank. consultants (p1)

Source: Authors.aTypes of beliefs: f, factual and causal beliefs; p1, central policy beliefs; p2, instrumental policy beliefs.bItalicized terms are key words or phrases that are often used to refer to the entire story line.cThis argument is not exclusively associated with the welfare-state-oriented discourse; it is also held by actors associated with the market-oriented discourse.

breaks for large companies as “an economic necessity” but are unconcerned about “huge consultancy money, which is wasted,” while at the same time condemning subsidies that benefit poor farmers.4

Identifying Belief SystemsFollowing the approach outlined in “Beliefs and Paradigms” in Chapter 3 (Figure 3.2), this section identifies the core beliefs and the specific beliefs held by the two discourse coalitions. These beliefs have been derived from the interviews

4 Interview with academic, Chandigarh, April 13, 2006.

and are summarized in Table 10.2. As indicated in Chapter 3, specific terms or phrases are often used as a metaphor for an entire story line. Those words or phrases are marked in italics in Table 10.2. In interpreting the table, one has to keep in mind that the positions represent “ideal types,” as explained in “The Role of Ideas” in Chapter 6. Individuals may hold positions that fall in between these ideal types. One also needs to consider that political parties (other than the communist parties) often adopt different discourse strategies before and after elections (see Chapter 9). The core beliefs about the role of the state and the market identified in the study on fertilizer supply appear equally relevant to the politics of elec-tricity supply to agriculture. They are summarized at the beginning of Table 10.2. The specific beliefs reported here were triggered by questions referring to the agricultural situation in general, electricity subsidies to agriculture, the energy-groundwater nexus and the related groundwater–surface irrigation water nexus, and power-sector reforms.

The Agricultural Situation and the Role of SubsidiesAs with fertilizer subsidies, the two discourse coalitions differed in theirinterpretations of the agricultural situation in general and their framing ofthe major problems. Although both discourses are concerned with rural pov-erty, the market-oriented paradigm attributes it mainly to slow agricultural growth rates. The GoI’s 10th Five-Year Plan, for example, emphasizes the decelerated agricultural growth rates as a disturbing trend and continues to criticize policies of the states that have tried to increase production by subsi-dies rather than by public investments (GoI 2002, 514–515). Likewise, a flagship publication on agriculture by the World Bank (2004c, xiii) begins: “Fostering rapid and sustained agricultural and rural growth and development remain the key priorities of the Government of India.” Like the report of the Planning Commission, this report contrasts subsidies with investments: “Bold action from policy-makers will be required to move away from the existing subsidy-based regime and instead invest in building a solid foundation for a highly productive, internationally competitive, diversified agricultural sector” (World Bank 2004c,vii). The argument that subsidies stifle public investments, and hence con-tribute to slow growth, is central to the story line of the market-oriented dis-course and is found in numerous publications that can be attributed to this discourse (see, for example, Gulati and Narayanan 2003; World Bank 2003b). In the welfare-state-oriented story line, the major problem is described as an agrarian crisis, and farmers’ suicides are seen as its major indication. In this story line, the crisis is attributed to unfavorable relations between input and output prices, which lead to indebtedness, and subsidies are considered as a legitimate and necessary instrument of relief. As a representative of a

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regional party in Punjab points out: “Fertilizer prices have increased but minimum support prices have not increased. 24,000 crores is the debt of the farmers to the financial institutions, moneylenders and cooperative banks. This is the reason why most of the farmers are committing suicide. The actual condition of the farmer is miserable. . . . Farmers should get remunerative prices otherwise there is no hope.”5 The personal website of Y. S. Rajasekhara Reddy, former chief minister of Andhra Pradesh, describes the introduction of the free-electricity policy as a major achievement: “Another feather on Dr. YSR’s cap is winning the hearts of the hardcore advocates against the Free Power Supply to the favour of farmers of our State.”6 Another interviewee stated that “there are some things you want as a society to subsidize or to spend on because these are part of your social goal. . . . You need food sub-sidies because you want to make food available relatively cheaply to most of your population. At the same time, you don’t want farmers to suffer.” This interviewee also referred to the crisis as a reason why power-sector reforms should not be pursued at this time: “Just two days ago, all these ministers met in Andhra Pradesh to talk about the suicides. And . . . despite [the best efforts of the GoAP], there are still suicides. The crisis is not going away. This, I would say is a very bad time to be talking about things which are really longer-term issues. Because right now is an emergency, you have to deal with this emergency. So to talk about power-sector reforms . . . is very unrealistic.”7 The Congress Party at the national level, which typically follows a more market-oriented discourse than the state branches of the party, echoed this theme when defending the free-electricity policy in Andhra Pradesh as an “emergency response” to an “emergency crisis” in which 3,000 farmers had committed suicide (Hindu Business Line 2004a). Pointing to external factors as reasons for the agrarian crisis is also common in the welfare-state-oriented discourse. As one respondent pointed out: “Earlier, in Punjab, I remember, in 1999, people used to say that the WTO and all that would give us a market outside. But what has happened with the WTO? The developed countries have not lessened their subsidies. So, the Punjabi farmers, they have lost out. They have lost out as a result of WTO.”8

These interpretations of the role of subsidies reflect an important differ-ence between the two discourse coalitions with regard to their causal beliefs about the current agricultural situation. Likewise, disagreement about the

5 Interview with party representative, Chandigarh, March 16, 2006.6 See http://en.allexperts.com/e/y/y/y.s._rajasekhara_reddy.htm, accessed November 2, 2008.7 Interview with academic, New Delhi, April 13, 2006.8 Interview with academic, New Delhi, May 29, 2006.

role of subsidies as a policy instrument points up a difference in central policy beliefs. The two discourse coalitions also differ in their assessment of the magni-tude of the electricity subsidies to agriculture; this can be seen as a factual belief but is subject to interpretation. The market-oriented discourse stresses that public expenditure on agriculture is very large. For example, one author points out that this subsidy is “equivalent to 25 percent of India’s fiscal defi-cit, twice the annual public spending on health or rural development, and two and a half times the yearly expenditure on irrigation” (Monari 2002, 1). Proponents of the welfare-state-oriented discourse argue that the subsidy is small compared to the overall budget and to the benefits that the industrial sector receives. As one respondent argued, the electricity subsidy to agricul-ture “is a relatively small burden on the state budget. . . . And another way of looking at the subsidy is that it is exactly the same as . . . a forgone tax. So, if you don’t tax the corporates, that’s exactly the same as giving them subsidies. For example, Reliance [India’s largest private sector enterprise] . . . was paying only 4 percent tax. So, you are actually subsidizing the cor-porates in a big way. Nobody talks about that as a subsidy.”9

The two coalitions also disagree on the targeting of subsidies. These views can be seen as instrumental policy beliefs. According to the market-oriented discourse, subsidies, if used at all, should be targeted. As a representative of an industry association explained: “Subsidies distort the market price, they distort the market mechanism. As far as possible, subsidies should be avoided. If subsidies need to be given, they should be targeted, and they should be given to the right people who benefit from those subsidies.”10 Members of the welfare-state-centered discourse coalition generally agree that subsidies should be targeted. A representative of a farmers’ organization that is associated with the CPI-M argued that “any subsidy should be given to the small and the marginal farmers and not be given to the landlords.”11 This discourse sees implementation problems as the major obstacle to targeted subsidies. In the words of one respondent: “Targeted subsidies are good as long as you can prevent leakages. How are you going to implement it? That is my question. As long as you evolve a foolproof method of implementation, then you can go ahead and have targeted subsidies. . . . But how are you going to do it?”12

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9 Interview with academic, New Delhi, April 13, 2006.10 Interview with representative of an industry association, New Delhi, March 3, 2006.11 Interview with representative of a farmers’ organization, March 14, 2006.12 Interview with academic, New Delhi, April 23, 2006.

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The Energy–Groundwater NexusThe two discourse coalitions differed considerably on both factual and causal beliefs regarding the links between electricity pricing and groundwater irrigation. In the market-oriented discourse, the overuse of groundwater is attributed mainly to the flat-rate tariff and free electricity, which give farmers no incentives to save water. This point was made, for example, by a representative of an industry association: “In the agricultural sector, as you know, people have more free power. They just run their pumps all through the night, which is not only a waste of the power but also a waste of the government resources.”13 A representative of an environmental NGO that works with farmers in Punjab concurred: “The decision of the free electricity cre-ated a very serious problem in Punjab because the farmers are extracting groundwater. When electricity was made free, farmers left their motors on and went to sleep.”14 A representative of the Liberal Farmers’ Movement made a similar argument: “Free electricity results in farmers overirrigating the crops. Because in the Indian situation, it is mostly hot, farmers tend to feel that the more water they give, the better this is.”15

In the market-oriented discourse, the electricity subsidy is also seen as a major reason for distortions in the choice of cropping patterns, encouraging farmers to cultivate more water-intensive crops. In the World Bank study on electricity supply to agriculture in India, distortions in cropping patterns and investment decisions caused by the low electricity tariffs are seen as an ele-ment in a “vicious cycle.” The argument is that these distortions lead to “in-efficient natural resource use and resource degradation,” which result in low yields and, as a consequence, low incomes. These in turn lead to “farmer dis-satisfaction” and “farmer political pressure” for low electricity tariffs (World Bank 2001, 3, Figure 1.1). In the story line of the welfare-state-oriented discourse, overuse of groundwater is acknowledged as a serious problem, but electricity pricing is not seen as the cause. Several respondents observe that farmers cannot overuse groundwater, because the hours of power supply are limited. This view was expressed not only by politicians and farmers who defend the free-electricity policy but also by a member of the Indian Ecological Society: “Farmers do not use more water after electricity was made free. If farmers get water for 24 hours, then it might be the case. But since it is limited, how can they use it? Free electricity does not have any effect on the pattern of

13 Interview with representative of industry association, March 3, 2006.14 Interview with NGO representative, Jaitu, Faridkot, March 19, 2006.15 Interview with representative of a farmers’ organization, January 10, 2006.

groundwater use.”16 Another academic made a similar point, noting that the electricity supply “is only for a limited period, and therefore I am not sure even if you are careless, you are able to waste much water. So [only if] the farmer has 24 hours supply . . . you could talk of huge wastage.”17

Other respondents point out that it is not rational for farmers to overuse groundwater: “[That] farmers tend to use more electricity when power is free is of course propaganda. Excessive irrigation will lead to crop damage.”18 A member of an NGO that forms part of the PMGER in Andhra Pradesh dif-ferentiated between short-term and long-term considerations and pointed to the need to use other mechanisms than the electricity price to conserve groundwater: “As a long-term policy, [free electricity] is not good. But when it started, it was regarded as a right political decision. The big issue is that of groundwater management. Other mechanisms will be important to conserve groundwater, which should be implemented properly.”19

The welfare-state-oriented discourse also points to changes in the crop-ping pattern but interprets them in a different way from the market-oriented discourse. The argument here is that it is the promotion of paddy cultivation by the government, rather than the electricity price, that has resulted in the overuse of groundwater. According to the representative of a farmers’ organi-zation: “Groundwater and electricity do not have any connection. Ground-water depletion has not started now. It has been a problem ever since the Green Revolution; paddy cultivation was started since then. The government knew that ground water is low, so why did it encourage the paddy cultivation?”20 The same view was also expressed by an academic, who argued that overuse of groundwater “is not because electricity is provided free. Groundwater depletion has happened because farmers across dryland areas across India are shifting to irrigated crops. It is the cropping pattern change which is causing groundwater level depletion.”21 A representative of a farmers’ organization pointed out that farmers grow paddy because of the lack of marketing oppor-tunities for other crops: “The groundwater problem is not due [to] the free electricity. Punjab since the last few years did not have good rainfall. We are compelled to cultivate paddy. A good market [for other crops] should be provided to us if they want to solve the groundwater problem.”22

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16 Interview with academic, New Delhi, March 20, 2006.17 Interview with academic, New Delhi, April 23, 2006.18 Interview with political party representative, March 16, 2006.19 Interview with NGO representative, Hyderabad, March 9, 2006.20 Interview with representative of a farmers’ organization, April 2, 2006.21 Interview with academic, New Delhi, April 13, 2006.22 Interview with representative of a farmers’ organization, April 2, 2006.

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Crop Diversification and Contract FarmingCrop diversification is proposed as a solution to groundwater depletion byboth the market- and the welfare-state-oriented discourse. Within the market-oriented discourse, there are differences of opinion as to whether a change in electricity pricing alone would suffice to change cropping patterns. For example, a member of the Planning Commission explained that “for a large variation in the price of water,” sugarcane would be more profitable for small farmers than alternative crops.23

Although members of the market-oriented discourse coalition argue for the reduction of minimum support prices for food grains, pointing to over-use of groundwater as one of the negative effects (World Bank 2004c, xv; xviii), members of the welfare-state-oriented discourse coalition argue that a minimum support price policy should be introduced for alternative crops to encourage farmers to take up these crops. The market-oriented discourse proposes contract farming as one strategy to promote alternative, less water-intensive crops. A World Bank publication states: “Contract farming can serve as a mechanism to reduce the market and income risks faced by farmers when diversifying away from rice and wheat to new commodities” (2004c, xix). The publication mentions several strate-gies by which the government can support contract farming, such as changes to the legal system. In contrast, the welfare-state-centered discourse is associated with a critical view of contract farming. A member of a farmers’ focus group, asked about the group’s opinion regarding contract farming, responded: “We do not like the system. It is just a policy of the government which is not good for us.”24 A representative of a regional party stated: “Contract farming is more like a drama. It recently started. It mostly ben-efited the multinational companies, many of which have no experience in agriculture.”25 Cooperatives, which represent a community-based solution, were mentioned as an alternative by several interviewees. A representative of a farmers’ organization explained: “Farmers are against contract farming, where so many conditions are put on them. But for cooperatives, there is tremendous scope in Punjab if they are provided good opportunities. Where a good management system is there, they can be quite successful.”26 A party representative, however, expressed some concerns about the ability of coop-eratives to function in Punjab: “It is very sad that the cooperative movement is not strong there. It is very good in Maharashtra, but there is no response

23 Interview with member of the Planning Commission, February 28, 2006.24 Interview with farmers’ group, March 19, 2006.25 Interview with a representative of a regional party, Chandigarh, March 16, 2006.26 Interview with representative of a farmer’s organization, April 2, 2006.

for the movement from the people in Punjab, and they are also not properly educated for that.”27

MeteringIn principle, both discourses acknowledge that metering the electricity supply would be useful, but they disagree on the feasibility and costs of this mea-sure. These views can be classified as factual beliefs and instrumental policy beliefs (Figure 3.2). In the market-oriented discourse, resistance to metering is acknowledged by members of the Planning Commission: “But true, the farmers are afraid to have [meters].”28 Others believe this resistance can be overcome: “In Punjab, there has been resistance to metering activity, and in Andhra Pradesh there have been strikes, but finally the government was able to convince them to cope with the amount of metering. And the regulatory commission also told us that the transaction costs of metering are not that very high. They are not. . . . Metering should be done.”29 The representative of the Liberal Farm-ers’ Movement, which is associated with market-oriented discourse, asserted: “We welcome metering.”30

The welfare-state-oriented discourse takes a critical view of metering. Many argue that the transaction costs of introducing metering are prohibi-tive, including Tushaar Shah (for example, Shah et al. 2003). Similar concerns were expressed in the interviews conducted for this study. As one academic noted: “Metering is a good idea. But once again there is the implementation problem.” Referring to efforts to introduce metering in Gujarat, the respon-dent explained: “What happened was you go on installing meters, and just behind you the farmer will come and break the meter and go. So now it [has] become extremely difficult to make the farmers accept that metering is absolutely necessary.” The respondent also dismissed remote metering as an alternative: “Remote metering is extremely expensive. . . . Let’s not kid ourselves even that this thing is going to work.”31 Most farmers’ organizations oppose metering. As one representative put it: “We are against metering.”32

However, a member of a farmers’ focus group that otherwise adopted a welfare-state-centered discourse explained: “When it was metered, the kisan (farmers’)

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27 Interview with representative of a national party, July 8, 2006.28 Interview with members of the Planning Commission, February 28, 2006.29 Interview with representative of the Ministry of Power, Government of India, New Delhi, October 19, 2006.30 Interview with representative of the Liberal Farmers’ Movement, New Delhi, January 10, 2006.31 Interview with academic, New Delhi, April 23, 2006.32 Interview with representative of a farmers’ organization, Lehragagga, April 2, 2006.

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organizations reacted against it. But on the whole the farmers do not mind paying for the electricity, as free electricity is more expensive because diesel pumps are used that cost more.33 We are in favor of the metering, but elec-tricity supply should be there.”34

Interestingly, interviewees did not make a strong connection between metering and the groundwater market, even though this issue was prominent in the academic and policy debates of the 1980s and early 1990s. The volume edited by Moench (1994) summarizes this debate and includes contributions from the major proponents on each side, Tushaar Shah and Richard Palmer Jones. Shah (1994) defended the flat-rate tariff with the argument that it reduces the price at which pump owners are willing to sell water to others, thus providing more equitable access to irrigation. Shah, pointing to the experience of Gujarat, noted that in 1987, private water prices throughout the state fell by 20–60 percent within two weeks after the state changed from a pro-rata tariff to a flat tariff. This happened even though Gujarat charged the highest flat tariff anywhere in India (Shah 1994, 6–7). Palmer-Jones (1994) argued that Shah’s analysis was flawed and opposed the flat-rate tar-iff, pointing to serious ecological consequences.

Power-Sector ReformsThe question of privatizing the power sector can be considered a central policy belief on which there was significant disagreement between the two discourse coalitions. The market-oriented discourse argues for the privatiza-tion of the power sector, often referring to the experience of other countries. As the report by the Expert Group on Power Sector Reforms in Punjab (the Haldea Report) points out: “The Group believes that as in several countries, developed and developing, reform of the power sector is inevitable, and Pun-jab cannot afford to lag behind when the rest of the world is moving ahead” (NCAER 2003, 26). Consistent with its core beliefs about the role of the state and the market (Table 10.2), the market-oriented discourse is characterized by the (factual) belief that the failure of state-run entities is inevitable. As the same report states: “If public sector entities could achieve the same level of efficiency, there would be no reason to insist on privatisation. However, experience suggests that there are serious governance problems and perverse incentives affecting the public sector, especially the problem of enforcing discipline on a large work force, and this will make it very difficult to achieve

33 The representative was implying that the free electricity policy is associated with restrictions in the hours of electricity supply. As a consequence, farmers have to use diesel pumps, and die-sel is comparatively expensive.34 Interview with farmers’ group, Bhatinda, March 19, 2006.

a high level of efficiency within the public sector framework. Besides, even if these standards are achieved through exceptional efforts, they would be very difficult to maintain and the system could easily deteriorate again” (NCAER 2003, 33–34). In the story line of the market-oriented discourse, the telecommunica-tions sector is often invoked to make the case for privatization. In the words of the representative of the Liberal Farmers’ Movement: “In 1980, when we started our farmer’s movement, I recall the journalists after a particular event would rush to the post office and book what is called lightning calls to call from Nasik to Delhi or to Mumbai. That was supposed to be the highest priority call, and that would take about three hours to materialize. Now we find that after the liberalization, after the government took its hands out, India leads in mobile services. India leads in cell phones. And anybody is able to phone anybody at any time.”35

The welfare-state-oriented discourse presents two major arguments against privatization. One argument holds that privatization efforts in India have not met expectations. The cases of Orissa (“the Orissa model”) and Delhi are frequently cited as examples.36 The other major argument holds that privatization serves the interests of multinational companies who do not care about the needs of the people, especially the poor.37 Asked about his view on privatization, a representative of the Punjab Electrical Engineers’ Association responded: “We are formally opposing this move. It is a very dan-gerous move. It has proved failure wherever applied, Orissa, Andhra Pradesh, Rajasthan, even Delhi itself. They have not recruited. They have gained theprofit. They have not added anything to the system. They are not catering tothe needs of the people. They are earning profits. They have not reduced the losses. They promised that we will reduce the losses. But it is not so. 83 per-cent losses in Delhi, 24 percent in Punjab, much less in cities like Ludhiana, which has 15 percent losses.” Similarly, an academic commented: “I have lived through the Delhi privatization, and I can tell you that paying more does not ensure that we get better service. I mean, any resident of Delhi can tell you.”38 Likewise, in the view of the CPI-M, privatization is “a recipe for

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35 Interview with representative of the Liberal Farmers’ Movement, January 10, 2006.36 Starting in 1993, Orissa was the first state that engaged in far-reaching power sector reform with the aim of privatizations (see Chapter 3). The reform process in Delhi started with a strategy paper in 1997 and led to privatization in 2002. Both cases have been criticized for not realizing the expected gains in terms of improved power sector performance (Dubash and Rajan 2001; Ruet 2005).37 The academic literature provides evidence that the reform in Orissa was in fact associated with a neglect of rural electrification and considerable decline in the electricity consumption of poor households (Sihag, Misra, and Sharma 2004, 61).38 Interview with academic, New Delhi, April 13, 2004.

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disaster” (Jagga 2001). Except for the Liberal Farmers’ Movement, the inter-viewed farmers’ organizations also opposed privatization of the power sector. As one representative said: “We are basically demanding that the public sec-tor should be there. We are against any kind of privatization.”39

It is an interesting aspect of the welfare-state-oriented discourse coalition that energy-sector employees, who oppose privatization, cite the advantages of public-sector energy supply for agriculture as one of their arguments. A member of the Engineers’ Association of the PSEB pointed out: “During the severe drought of the year 2002 caused by partial failure of monsoon, PSEB diverted over 900 million units to tube wells to save the paddy crop by restrict-ing power supply to industry, including the highest-paying steel furnaces. In a market-operated power industry . . . , this would not have been possible, and paddy crop of Punjab would have been destroyed” (Bedi 2003, 3).

The Role of the Electricity Regulatory CommissionsThe two discourse coalitions disagreed on the role of the state ERCs, although the disagreement was not as substantial and clear-cut as in the case of power-sector privatization. The role of the commissions may be considered as an instrumental rather than a central policy belief. Interviewees associated withthe market-oriented discourse were mostly positive about the commissions. A member of a consultancy working on power-sector reforms pointed out: “I think one good thing about this whole regulatory process which has happened is that this is one forum where all stakeholders get to exchange ideas.”40 He also pointed out that the APERC has taken up suggestions from stakeholders, for example with regard to sample-based measurement of the electricity supply to agriculture. Likewise, the representative of the industry association pointed out that some of the regulatory commissions have “given good orders” and were “quite upbeat for the industry,” and that some have been “quite visionary.” He also pointed out that the regulatory process is still evolving in India: “The regulatory commissions are getting active. They just need some more time . . . to become independent from the political class.”41

One farmers’ organization associated with the welfare-state-oriented discourse acknowledged that the group is invited to hearings of the regula-tory commission and can represent the farmers’ positions there: “Basically our approach of going to the hearing of the regulatory commission is to indicate the views of the farming community.” However, the interviewee also expressed the view that the commission is not independent: “The regulatory

39 Interview with representative of a farmers’ organization, April 2, 2006.40 Interview with consultant, March 9, 2006.41 Interview with representative of an industry association, March 3, 2006.

commission itself ratifies the demand put forth by the government.”42 Other farmers’ organizations claimed that they do not have the chance to partici-pate in hearings of the regulatory commission: “We have never attended the proceedings of PSREC. . . . Normal farmers are not aware of it. It is published in some English newspaper.”43 A representative of another farmers’ organiza-tion claimed: “Government has put a red line across our organization. Only those farmers organizations attend which are pro-Congress.”44

Another argument in the welfare-state-oriented discourse is that the com-missions do not protect the interests of disadvantaged stakeholders. As one academic put it: “I think one of the biggest failings of the regulatory com-missions has been its attitude as equidistant from all the stakeholders. The regulatory commission does not identify, it does not proactively champion the cause of the underdog, but it thinks like a judge, . . . [treating all parties equally, while not] realizing that one of them, the utilities, the companies, have all the advantage, the other, the consumer has none. It is a very unequal forum, but the regulators have not risen to the challenge.”45

Decentralization and Electricity CooperativesIn discussions about reform options for the power sector, respondents belong-ing to both discourse coalitions occasionally referred to decentralization. Aside from the question of crop diversification, which elicited mention of farm-ers’ cooperatives, this was one of the few policy areas where elements of a community-oriented paradigm came up. In the market-oriented discourse, electricity cooperatives were mentioned as one reform option, along with decentralized franchise models involving the private sector and the devolu-tion of authority to local governments (gram panchayats). Interviewees associated with the welfare-state-oriented discourse were mostly positive about cooperatives but also expressed some concerns about their performance. As one academic stated: “Electricity cooperatives—I think decentralization is the way to go. . . . I don’t know why these electricity cooperatives are not successful—either because of caste, class, and village fac-tors or any other social factors. I think they have to be of a very small size.”46 One NGO member explained that there were once nine electricity coopera-tives in Andhra Pradesh: “It worked quite well as compared to the state utili-ties. But gradually the employees became old, [and the cooperatives] lost

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42 Interview with representative of a farmers’ organization, March 8, 2006.43 Interview with farmers’ group, Bhatinda, March 19, 2006.44 Interview with representative of a farmers’ organization, April 2, 2006.45 Interview with academic, New Delhi, April 28, 2006.46 Interview with academic, New Delhi, April 28, 2006.

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their zeal. Now only three are there.”47 Interestingly, few of the respondents in Andhra Pradesh seemed to be aware of these electricity cooperatives. The national Ministry of Power emphasizes decentralization as an option for improving the electricity supply in rural areas. As a ministry representa-tive pointed out, the Electricity Act of 2003 makes special provisions for rural areas by deregulating local power generation and distribution. According to the interviewee, these provisions were made with a view to meeting the demand of agricultural producers, acknowledging that local generation can provide better-quality and more reliable power.48

Policy-Oriented Learning across CoalitionsAmong the different stakeholder groups interviewed for this study, PMGER was the only coalition that engaged in joint action. This was the only group that would qualify as an advocacy coalition, as defined by Sabatier and Jenkins-Smith (1993; see Chapter 3). In their pure form, the two discourses differ on almost every aspect of electricity supply to agriculture, as the previous section clearly shows. Moreover, the debate about electricity supply to agriculture is clearly a case where core beliefs are in dispute—beliefs about the roles that the state and the market should play in economic policy. For this situation, Sabatier (1993, 27) formulates the following hypothesis: “On major contro-versies within a policy subsystem when core beliefs are in dispute, the lineup of allies and opponents tends to be rather stable over periods of a decade, or so.” The fact that no consensus has been reached on electricity pricing to agriculture for more than a decade seems to confirm this hypothesis. In this situation, policy learning across coalitions with different belief sys-tems is an important element of any strategy to overcome the impasse. There is evidence that, to the extent that change happened at all, policy learning was part of the process. The most notable policy change in the two states studied here was the power-sector reform in Andhra Pradesh, which turned the state’s energy sec-tor into the best-performing in the country. As shown in the section “1989–2004: Efforts to Reduce Electricity Subsidies and Reform the Power Sector” in Chapter 9, the launching of this reform involved considerable efforts to reach out to different stakeholder groups and inform them about the planned reform. Also, crucially, it involved negotiations between the government and the SEB on the one hand, and the organizations of the power-sector employees on the other. Far-reaching efforts were made to accommodate the material

47 Interview with NGO representative, March 9, 2006.48 Interview with representative of the Ministry of Power, October 19, 2006.

interests of a major stakeholder group (the employees) who were likely to be losers in the reform and to promote policy-oriented learning across groups sharing the market-oriented paradigm and those sharing the welfare-state-oriented paradigm. On the question of electricity pricing, however, the pro-cess of negotiating solutions across groups with different material interests and belief systems was less well managed and ultimately unsuccessful. Any subsequent policy learning took place within rather than between coalitions with different belief systems, as the case of PMGER shows. In Punjab, the evidence shows that the establishment of the ERC created a forum in which stakeholder groups representing the different interests and belief systems can and do in fact interact. However, we found no evidence of any other major efforts to promote negotiation and policy learning. In future efforts to solve the problems associated with the electricity supply to agriculture, it will be useful to promote policy learning across groups with different belief systems. In the first phase, it will be useful to concentrate on those areas where there is the most consensus and where instrumental policy beliefs rather than central policy beliefs or core beliefs are at stake. According to these considerations, the following areas of intervention appear promising:1. Groups with different belief systems broadly agree that the income situ-

ation in the agricultural sector is a major concern. Hence, it is important to identify policy solutions that do not further reduce the incomes of poor rural households, even in the short run. Policy options that increase the income of this group will have better prospects of success.

2. A comparatively far-reaching consensus exists on the targeting of sub-sidies. This constitutes a middle ground where members of the market-oriented and the welfare-state-oriented paradigms can meet. In Andhra Pradesh it was possible to introduce targeting, on a limited scale, without major resistance. Some farmers’ organizations, such as the Federation ofFarmers Associations in Andhra Pradesh, propose targeted subsidies. Like-wise, some members of the market-oriented discourse coalition have movedin this direction. For example, the interviewed members of the National Planning Commission stated that agriculture in India needs to be subsi-dized but that subsidies should be targeted. The challenge of targeting is, however, an efficient and effective implementation.

3. Because members of the two discourse coalitions differ with regard to several factual and causal beliefs, providing more empirical evidence on the respective issues could contribute considerably to policy-oriented learning across coalitions. The most striking example is the link between electricity pricing and water consumption (essentially an empirical ques-tion!), on which the members of the two discourse coalitions had com-

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pletely different views. Members of the market-oriented discourse coali-tion consider the argument that zero marginal costs cause inefficiency so compelling that they feel no empirical evidence is needed to make this point. However, this argument alone—without empirical evidence—does not convince stakeholders who hold different causal beliefs on the matter: these stakeholders marshal counterarguments that would, indeed, require further analysis, such as the effect of the time restrictions on power sup-ply on groundwater extraction. Another example is the transaction costs of metering. Even though this is essentially an empirical question, limited efforts have been made to estimate these costs under different scenarios. In both cases, the information must be provided by research institutions that are considered neutral and trustworthy by members of both discourse coalitions. Moreover, the information needs to be provided in an easily accessible form.

4. There is a range of “third-way” solutions, which fall between the market-oriented and the welfare-state-centered paradigm because they focus on communities rather than state institutions or the private sector. A promi-nent example is the devolution of responsibilities to local communities, for example by creating transformer-user associations or energy coopera-tives, possibly linked with groundwater-user associations. There is already practical experience in this regard, promoted both by foreign-funded proj-ects (such as the USAID-funded Water and Energy Nexus Activity, or WENEXAproject) and by farmers’ organizations (such as the Andhra Pradesh Fed-eration of Farmers Associations.) Yet, although such solutions seem to be highly acceptable to groups with different belief systems, they did not figure prominently in the discourse of the interviewed stakeholders.

5. The power-sector reforms in Andhra Pradesh show that policy change is easier if it concentrates on areas that are subject to instrumental policy beliefs, such as unbundling (restructuring within the public sector), rather than policy core beliefs, such as privatization. The fact that reform efforts in Punjab concentrate on a rather far-reaching reform model (privatiza-tion) may well contribute to the lack of progress so far. As with targeted subsidies, unbundling without privatization might be a middle ground accept-able to groups with opposite belief systems.

Taking these insights into account, the next chapter discusses several policy options for reforming the electricity supply to agriculture.

CHAPTER 11

Policy Implications of Reform in Electricity Supply to AgricultureREGINA B IRNER AND NEERU SHARMA

This chapter derives policy implications from the analysis presented in the previous chapters. The section “Reform Options” presents policy options that address the different problems associated with electric-

ity supply to agriculture. The section “Evaluating Reform Options” assesses the political feasibility of the different options, based on the description and analysis presented in Chapters 9 and 10.

Reform Options

Classifying Reform OptionsPolicy options for reforming the electricity supply to agriculture can be classi-fied according to various criteria, including (1) the type of problem—or combi-nation of problems—they primarily address; (2) the paradigm—market oriented, welfare state oriented, or community oriented—they are most closely associ-ated with; and (3) whether the solutions are primarily economic, technical, or institutional in nature. These criteria refer to the nature of the policy options and serve to characterize them. Criteria that can be used for assessing reform options from a normative perspective are discussed in the section “Evaluating Reform Options.” Figures 11.1–11.3 display a classification scheme based on the primary problem that the policy options aim to address. Three primary problems are distinguished: (1) the fiscal and distributional problems related tothe electricity subsidies to agriculture (Figure 11.1), (2) problems related to the quality of the electricity supply to agriculture (Figure 11.2), and (3) the problem of groundwater depletion (Figure 11.3). As Chapter 10 shows, the stakeholders differ in their views as to how and to what extent these problems are interlinked. Policy options that can address certain aspects of both the groundwater depletion problem and the fiscal and distributional problems related to the

157

158 CHAPTER 11

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IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 159

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160 CHAPTER 11

Polic

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electricity subsidies appear repeatedly in Figures 11.1–11.3. These options are marked by the same shapes. This system of representation allows the display of alternative or additional policy options to address the respective problems.

Overview of Policy Options

Links between Policy OptionsBefore describing the different policy options, it is useful to recapitulate the extent to which one option can address multiple problems. The policy option that most directly addresses electricity and groundwater problems at the same time is an increase in the electricity price paid by the farmers (also referred to as an increase in the agricultural tariff) in combination with metering.1 From the perspective of the market-oriented paradigm, this is the first-best option. As Chapter 10 shows, however, stakeholders hold differing views on the strength of the link between electricity pricing and groundwater use. Accordingly, they differ on the extent to which this option will address the groundwater-depletion problem. Policy options that aim spe-cifically at reducing groundwater use, such as promoting less water-intensive crops, or improving surface irrigation to reduce the need for groundwater use, have the side effect of reducing electricity consumption and hence the fiscal problems associated with the electricity subsidy. Measures that aim at reducing agricultural electricity consumption also reduce the fiscal burdenof the electricity subsidy to agriculture. Some of these measures, such as fur-ther time restrictions on the electricity supply, also reduce groundwater use, whereas others, such as using energy-saving devices, do not affect ground-water consumption.

Addressing Fiscal and Distributional ProblemsOne can distinguish four different types of fiscal and distributional problemsrelated to the electricity subsidy to agriculture: the distributional problem aris-ing from the fact that large farmers benefit more from this subsidy than small farmers; fiscal stress for the state; fiscal stress for the utilities; and cross-subsidies that increase the electricity price for other industries. All policy options that include targeting subsidies address the first prob-lem. Targeting can be introduced in several ways. One option is to define thresh-

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 161

1 In this chapter, the agricultural tariff always refers to the price that the farmers actually pay. The ERCs set a tariff for the agricultural sector even if a free-power policy is adopted. This tariff is used to calculate the amount of subsidy for which the government has to compensate the utilities.

162 CHAPTER 11

old criteria such as maximum farm size, assets, or income sources for farmers to qualify for a subsidized tariff. This option is practiced in Andhra Pradesh. Another option is handing out coupons that entitle farmers to receive a cer-tain amount of electricity at a subsidized rate. If coupons are made tradable, additional incentives for saving energy may be created. The Expert Group on Ground Water Management and Ownership recommended giving farmers “an entitlement upfront of say, Rs. 6,000 corresponding to 3,000 kwh at Rs.2/kwh. The charges for their consumption will be deducted from this amount and the surplus, if any, will be handed over to farmers at the end of the year. This approach may be tested on a pilot basis to examine if transaction costs of implementation can be kept manageable” (GoI 2007b, 44). This recommenda-tion does not entail targeting subsidies at farmers who meet certain criteria; rather it fixes the amount of energy available at the subsidized rate, thus in effect reducing the amount of subsidy to larger farmers. Although targeting subsidies or limiting subsidies made to larger farmers would make the subsidies more equitable, it is unclear what effect this mea-sure would have on groundwater markets. As Figure 8.1 shows, a considerable proportion of households access groundwater by buying it from pump own-ers. Changes in the pricing scheme of groundwater may increase the price of groundwater or induce pump owners to limit access, thus counteracting the equity achievements that might be achieved by targeting the subsidies (see Shah 1994). The second problem, fiscal stress for the state, can be reduced through an increase in the agricultural tariff. This problem will be addressed indepen-dently of whether this measure is associated with targeting or with metering. As long as the farmers do not pay the full cost of the electricity they receive, and provided that metering reduces electricity consumption, it will further reduce fiscal stress. The third problem—fiscal stress for the utilities—can be reduced if the state compensates the utilities, as it is now largely the case in Andhra Pradesh and Punjab. The fourth problem—the need for cross-subsidies—can be reduced if the agricultural tariff is increased or the state compensates the utilities to a larger extent for the agricultural subsidy. Various policy options exist for reducing the amount of electricity con-sumed by agriculture, and hence the subsidy involved, without using the electricity-price mechanism. As shown in Figure 11.1, these options include:1. promoting energy-saving devices such as capacitors or more efficient

motors, using either incentives or regulation (capacitors are now pro-moted in both Andhra Pradesh and Punjab);

2. further restricting (rationing) the amount of electricity supplied to agri-culture by simply reducing the hours of supply (a measure that has been

used in both Andhra Pradesh and Punjab) or adjusting the supply better to specific crop needs (as proposed by Shah et al. 2003);

3. promoting less water-intensive crops using either restrictions (in Andhra Pradesh, the government stated it would withdraw free electricity for paddy cultivation in the rabi (winter) season but could not implement this policy) or incentives, such as the promotion of crop diversification (which involves in itself a range of contested policy issues, such as contract farming);

4. promoting water-saving practices in paddy cultivation, an option with a considerable potential for saving both water and energy but also posing substantial agronomic challenges and thus requiring agricultural research and extension; and

5. expanding and improving the efficiency of canal irrigation to reduce the need for groundwater irrigation. This option may involve contested policy issues, if potential environmental problems are associated with new large-scale irrigation projects.

As shown in Figure 11.1, another policy option for reducing fiscal stress for the utilities is reducing power theft. In addition, fiscal stress can be reduced by a range of policy options not linked to electricity subsidies. Sev-eral interviewees also emphasized the need to reduce tax evasion, an option that may have positive distributional implications. According to a task-force report submitted to the GoI, at the end of the 1990s tax evasion rates were very high (GoI 2002; Kumar 2002). If there is inequity in the tax system because better-off groups are better able to evade taxes, tax-financed sub-sidies could be targeted to avoid an income transfer from the poor to the better-off. Although interviewees associated with the welfare-state-oriented paradigm recognized the problem of tax evasion, none of them seemed con-cerned with it.

Improving the Quality of the Electricity SupplyTo analyze the policy options regarding quality of supply, it is useful to dis-tinguish its economic, technical, and institutional dimensions. With respect to economics, improving the quality of the electricity supply requires considerable investment in the distribution system as well as measures that do not require additional investment, such as increasing efficiency in the maintenance of electricity lines and other equipment. Obvi-ously, measures that increase the revenues of the utilities, such as increased agricultural tariffs, provide incentives for investing in the quality of theelectricity supply to agriculture. However, there is no guarantee that increased agricultural tariffs will in fact lead to such investment. As several inter-

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 163

164 CHAPTER 11

viewees pointed out, agriculture is likely to remain a loss-making category for the power utilities unless the tariff is increased to cover the actual cost to the utilities. Such an increase is unlikely to happen any time soon in either of the two states. Decentralization (see below) may resolve this problem to some extent. Another option is linking the tariff to the quality of the electricity provided, as members of the Planning Commission suggested in interviews. The utilities could also devise a scheme by which they offer farmers continuous high-quality power if the farmers are willing to pay for this service. This would be an interesting empirical test of the farmers’ will-ingness to pay. The disadvantage of such a scheme is that it might lead to a “two-class” system in which the better-off farmers pay for high-quality elec-tricity, while the rest are left with an increasingly deteriorating system. Among the technical options for improving the quality of electricity supply to agriculture, using a high-voltage distribution system (HVDS) has received particular attention and is being implemented in both Andhra Pradesh and Punjab. Using HVDS requires considerable investment but could substantially reduce electricity theft, because HVDS creates a technical barrier to the illegal tapping of power lines. From an institutional perspective, one can distinguish between demand-side approaches, supply-side approaches, and combined approaches to improve the quality of electricity supply. Demand-side approaches focus on the ability of the consumers, in this case farmers, to demand better services. Examples are public hearings of the ERCs in which farmers participate, or advisory boards to the commissions on which farmers’ organizations are represented. Another approach is consumer-satis-faction surveys, for example, using the Citizen Report Card method developed by the Public Affairs Center in Bangalore (Samuel 2002). This method is char-acterized by two principles: the survey is conducted in a statistically repre-sentative way by an independent group, for example, an NGO; and the media play an important role in publishing the results, thus creating transparency and pressure on the service providers to improve their services. Supply-side approaches include all measures that the energy utilities (as suppliers) can take to improve the quality of supply. In addition to the technical option mentioned above, a variety of institutional and management approaches could be adopted. As a first step, utilities could provide more transparency about both the quantity and the quality of the electricity sup-plied to agriculture by publishing statistics for each region in a form that is easily accessible (online and print). The ERCs are promoting a move in that direction, especially for urban areas. However, at the time of this research, this information could not be found in a publicly available form for the elec-tricity supply to agriculture. Such information would be essential to improve

the transparency and accountability for the electricity supply to agriculture and to complement and support the demand-side approaches mentioned above. One of the major institutional challenges in improving the quality of the electricity supply to agriculture is providing incentives for field staff in rural areas to work efficiently, avoid corruption, and be responsive to the farm-ers’ needs. Because the utilities in both states have tens of thousands of field staff, this is an enormous task. Strategies have to be considered in the context of wider electricity-sector reform. As Chapter 10 shows, the various reform models are politically contentious. One can locate these options on a continuum between privatization (following the market-oriented paradigm, the approach pursued by the Congress Party in Punjab) and public-sector reform (following the welfare-state-oriented paradigm currently pursued in Andhra Pradesh). Public-sector reform models may incorpo-rate New Public Management techniques, which typically include increasing the autonomy of the utilities and limiting political influence, and using private-sector management techniques to create incentives for staff members. One policy option that combines both demand-side and supply-side aspects is to involve agricultural users more directly in the distribution of electric-ity supply by decentralization and devolution, that is devolving tasks and responsibilities to the local level. This option can be pursued in different ways, including the franchising model (a private-sector approach), forming electricity cooperatives or transformer-user groups (a community-oriented approach), and by involving locally elected bodies, the panchayati raj institu-tions (representing a mix of state and community orientation).

Addressing Groundwater DepletionWith regard to the problems of groundwater depletion, one can distinguish policy options that are directly linked to the electricity supply using the elec-tricity price, the quantity of electricity supplied, or options that do not use either of these mechanisms. The options related to the electricity price and quantity supplied have already been discussed. Likewise, the policy options to reduce the cultivation of water-intensive crops, to promote water-saving cultivation practices, and to improve surface irrigation to reduce the need for groundwater have already been dealt with in the section “Addressing Fiscal and Distributional Problems.” When identifying policy options for groundwater use, one has to keep in mind that groundwater has some of the characteristics of a common-pool resource.2 Volumetric electricity pricing, while creating incentives for using

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 165

2 Groundwater is not a “pure” common-pool resource, as use of the resource may depend on the ownership of land. Hence, the nonexcludability criterion does not fully apply.

166 CHAPTER 11

groundwater more efficiently, does not solve the collective-action problem among the farmers who use the same aquifer. Policy options that address the groundwater problem include (1) the regulation of bore wells, as foreseen in the APWALTA; (2) state ownership of bore wells, as suggested in the report of the Andhra Pradesh Commission on Farmers’ Welfare; and (3) community-based management of groundwater, aspromoted, for example, in a Food and Agriculture Organization (FAO) project in Andhra Pradesh. The first option is associated with both the welfare-state-oriented paradigm and the market-oriented paradigm; the second is associated with the welfare-state-oriented paradigm; and the third option is associated with the community-oriented paradigm. State ownership of bore wells, as proposed by the Andhra Pradesh Commission on Farmers’ Welfare, also involves the price mechanism, as the water from state-owned and state-managed bore wells would be sold to farmers on a volumetric basis.

Evaluating Reform OptionsBecause this report focuses on the political economy of electricity supply to agriculture—a question of positive policy analysis—assessing different policy options from a normative perspective is clearly beyond its scope. We focus here on the political feasibility of different options (see “Assessing the Politi-cal Feasibility of Policy Options”). In this context it is useful to keep in mind that societies have multiple goals: hence policy options need to be assessed according to multiple criteria with a view to identifying trade-offs. As long as there are trade-offs, decisions on the policy options involve value judgments. In keeping with Max Weber’s recommendations for objec-tivity in the social sciences, it is not the role of researchers to make such value judgments. An empirical science cannot tell policymakers what they should do, but rather what they can do (Weber 1977).

Assessing Options According to Multiple CriteriaVarious approaches can be used to select the objectives and criteria by which policy options should be assessed. These may be derived from general policy statements or selected in consultation with policymakers and stakeholders. Criteria may refer to broader policy objectives, such as growth, efficiency, equity, poverty reduction, and environmental sustainability. They may also refer to practical considerations, such as the transaction costs associated with the implementation of a given option. Table 11.1 represents an illustration of a tentative assessment of the policy options identified in Figures 11.1–11.3 according to multiple criteria, including fiscal sustainability; the short-term effect on the income of farm-ers in general, and of small and marginalized farmers and farmers who buy

groundwater in particular; the effect on food prices, as this parameter influ-ences poor households that are net buyers of food; and the sustainability of groundwater use. The table also includes transaction costs and the parties who bear them: the state, the electricity utilities, or the farmers. One of the criteria is political feasibility: this is discussed separately in the next section. This table inevitably has limitations. Its purpose is to illustrate the approach of using multiple criteria for an assessment. Although it would be useful to quantify the effects to better understand the trade-offs, available quantitative studies do not cover all criteria. Moreover, the effects of the dif-ferent policy options depend on many factors, which cannot all be captured in the table and its footnotes. Further, some of the criteria have undergone only very limited study to date. The effects of a certain policy option also depend on policy decisions in other fields. For example, the effect of anincrease in the agricultural tariff on food prices paid by poor households depends on decisions made within the Public Distribution System.

Assessing the Political Feasibility of Policy Options

OverviewThis section supplements the preceding section by providing an assessment of the political feasibility of different reform options, based on the interviews held in the two states. The finding that a policy option is currently meet-ing political resistance does not imply that this option can never be imple-mented. Chapter 13 discusses various strategies for increasing the political feasibility of a policy option. Likewise, the finding that a policy option is easy to implement does not necessarily imply that it should be implemented: it may be inferior according to other criteria discussed in the section “Assessing Options According to Multiple Criteria.”

Approach. Table 11.2 represents the positions of different interest groups with regard to the reform options identified in Figures 11.1–11.3, based on their material interests. The table also shows how different reform options corre-spond to the major belief systems or paradigms identified in Chapter 10.

Interest Groups. The main interest groups considered here are large farmers; small farmers; the employees of the electricity utilities; groups that benefit from inefficiency, corruption, and power theft in the current system; and taxpayers in general. To the extent possible, the table presents the positions these groups take on the reform options, based on information collected during the interviews. The table necessarily represents a stylized picture. As

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 167

168 CHAPTER 11

Tabl

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rici

ty a

nd g

roun

dwat

er

Incr

ease

of

agri

cult

ural

tar

iff

W

itho

ut t

arge

ting

+

– –

– +

0 0

/ +

f

W

ith

targ

etin

g +

– 0

/ +

– +

S/U

: +

0 /

+ f

W

itho

ut m

eter

ing

+ –

– /

0 /

+ e

– +

0 0

W

ith

met

erin

g +

– –

/ 0

/ +

e –

+ U

: +

+Fu

rthe

r re

stri

ctio

n of

sup

ply

Si

mpl

e re

duct

ion

of h

ours

+

– –

– +

0 +

h

W

ith

adju

stm

ent

acco

rdin

g +

0 0

0 /

– 0

U:

+ +

to c

rop

need

sg Re

duci

ng w

ater

-int

ensi

ve c

rops

U

sing

inc

enti

ves

– +

+ i

0 /

– 0

/ +

j S:

+

+

Usi

ng r

estr

icti

ons

+ –

– –

0 /

+ j

S/U

: +

+Pr

omot

ing

wat

er-s

avin

g pr

acti

ces

+ 0

/ +

k 0

/ +

k 0

0 /

– S/

F: +

+

Expa

ndin

g an

d im

prov

ing

0

/ +

– /

0 /

+ l

– /

0 /

+ l

– /

0 /

+ l

0 /

–

S: +

F:

+ +

m

anag

emen

t of

sur

face

irri

gati

on

Regu

lati

on o

f bo

re w

ells

+

– –

– 0

/ +

S/F:

+

+St

ate

owne

rshi

p of

bor

e w

ells

m

+ –

+ +

0 /

+ S/

F: +

+

Com

mun

ity

man

agem

ent

of g

roun

dwat

er

0 0

+ –

/ 0

/ +

0 /

+ F:

+

+

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 169

Sm

all

and

Fa

rmer

s’

mar

gina

l

Fisc

al

Fina

ncia

l

inco

me:

fa

rmer

s’

Inco

me

of

sust

aina

bilit

y si

tuat

ion

gen

eral

, in

com

e,

farm

ers

who

Tran

sact

ion

Refo

rm o

ptio

n (s

tate

)a of

uti

litie

s sh

ort

term

shor

t te

rm

buy

wat

er

Food

pri

cesb

cost

sc

Opt

ions

rel

ated

to

elec

tric

ity

wit

hout

obv

ious

im

plic

atio

ns f

or g

roun

dwat

er

Use

of

ener

gy-s

avin

g de

vice

s +n

0 0

/ +

f 0

/ +

f 0

0 U

/F:

+Re

duct

ion

of e

lect

rici

ty t

heft

0

/ +

+ 0

0 0

0 U

: +

Incr

ease

d in

vest

men

t in

0

– +o

+o +o

0 U

: –

di

stri

buti

on n

etw

ork,

incl

udin

g hi

gh-v

olta

ge

di

stri

buti

on s

yste

ms

Impr

oved

mai

nten

ance

of

0

– +o

+o +o

0 U

: +

ex

isti

ng n

etw

ork

by u

tilit

ies

Dec

entr

aliz

atio

n of

ele

ctri

city

0

+ 0

/ +

0 /

+ 0

0 F:

+

supp

ly (

thro

ugh

mec

hani

sms

su

ch a

s us

er c

oope

rati

ves)

Sour

ce:

Auth

ors.

Not

es:

+ =

incr

ease

; –

= de

crea

se;

0 =

no e

ffec

t. O

utco

mes

sha

ded

in g

ray

wou

ld i

mpe

de r

efor

m.

a If

the

gove

rnm

ent

com

pens

ates

the

uti

litie

s fo

r su

bsid

ies

prov

ided

to

farm

ers,

as

is c

urre

ntly

the

cas

e in

And

hra

Prad

esh

and

Punj

ab,

all

opti

ons

in t

his

cate

gory

ar

e ne

utra

l in

the

ir e

ffec

ts o

n th

e ut

iliti

es.

How

ever

, cr

oss-

subs

idie

s ex

ist

in b

oth

case

s. T

he i

mpl

icat

ions

for

the

aff

ecte

d in

dust

ries

are

sim

ilar

to t

hose

ind

icat

ed i

n co

lum

n 1

for

the

stat

e.b E

ffec

t de

pend

s on

oth

er p

olic

y de

cisi

ons.

c S,

stat

e; U

, ut

iliti

es;

F, f

arm

ers.

d Eff

ects

hig

hly

cont

este

d.e E

ffec

t de

pend

s on

tar

geti

ng.

f Pos

itiv

e ef

fect

if

met

erin

g is

als

o in

trod

uced

.g A

ssum

es t

hat

targ

etin

g ac

cord

ing

to c

rop

need

s ca

n be

don

e ef

fici

entl

y (e

ffec

t on

tra

nsac

tion

cos

ts h

as t

o be

con

side

red)

.h A

ssum

es t

hat

farm

ers

do n

ot f

ully

com

pens

ate

for

redu

ctio

n by

sw

itch

ing

to d

iese

l pu

mps

.i D

epen

ds o

n th

e ty

pe o

f in

cent

ives

.j D

epen

ds o

n th

e po

ssib

ility

of

com

pens

atin

g fo

r th

e de

clin

e in

foo

dcro

p pr

oduc

tion

by

expa

ndin

g pr

oduc

tion

els

ewhe

re o

r by

im

port

ing

food

.k I

ncre

ase

in i

ncom

e on

ly,

if v

olum

etri

c pr

icin

g of

ele

ctri

city

is

intr

oduc

ed.

l Dep

ends

on

whe

ther

ref

orm

in

surf

ace

irri

gati

on i

s fi

nanc

ed b

y in

crea

sing

fee

s fo

r ca

nal

wat

er.

mAc

cord

ing

to t

he p

ropo

sal

of t

he C

omm

issi

on o

n Fa

rmer

s’ W

elfa

re i

n An

dhra

Pra

desh

(th

e st

ate

wou

ld t

ake

over

the

cos

ts o

f dr

illin

g bo

re w

ells

and

sel

l w

ater

fro

m

bore

wel

ls a

t th

e sa

me

rate

as

cana

l w

ater

; sm

all

farm

ers

wou

ld g

ain

mor

e ac

cess

to

wat

er)

(GoA

P 20

04).

n Ass

umes

tha

t th

e st

ate

com

pens

ates

the

uti

litie

s fo

r th

e el

ectr

icit

y su

bsid

y to

agr

icul

ture

.o A

ssum

es t

hat

cost

s of

im

prov

ing

qual

ity

are

not

fina

nced

by

farm

ers

alon

e (t

hrou

gh t

arif

f in

crea

se)

and

that

eff

icie

ncy

gain

s ar

e po

ssib

le.

170 CHAPTER 11

Para

digm

s

Tabl

e 11

.2

The

polit

ical

fea

sibi

lity

of e

lect

rici

ty r

efor

m o

ptio

ns:

Elec

tric

ity

supp

ly

St

akeh

olde

rs (

by m

ater

ial

inte

rest

s)

Gro

ups

that

bene

fit

from

W

elfa

re-

La

rge

Smal

l U

tilit

y th

eft

and

M

arke

t-

stat

e-

Com

mun

ity-

fa

rmer

s fa

rmer

s em

ploy

ees

corr

upti

on

Taxp

ayer

s or

ient

ed

orie

nted

or

ient

ed

Mai

ntai

ning

sta

tus

quo:

fre

e

+ +

+ +

– –

+

pow

er,

stat

e co

mpe

nsat

es

ut

iliti

es

Opt

ions

wit

h im

plic

atio

ns f

or e

lect

rici

ty a

nd g

roun

dwat

er

Incr

ease

of

agri

cult

ural

tar

iff

W

itho

ut t

arge

ting

–

– 0

0 +

+ –

W

ith

targ

etin

g 0

/ –

0 /

+ 0

/ –

0 /

+ +

+ +

/ 0

/ –

W

ith

met

erin

g –

– 0

/ –

– +

+ +

/ 0

/ –

Furt

her

rest

rict

ion

of s

uppl

y

Sim

ple

redu

ctio

n of

hou

rs

– –

0 0

+ 0

x

Wit

h ad

just

men

t ac

cord

ing

– /

0 –

/ 0

– 0

/ +

+ 0

+

to

cro

p ne

eds

Redu

cing

wat

er-i

nten

sive

cro

ps

Usi

ng i

ncen

tive

s 0

/ +

0 /

+ 0

0 –

+ +

U

sing

res

tric

tion

s –

– 0

0 +

– x

Prom

otin

g w

ater

-sav

ing

prac

tice

s 0

/ +

0 /

+ 0

0 0

+ +

Expa

ndin

g an

d im

prov

ing

+

+ 0

+ –

– /

0 /

+ +

m

anag

emen

t of

sur

face

irri

gati

on

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 171

Regu

lati

on o

f bo

re w

ells

–

– 0

+ 0

/ –

+ +

Stat

e ow

ners

hip

of b

ore

wel

lsa

– –

/ 0

/+

0 +

– –

+ /

0 /

– –

Com

mun

ity

man

agem

ent

of

– /

0 0

/ +

0 0

0 0

0 +

gr

ound

wat

er

Opt

ions

rel

ated

to

elec

tric

ity

wit

hout

obv

ious

im

plic

atio

ns f

or g

roun

dwat

er

Use

of

ener

gy-s

avin

g de

vice

s –

/ 0

– /

0 –

/ 0

+ +

+ +

Incr

ease

d in

vest

men

t in

+

+ 0

+ –

/ 0

+ +

di

stri

buti

on n

etw

ork,

incl

udin

g hi

gh-v

olta

ge

di

stri

buti

on s

yste

ms

Impr

oved

mai

nten

ance

of

+

+ –

– +

+ +

ex

isti

ng n

etw

ork

by u

tilit

ies

Dec

entr

aliz

atio

n of

ele

ctri

city

+

/ 0

+ /

0 –

/ 0

– +

0 0

+

supp

ly t

hrou

gh m

echa

nism

s

such

as

user

coo

pera

tive

s Pr

ivat

izat

ion

of e

lect

rici

ty

– –

– –

/ 0

/ +

+ +

– –

se

ctor

Pu

blic

-sec

tor

man

agem

ent

+

+ –

/ 0

/ +

– +

– +

re

form

of

elec

tric

ity

sect

or

Sour

ce:

Auth

ors.

Not

es:

+, f

avor

; –,

opp

ose;

0,

neut

ral

or a

mbi

vale

nt;

x, m

easu

re a

ccep

ted

as n

eces

sary

. Ef

fect

s m

ay b

e am

bigu

ous

beca

use

they

dep

end

on t

he d

esig

n of

the

res

pect

ive

polic

y in

stru

men

t. O

utco

mes

sha

ded

in g

ray

wou

ld l

ead

to t

he g

roup

opp

osin

g re

form

.a A

ccor

ding

to

the

prop

osal

of

the

Com

mis

sion

on

Farm

ers’

Wel

fare

in

Andh

ra P

rade

sh,

the

stat

e go

vern

men

t w

ould

tak

e ov

er t

he c

osts

of

drill

ing

bore

w

ells

and

sel

l w

ater

fro

m t

hese

wel

ls a

t th

e sa

me

rate

as

cana

l w

ater

. As

a c

onse

quen

ce,

smal

l fa

rmer

s w

ould

gai

n m

ore

acce

ss.

172 CHAPTER 11

shown in Chapter 10, different farmers’ organizations hold different views on specific options. For example, some farmers’ organizations favor metering. With regard to the groups who benefit from mismanagement in the cur-rent system, the assessment is based on interviews with key informants and on plausibility considerations. These groups include users with illegal elec-trical connections as well as contractors and suppliers of equipment for the electricity sector. Small-scale enterprises specialized in repairing burnt-out motors and other equipment also benefit from the current system.

Paradigms. Table 11.2 also indicates the extent to which a policy option is acceptable or favored by groups that advocate the market-oriented or the welfare-state-oriented paradigm. Because none of the interviewees were consistently strong supporters of the community-based paradigm, it is not known how supporters of this paradigm would rank many of the options. Therefore, only cells where this position is clear from the interviews or oth-erwise have been filled in. Table 11.2 provides information on the extent to which different inter-est groups and different paradigms agree or “clash” on a particular reform option. In general, the less clash there is on a policy option—in terms of both material interests and belief systems—the easier that option will be to imple-ment. However, for an analysis of political feasibility it is also necessary to take the strength—or the political capital—of different interest groups into account.

Political Capital of Different Interest Groups. As Chapters 9 and 10 show, farmers are an interest group with considerable political capital, because they represent votes and can organize public protest. Even though they are fragmented and disagree on various aspects of the electricity subsidy (for example, whether it should be targeted), they still act in solidarity to argue for increases in agricultural income. The utility employees are also well orga-nized and have considerable political capital, as they can go on strike. The groups that benefit from theft and corruption are not organized in an obvious way, but one can assume that they have close and mutually beneficial relations with members of the electricity utilities, the public administration, and politicians. These relations may be a major source of their political capi-tal. The taxpayers are not organized as such, and thus it is difficult to find advocates for policy options that have a negative impact on fiscal sustain-ability but are favorable to certain interest groups otherwise. Environmental groups are not specifically listed in Table 11.2. One can assume that they are in favor of those measures that lead to more sustainable groundwater man-agement (see Table 11.1) and do not contradict the paradigms endorsed by

the individual groups, which may be market oriented, welfare state oriented, or community oriented. Environmental groups may be an important coalition partner in support of a reform, even though they have so far played this role only to a limited extent (Chapter 10).

Role of Paradigms. The paradigms are important in their own right, as they influence people’s policy beliefs and hence their political action (see Chapter 10). There are also interest groups that stand behind these paradigms. In the case under consideration, international financial institutions and donors, which can use their funding as leverage in the political process, mostly stood behind the market-oriented paradigm. The welfare-state-oriented paradigm is sup-ported by an important group of intellectuals, including prominent univer-sity teachers and members of prestigious think tanks, who also write widely for the popular press. The community-oriented paradigm may have substantial appeal in India, as it is consistent with both the welfare-state oriented para-digm and the market-oriented paradigm, but in the context of energy policy and agricultural policy, it seems that no powerful interest groups have yet emerged in support of this paradigm. Based on these general considerations, one can group the different policy options into three broad categories: options with high political feasibility but major budget constraints; options with high political feasibility and no major budget constraints; and options without major budget constraints but with low political feasibility. Table 11.3 summarizes this classification.

Community-Oriented Policy Options with High Political FeasibilitySome policy options fall into the community-oriented paradigm and hence avoid the “clash” between the core beliefs and central political beliefs held by groups favoring the market-oriented paradigm and those favoring the welfare-state-oriented paradigm. The interviews suggest that community-oriented policy options, which could also be described as “third-way” solu-tions (neither “capitalist” nor “socialist”), have a wide acceptance among all interest groups.

Decentralization and Devolution of Groundwater Management and Energy Supply. Two major policy options that fall under the community-oriented paradigm are decentralizing electricity supply to the local level and promot-ing community-based water management. The recent report of the Expert Group on Ground Water Management and Ownership, commissioned by the Planning Commission (GoI 2007b), emphasizes the need for cooperative man-agement of groundwater by users. This report also suggests that panchayats

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 173

174 CHAPTER 11

should set up groundwater cooperation committees (GoI 2007b, 45). As the WENEXA project shows, groundwater and electricity management can also be combined into community-based comanagement of energy and water. Community-based approaches involve their own challenges, such as community failure (domination of the enterprise by local elites, also referred to as elite capture, and inability to overcome collective-action problems), but in view of their potential to solve long-standing problems and their relatively high politi-cal feasibility, these options may have more potential than has so far been exploited in Andhra Pradesh and Punjab. Decentralizing electricity supply may involve resistance from groups who gain from current inefficiencies in power supply, but—at least on the argumentative level—a decentralization and devo-lution strategy is much more difficult to attack politically than a privatizationstrategy. Moreover, unlike the options discussed in the section “Policy Options without Major Political Resistance, but Possible Budget Constraints,” these options do not necessarily challenge fiscal sustainability.

Monitoring of Electricity Quality by Independent Groups. This option has been described above as a demand-side approach to improving the quality of elec-tricity supply to agriculture, implying that the approach relies on the ability of users to demand better service. As indicated above, the citizen report card

Table 11.3 Classification of reform options by political feasibility and budget constraints

Political BudgetType of policy obstacles constraints

Community-based solutions Low Low Decentralization and devolution of groundwater management and energy supply Monitoring of electricity supply by independent groups Promoting independent cooperatives to market less water- intensive crops Expanding and improving surface irrigation (in systems that are Low High not the subject of major environmental concerns) Research and extension on water-saving technologies Incentives for growing less water-intensive crops Incentives for adopting energy-saving technologies Implementation of high-voltage distribution systemsIncreasing the electricity price paid by farmers High Low Introduction of metering Shift toward targeted subsidies Privatization of the power sector Regulation or state ownership of bore wells

Source: Authors.

method would be useful in this context. It is politically feasible, but it requires collective action by independent farmers’ groups, NGOs, and consumer groups. As indicated above, the ERCs could support this policy option by demanding that the utilities publish more detailed statistics by region on the quality of electricity supply to agriculture to provide more transparency.

Promoting Independent Farmers’ Cooperatives for Marketing Less Water-Intensive Crops. The community-oriented paradigm also offers an option for crop diversification. Although the promotion of less water-intensive crops is an important strategy to reduce both water and energy consumption, it requires the development of marketing channels for these crops. The option promoted under the market-oriented paradigm—contract farming—and the option promoted under the welfare-state-oriented paradigm—minimum support price with public procurement—involve a conflict in policy beliefs. Against this background, promoting independent farmers’ cooperatives can be considered as a third way that may be acceptable to members of all para-digms. As several interviewees pointed out, this strategy requires a change in the state laws governing cooperatives, to create more space for organizations that are independent from state interventions. The prospect of changing these laws seems to have provoked resistance from groups associated with the current state-dominated cooperative sector, which would lose by the creation of independent cooperatives.

Policy Options without Major Political Resistance, but Possible Budget ConstraintsA number of policy options also rank high with regard to political feasibility but require public investment. Hence they may be subject to budget constraints or be given low political priority, even though they are not confronted with direct political resistance.

Expanding and Improving Surface-Water Irrigation. Expanding canal irrigation is one option for increasing surface-water irrigation. In Andhra Pradesh this option has been given high priority; in Punjab it has not, probably partly because of the limited possibilities for expansion. Improving the management of the existing surface-irrigation systems is politically more demanding, especially if improve-ments are to be financed by user fees or if groups who benefit from current mis-management will lose by the changes. As with groundwater extraction, reform options that fall under the community-based paradigm may have the highestpolitical feasibility, even though they face other constraints. The introduction of participatory irrigation in Andhra Pradesh (see the section “1989–2004: Efforts to Reduce Electricity Subsidies and Reform the Power Sector” in Chapter 9) is

IMPLICATIONS OF REFORM IN ELECTRICITY SUPPLY 175

176 CHAPTER 11

an example of a community-oriented reform. If the expansion of canal irrigation is linked to major new irrigation schemes, however, political resistance may arise for environmental reasons, as in the current debate about the interlinking of rivers (Radhakrishna 2003).

Research and Extension. Another policy option that is not likely to face politi-cal resistance but which requires public investment is research and extension. Efforts could focus on reducing water use in paddy cultivation and increas-ing the productivity of less water-intensive crops. The technical possibilities for growing paddy with less water, and hence less electricity, are in fact substantial (Tuong and Bouman 2003). However, the existing public-sector extension system may not be adequate to promote such practices on a large scale, and extension reform, even though it is now on the political agenda, itself involves contested policy issues. Moreover, to adopt water-saving culti-vation practices, farmers would need more control over electricity than they have now to be able to irrigate when water is most needed (Claudia Ringler, personal communication, May 11, 2006).

Promotion of Less Water-Intensive Crops. Research and extension alone are not likely to increase the productivity of less water-intensive crops—especially high-value crops—to the point where they can compete with paddy cultivation if no other policy changes occur. The debate about this issue is particularly important in Punjab. Providing incentives for the cultivation ofless water-intensive crops would avoid political resistance from farmers, but the options proposed by farmers’ organizations, such as introducing a minimum support price for alternative crops, have considerable financial implications for the state and contradict central policy beliefs of the market-oriented paradigm. Direct income transfers might be more acceptable within the market-oriented paradigm, as they can be decoupled (designed in such a way that they do not influence the farmers’ production decisions), but the budget constraints remain. As indicated above, independent farmers’ cooperatives may represent a third-way solution with higher political feasibility. Promoting other crops, especially in Punjab, involves the issue of food self-sufficiency. This issue, too, involves a clash of central policy beliefs between the proponents of the market-oriented paradigm, who believe that importing food is a viable policy option, and all those groups who believe that food self-sufficiency—the major political impetus for the Green Revolution—remains important for India’s political independence. The interviews suggest that this view is held not only by proponents of the welfare-state-oriented paradigm but also by groups associated with the market-oriented paradigm. The global food-price crisis that occurred in 2008 may have reinforced this position.

Promotion of Energy-Saving Technologies. The promotion of energy-saving technologies is, in principle, a win-win option that is not likely to involve major political resistance. Even after a significant increase in the price paid by farmers, electricity would remain subsidized; thus the potential for reduc-ing the remaining subsidy by promoting energy-saving technologies is in fact substantial. As several interviewees mentioned, energy savings could be in the range of 30–40 percent. The proponents of the market-oriented paradigm emphasize that the farmers have no incentives to save energy as long as a free-electricity policy or a flat-rate tariff is in place. Groups associated with both the welfare-state-oriented and the community-oriented paradigms consider that other motivations to save energy can be created, too. Moreover, regula-tory approaches can be used to promote energy saving. The strategy in Andhra Pradesh to withdraw free electricity for farmers who do not install capacitors seems to have worked without major political protest, even though the oppo-sition had tried to make political capital out of it (see the section “2004–06: Combining Free Electricity with Power-Sector Reforms” in Chapter 9). Making energy-saving motors compulsory would probably lead to political resistance, as such upgrades require considerable investment. However, depending on the amount of subsidies that could be saved, it might be economical for the state to subsidize them. In this context, it would be useful to analyze the (mixed) experience with schemes in different states that have attempted to promote energy-saving motors using incentives.

High-Voltage Distribution System (HVDS). As a technical solution to the prob-lems of electricity theft and voltage fluctuation, HVDS is likely to involve less political resistance than other approaches to these problems. However, as some interviewees emphasized, it is a comparatively expensive option, and more research would be required to identify the conditions under which it is in fact preferable.3

Policy Options That Face Major Political ChallengesThis section discusses the policy options that face major political challenges. Political processes and strategies by which these challenges may be overcome are discussed in Chapter 13.

Increasing the Electricity Price in Combination with Metering. As indicated above, the first-best policy option from the perspective of the market-oriented

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3 The WENEXA pilot project found that the payback period for HVDS upgrades, even without improvements in tariff structures, was typically two years. HVDSs virtually eliminated pump-set burnout caused by unstable voltage frequency, thus reducing on-farm pump-set maintenance and repair costs. This reduction in costs led to increased overall income to farmers (USAID 2005).

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paradigm is to increase the electricity price paid by the farmers in combina-tion with instituting metering. The political challenges to this approach can be summarized as follows:1. Decline in agricultural income: If introduced without targeted subsidies,

this policy option reduces farmers’ income in a situation that is widely perceived as an agrarian crisis, as indicated by increasing income dispari-ties between rural and urban areas, stagnating or declining farm incomes (in real terms), high levels of indebtedness, farmers’ suicides, and prob-lems such as the drought in Andhra Pradesh. Interviewees across the political spectrum—even though they used different terms to describe the agricultural situation—emphasized that these problems need to be taken into account when addressing the question of the electricity subsidy.

2. Electoral politics: Political parties have strong incentives to include highly subsidized or free electricity in their election promises, even if they do not endorse this policy otherwise. Even if parties collectively agreed to avoid promising such subsidies, it is unclear how such an agreement could be enforced. Moreover, as the free-power policy proved a successful elec-tion strategy in one state, parties in other states are likely to adopt it.

3. Farmers’ perceptions: Because electricity subsidies were introduced decades ago, farmers now perceive these measures as an entitlement. Moreover, both input and output prices in agriculture are very sensitive political parameters, as illustrated by the difficulties experienced in other countries (for example, the European Union) in switching from price sup-ports to decoupled support measures (such as direct income transfers). In addition, free power is perceived by the farmer as a 100 percent reduc-tion of price, making it a very attractive option politically, even though the associated increase in subsidy, considering that electricity was highly subsidized before, may be in the range of only 20 percent.

4. Clash in core and central policy beliefs: As indicated above, the question of whether subsidies are justified represents a clash in core beliefs and central policy beliefs held by groups associated with the market-oriented paradigm and those associated with the welfare-state-oriented paradigm.

5. Transaction-costs issues: By declaring free electricity and waiving elec-tricity bills in arrears, a state government can increase the farmers’ income almost instantly with zero transaction costs. As one interviewee put it, farmers feel the effect in their pockets the next day. Other meth-ods, such as direct income transfers, require implementation by the public administration. If the utilities are compensated by the government for a free-power policy, as they now are in Andhra Pradesh and Punjab, the utilities save the transaction costs of bill collection without incurring the negative financial effects of such a policy.

The reasons for political resistance to metering are less straightforward. Because metering was abolished more than a decade ago, farmers feel a sense of entitlement here, too. In addition, resistance to metering implies a far-reaching lack of trust: farmers assume that metering is only the first step to a price increase, especially if electricity is currently free. Unlike the electricity subsidy, metering does not involve a clash of core beliefs and central policy beliefs: it is a disagreement over causal beliefs (regarding the link between volumetric electricity pricing and water consumption) and factual beliefs (regarding the significance of the transaction costs involved in metering). The attribution of power theft to the absence of metering may in fact be a politi-cal reason not to introduce metering, especially if those who benefit have political influence. However, the introduction of metering on a sample basis in both states has already reduced the possibility of disguising power theft by attributing it to the agricultural sector.

The Shift to Targeted Subsidies. Proposals for targeting electricity subsidies to poor households, rather than abolishing them, play an important role in the policy debate.4 Obviously, the political resistance to this option will be lower than to abolition of subsidies. However, because it is the larger farm-ers who will experience income losses from a shift to targeting, this option also faces political challenges. With regard to belief systems, this option has the important advantage of representing a middle ground between groups associated with the market-oriented paradigm and those associated with the welfare-state-oriented paradigm. The latter object to targeting mainly on the grounds that effective targeting is not possible. If such objections can be overcome, the welfare-state-oriented paradigm would in fact argue against providing subsidies to all farmers, independent of their income level, espe-cially if the tax system—through which such subsidies are financed—is in-equitable. The feasibility of effective targeting clearly requires more research and experimentation.

The Privatization of the Power Sector. Under the market-oriented paradigm, the privatization of power generation and distribution is widely considered to be the first-best option for reforming the electricity sector. Because electric-ity is acknowledged to be subject to the natural monopoly problem, however, regulation is accepted as necessary. The political challenges regarding privati-zation of the power sector can be summarized as follows:

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4 In 2009, the Indian government established the Unique Identification Authority of India, which has the mandate to develop a Unique Identification (UID) card with biometric features. These cards are expected to improve the administrative feasibility of targeted subsidies considerably.

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1. Clash in core beliefs and central policy beliefs: As discussed in “Identify-ing Belief Systems” in Chapter 10, privatizing the energy sector is a policy area in which groups associated with the market-oriented paradigm and those associated with the welfare-state-oriented paradigm clash not only in their central and instrumental policy beliefs, but also in their core beliefs as to the roles of the state and the market. A public-sector reform model that adopts New Public Management approaches, as is currently pursued in Andhra Pradesh, constitutes a middle ground between the two positions. However, this model still runs counter to a core belief held by proponents of the market-oriented paradigm, who argue that the public sector in India simply cannot be reformed.

2. Interests of electricity-sector employees and other groups: Privatization obviously affects the interests of electricity-sector employees, who may lose employment and benefits and change some attitudes toward their work. The case of Andhra Pradesh shows that these concerns can be addressed in a negotiation process. Less obvious forms of political resis-tance may come from other groups that gain from mismanagement and corruption under the current system.

3. Farmers’ interests: In principle, electricity could be supplied at a sub-sidized rate or free to the agricultural sector, even if the energy sector were privatized, if the state compensated the utilities. Still, the private sector might give low priority to the agricultural sector (see below).

4. Food-security concerns: Under the current system, political decisionmak-ers in Punjab and Andhra Pradesh instruct the utilities to give priority to agricultural supply in critical phases of crop production, including drought periods. Considering that more than 50 percent of India’s food crops are produced with groundwater irrigation (Dubash 2007), this practice not only serves the interest of farmers but also supports food security. Because political influence over distribution priorities is obviously more limited in a privatized model, this is a concern for those groups who believe in food self-sufficiency as a political goal.

Regulation and State Ownership of Bore Wells. The proposal of the Andhra Pradesh Commission on Farmers’ Welfare to bring all bore wells, including those established by the farmers on their fields, under state ownership is likely to provoke major resistance, even if the farmers are compensated. Moreover, state management of bore wells involves considerable administra-tive challenges and may well lead to mismanagement and corruption. Another approach to limiting groundwater extraction is simply to restrict groundwater extraction by law or regulation. However, since bore wells are privately owned, it seems impossible to implement this option. The APWALTA takes

another approach, restricting new bore wells in areas where overextraction of groundwater is a problem. It can be enforced through a financial mechanism: obtaining a loan from a financial institution to dig a new bore well requires that the borrowers obtain a permit. Although this measure is unpopular with farmers who want to dig new bore wells, it provokes less political resistance overall because it does not affect farmers who have already established bore wells.

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PART 4

Comparing Electricity and Fertilizer Policies and Strategies for Reform

CHAPTER 12

Comparing the Political Economy of Fertilizer and Electricity Supply to AgricultureREGINA B IRNER, SURUPA GUPTA, AND NEERU SHARMA

This chapter compares the political economy of fertilizer supply and electricity supply to agriculture in India with the goal of determining the extent to which the policies in these two subsectors of agricultural

policy are driven by similar political forces and to assess how such similarities influence the prospects for agricultural-policy reform in India.

Structural Differences

Level of PolicymakingThe institutional setups for policymaking regarding fertilizer and electricity supply to agriculture show important differences, with far-reaching impli-cations for stakeholder formation and policy processes. One obvious and important difference is the level at which policymaking takes place. India’s constitution identifies policy areas over which the national parliament has exclusive domain (known as the Union list), areas that are exclusively dealt with by the state legislatures (the state list), and areas over which the national parliament and state legislatures share jurisdiction (concurrent list). Electricity is an item on the concurrent list, whereas agriculture is included on the state list. The national parliament has exercised considerable influ-ence on the institutional reform of the electricity sector at the state level, most notably with the Electricity Act of 2003. However, electricity pricing to agriculture is a state matter. As the case studies have shown, the national government has not been able to exercise much influence on state policies in this regard in spite of several efforts, such as establishing agreements between states to charge a uniform minimum price that farmers would have to pay for electricity. Such efforts could not be implemented because politi-cal processes at the state level drive electricity pricing to agriculture.

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In contrast, policymaking on fertilizer takes place mostly at the national level. Although agriculture is included on the state list in India, industry is on the Union list: thus fertilizer production and pricing have been regulated by the national government ever since Independence. The DoF within the MoCF is responsible for determining policies governing the production and distribu-tion of urea, regulating the domestic fertilizer industry, and for importing urea. Farmgate pricing of fertilizer is also determined at the national level through ministerial consultation and the parliamentary process. These differences in the level of policymaking create different categories of stakeholders. At the state level, they include regional parties and the state branches of national parties. Certain large interest groups, such as farmers, may exercise more influence at the state level, whereas interest groups with an academic or “elite” base, such as environmental groups, are more likely to lobby effectively at the national level. Whether the relative importance of agricultural policies differs between the state level and the national level is not a priori clear. At both levels, agricultural policy competes with other pol-icy fields for political attention, but these other policy fields differ between the national and the central level.

Industry StructureThe structure of the industries supplying fertilizer and electricity is another important difference between the two policy fields. Because electricity sup-ply has remained a public-sector activity in the states under consideration, the major interest groups are the management of state-owned enterprises, which have close links to the respective state governments; the employees of these enterprises, who are organized through labor unions and engineers’ associations; and groups affected by the way electricity is supplied to agri-culture. The industry is affected by electricity pricing policies for the agricul-tural sector because of cross-subsidization. Additional stakeholder groups benefit from the fact that the amount of electricity supplied to agriculture cannot be adequately measured under current arrangements. In contrast, because fertilizer is supplied only to farmers, the range of stakeholders is more limited. The fertilizer industry in India includes state-owned, privately owned, and cooperative enterprises: thus the stakeholders include private and cooperative owners. Although the public and cooperative sectors are active players in this industry, employee organizations have not played a direct role in the policy process governing fertilizers. The design of agricultural-subsidy policies influences the extent to which the supplier industries—electricity utilities and fertilizer plants—are affected and how they react politically. Compensation of the electricity utilities for agricultural subsidies has reduced the negative effects of this policy on the

utilities. In the fertilizer industry, the subsidies to agriculture have been passed through the manufacturers ever since the RPS was formulated in the late 1970s. The extent to which the subsidies processed through the fertilizer indus-try subsidize the industry, as opposed to the farmers, is not easy to deter-mine. One can compare the domestic fertilizer price with the international price, but, due to India’s size, its participation in the world market is likely to have an effect on prices (i.e., India is not a price-taker). This has to be taken into account in the political debate on the extent to which the fertil-izer industry is protected and whether it could become internationally com-petitive. Even though the opportunities to import electricity are more limited than those to import fertilizer, there are important similarities between the political debates about improving efficiency in the fertilizer industry and the electricity sector and the debates about making these sectors internationally competitive.

Environmental ImplicationsBoth fertilizer and electricity supply to agriculture have implications for the environment, raising the question of whether environmental groups will enter the policy debate. The major environmental concern regarding fertilizers is the effect of the unbalanced use of fertilizer on soil health and productivity. Current policies skew fertilizer use heavily in favor of nitrogenous fertilizers. However, without simultaneous additions of other nutrients, their use does not increase productivity. Thus an associated problem is that of the low response rate of fertilizers (Planning Commission 2007, 149). The major envi-ronmental concern regarding electricity use is the overextraction of ground-water. As shown in the previous chapter, this effect is politically contested.

Similarities

Policies and Policy OutcomesIn spite of the structural differences between the two fields, one can observe important similarities in their policy processes and political outcomes. Both areas are characterized by the use of one major policy instrument: govern-ment determination of the price that the farmer has to pay for the input. Influencing input and output prices is, of course, a widely used instrument in agricultural policy worldwide. The use of price-support policies results in comparable policy outcomes in electricity and fertilizer supply. Price-support policies are inevitably regressive: the larger the farm, the more the farmer benefits. Although this obvious fact applies to both fertilizer and electricity, the extent to which large farmers benefit more than small

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farmers from the respective subsidies depends on various factors, including relations between input use and farm size. Larger farms use more fertilizers and therefore consume more of the subsidy. However, small and marginal farmers use fertilizers with the same intensity as large farmers do. With elec-tricity, the effect of price supports is more difficult to determine because it depends on the functioning of groundwater markets, which are diverse. Price-support policies have a range of other implications that apply to both cases. Increasing the subsidy on an input creates incentives to use more of the input, an effect that can have negative environmental implications. In both cases, concerns about the negative outcomes of policies and their inconsistency with the market-liberalization paradigm have led to repeated public declarations of policy reform since the early 1990s. For fertilizer, these have included various combinations of different measures at the national level. For electricity, there have been repeated announcements at the national level—though not at the state level—to charge a minimum price for electricity used for groundwater irrigation. In both cases, some reform efforts have been undertaken. For example, when the price of urea was increased by 30 percent in 1991, the government provided small and marginal farmers with a subsidy that was equivalent to the price increase. This targeted sub-sidy, designed to protect small and marginal farmers from the impact of the price hike, was channeled through state governments. It was soon discontin-ued, however, both because state governments complained that the transfer of funds was logistically challenging and because some larger farmers took advantage of the concessions by dividing up their plots into smaller farms. Some states tried to reform their electricity pricing policy, including Andhra Pradesh, but they could not sustain the reforms. In fact, over time, more have begun to supply electricity free of charge. Interestingly, in Andhra Pradesh, reforms in the electricity sector have continued: the approach taken has been to isolate these reform efforts from the effects of the electricity subsidies to agriculture, most notably by compensating the utilities for the subsidies.

Factors Influencing Policy ProcessesThe similarities in fertilizer and electricity policies can partly be explained by the fact that they are subject to the same political forces.

Implications of the Green RevolutionFertilizer and electricity for groundwater irrigation were both key inputs for the Green Revolution, and their use was promoted by the government at both the national and the state levels. The primary objective of the Green Revo-

lution was to achieve food self-sufficiency. This goal could be achieved only by making it economically profitable for smallholders to increase agricultural production (Subramaniam 1995). Hence it was essential for the state to ensure the provision of key inputs, such as improved seeds, fertilizer, and irrigation at prices that created incentives to increase production. Although this policy was extremely successful in achieving food self-sufficiency, it also led farmers to expect that the state would continue to guarantee prices. It is no surprise that a rising income gap between the agricultural and nonagricultural sectors spurred political action to increase the subsidies for agricultural inputs.1

The Green Revolution experience created another feature that is equally relevant for understanding fertilizer and electricity policies: the goal of food self-sufficiency. Although reform proponents in both policy fields argue that full food self-sufficiency is no longer important for either political indepen-dence or food security, the analysis conducted for this study clearly showed that food self-sufficiency remains an important political goal among policy-makers and stakeholders across the political spectrum. This enduring point of view has its roots partly in the specific political experience of the 1960s that spurred India’s Green Revolution. In addition, India’s vast size makes it dif-ficult to procure sufficient staple foods and agricultural inputs in international markets in times of acute need. The food crisis of 2008 underlines this point. In the electricity and fertilizer debates, the food self-sufficiency argu-ment enters the political debate in different ways, but in both fields it is invoked to oppose market-oriented reform proposals. In the case of fertil-izer, the goal of food self-sufficiency is cited as an argument for fertilizer self-sufficiency. Accordingly, counterarguments focus on whether and under which conditions India could increase its dependence on imported urea. The food-security argument has entered the debate over electricity in various ways. In Punjab, the importance of ensuring electricity supply to agricultural production in times of crisis has been put forward as an argument against privatization. In the debate about crop diversification—as a strategy to move to less water-intensive crops—food self-sufficiency is invoked as an argu-ment against a reduction of staple-food crop production. Counterarguments focus on shifting staple-food production to regions of India where overuse of groundwater is a less limiting factor.

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1 While the Green Revolution played an important role in shaping the current policies for fertil-izer and electricity, one must acknowledge that such developments are not unique to India or other countries affected by the Revolution. Increased pressure for agricultural subsidies is com-mon during the transformation from an agricultural to an industrialized economy. This trans-formation is often characterized by intersectoral income disparities between agricultural and nonagricultural sectors (Hayami and Godo 2004).

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The Economic Liberalization DebateThe discourse analysis showed that—not surprisingly—both policy areas are equally influenced by the general debate on economic liberalization in India. The two major paradigms, market oriented and welfare state oriented, pro-vide the basis for the respective discourse coalitions that were identified in both the fertilizer and the electricity debates. These paradigms translate into arguments regarding a range of issues specific to the respective areas. They result, however, in a similar clash of beliefs and values, which in both cases contributes to the observed impasse in policy reform.

Political ActorsAlthough both policy fields are subject to similar political forces, they involve significantly different political actors. Broadly speaking, fertilizer policy is determined at the national level, whereas electricity pricing is determined at the state level. Farmers, as major stakeholders, can influence political processes at both the state level and the national level, but farmers’ orga-nizations are more active at the state level. In both Andhra Pradesh and Punjab, although farmers’ organizations occupy positions across the politi-cal spectrum, they are united in their public support for low input prices, including electricity prices for agriculture. In addition to lobbying, they use strategies such as political demonstrations to create electoral pressure and create political capital. At the national level, where fertilizer policy is set, electoral strategies are less effective. Issues such as input pricing do come up in the political debates, but rarely are national level elections won or lost on such issues. However, electoral considerations play a role because the national govern-ment is usually cautious about adopting policies that would jeopardize its party’s prospects in state elections. On crucial issues, such as farm-trade liberalization, farmers have adopted disruptive strategies at the national level, staging massive demonstrations in New Delhi. Farmers’ interests in intersectoral battles are also protected by the minister for agriculture, who is always someone with strong farming ties. In addition, farmers’ organizations are consulted on policy matters by other ministries. Finally, as a majority of parliamentarians have rural backgrounds, farmers use personal connections and lobbying to demand low input prices. Because the environmental implications of the electricity subsidies are widely perceived to be farther-reaching than those of the fertilizer subsidies, one might expect environmental actors to have appeared on the political scene and joined the discourse coalition that favored policy reform. However, this was not the case. The only NGO group at the state level that became active in this policy field joined the PMGER and promoted the combination

of free electricity and energy-saving technology. The interviews conducted for this study do suggest that important environmental NGOs at the state and national levels oppose the privatization of the electricity industry, instead of supporting the reform of electricity subsidies to agriculture. Moreover, environmental NGOs may not consider it strategically wise to oppose farmers’ organizations; rather, they concentrate on areas where there is a congruence of interests, such as rainwater harvesting. Environmental NGOs do not play a significant role in fertilizer policy reform either. Interviews conducted for this study indicated that environ-mental NGOs have, on occasion, advised farmers’ organizations on the need for adopting organic practices and using organic fertilizers, but no single NGO analogous to the PMGER has become strongly identified with fertilizer policy reforms. In part this is because the environmental impact of fertilizer use is less clear than that of electricity policy. Differences in the structure of the respective input supply industries (see above) also lead to differences in the interest-group formation. The owners of the fertilizer companies formed an interest group in favor of the current subsidy policies. In the policy discourse, they defended the position that they pass on the subsidies to the farmers as a service, without deriving any direct benefit. One might expect the farmers’ organizations to have taken a position against the fertilizer industry, arguing that the full amount of the subsidies should go to the farmers. However, even though farmers’ leaders mentioned this point in interviews, open confrontation with the fertilizer industry was apparently not a viable or useful political strategy for farmers’ organizations. Because the electricity industry is run by the state in both Punjab and Andhra Pradesh, the management of this industry would be unlikely to oppose the position of the state governments. In fact, to the extent that electricity sector stakeholders formulated a position on the subsidies to the agricultural sector, as the Engineers’ Association of the PSEB did, the major objective was to avoid negative consequences for the electricity industry rather than challenge the subsidies per se. Moreover, as the electricity employees came to see the free-power policy as a strategy against privatization, it entered into a coalition of interests. The fact that the fertilizer and electricity policies are decided at differ-ent levels influences the political roles of different ministries. At the national level, it appears that different ministries can join different discourse coali-tions. The MoF has been a strong proponent of a market-oriented fertilizer policy reform, and its position has been supported by the Planning Commis-sion. However, the DoF takes a more cautious approach toward reform and strongly advocates for self-sufficiency in urea production. The DoAC, whose interest in the issue focuses on the supply of urea to farmers, also argues

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that the interests of farmers are best served this way. Representatives of both departments recognized the need for reform, but whereas the repre-sentatives of the DoF were concerned about the plight of domestic producers and farmers in case of deregulation, those of the DoAC expressed caution, pointing to the need for food security and for protecting the interests of small and marginal farmers. The MoPNG also plays a direct role in the urea-subsidy debate. In contrast, at the state level, the chief minister and his ruling party (or coalition) appeared to play the dominant role, and potential differences between departments were less obvious.

Conclusions regarding Policy ReformThere are important differences between the policy fields of fertilizer and electricity supply to agriculture. These differences did not, however, lead to different policy outcomes. Partly this is because both have their roots in the Green Revolution and both are governed by similar public discourses on economic liberalization. In both cases, the farmers and the supplying indus-tries formed an interest coalition. In neither case did environmental interest groups appear as political actors in favor of reform efforts. And in both cases, electoral politics prevented reform. The limited success of past reform efforts suggests that it is essential to learn from failed strategies and to identify new political strategies to address the problems associated with current policies on fertilizer and electricity supply to agriculture. New reform strategies need to go beyond identifying special interests and take into account the roles of institutions, paradigms, and policy beliefs. In view of the similarities of the processes and outcomes in the two cases, which prevailed in spite of the structural differences between the two sectors, the next chapter discusses strategies for policy reform for both fertilizer and electricity policy.

CHAPTER 13

Political Strategies for Policy Reform

REGINA B IRNER, SURUPA GUPTA, AND NEERU SHARMA

Reforms of fertilizer subsidies and electricity supply to agriculture face different political challenges. As Chapter 7 shows, there are only a couple of methods, primarily technical, for addressing fertilizer reform

that are unlikely to face political resistance. In electricity supply, a range of reform options may be adopted without significant political resistance, as outlined in Chapter 11. In both cases, several strategies may be used to over-come the political challenges of policy options that are likely to meet political resistance. The first section of this chapter discusses strategies that have been attempted and analyzed in the literature on the politics of economic reforms in India. The second section discusses strategies that could move beyond current reform efforts. The third section deals with the role of research-based knowl-edge, which is equally important for both types of political strategies. This study does not make normative recommendations for reform using any of these strategies, as this choice involves value judgments that need to be made by citizens and the governments they elect. Moreover, the choice of a political strategy itself involves value judgments. There are normative rea-sons to prefer, for example, deliberative democracy methods to a stealthy-gradualism approach.

Previous Reform Approaches

Stealthy GradualismAs indicated in “The Politics of the Economic Reforms” in Chapter 2, political analysts generally agree that India’s post-1991 economic reforms, especially in the early phase, were possible because they were pursued—with considerable political skill—by stealthy gradualism, that is, below the radar screen of public attention. As also noted in Chapter 2, this reform option is not available for current reforms in the power sector, such as unbundling and control of power theft, as they inevitably affect large numbers of employees and consumers.

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Likewise, stealthy gradualism is not a feasible approach for increasing the farmgate price of fertilizer, abolishing the free-power policy, or for introducing metering on a large scale, because such measures would affect a considerable proportion of farmers. However, the approach could be used for certain elements of reform: for example, the introduction of targeting. The abolition of the free-power policy for the better-off farmers in Andhra Pradesh represents an example of this strategy. Because the measure directly affected only 5 percent of the farmers, it was apparently possible to introduce it with-out major resistance. A number of interviewees in Andhra Pradesh believed that power is still free for all farmers, indicating that the measure did not receive wide publicity. Likewise, because it clearly affects only the better-off farmers, it is not a measure that the opposition could easily attack to create political capital. It might well be feasible to gradually increase the percent-age of farmers who have to pay for electricity, especially if this increase is linked to an improvement of the overall income situation of the farmers or an improvement in electricity quality. Similarly, the provision of a direct subsidy to farmers might be tried in selected areas and then, if successful, expanded. A pilot project might attract far less attention and give policymakers the necessary data to go forward.

Strong Political LeadershipThe literature on policy reforms cites strong political leadership as an impor-tant factor in policy change (Haggard and Williamson 1993). As the interviews suggest, it is also a widespread perception—especially among proponents of the market-oriented paradigm—that pursuing unpopular reforms requires only strong political leadership or political will. For fertilizer policy, it is political leadership at the national level that matters. The analysis presented here showed that although the Ministry of Finance enjoys a position of primacy among bureaucracies, it has not been able to command support for its position on fertilizer policy reduction and rationalization. This suggests that the issue would require the support of the prime minister’s office as well as of the leader of the ruling party and the coalition, who are in a better position than the finance minister to forge support within the party and the coalition through deliberation and offer-ing incentives. Although Prime Minister Atal Bihari Vajpayee was considered proreform, neither he nor the BJP leadership made subsidy rationalization and reduction a priority. In fact, faced with opposition from coalition mem-bers and chief ministers of states, Vajpayee decided to refer the fertilizer policy issue to a group of ministers, who were unable to take any decisive action. Because reform of the policy framework for production of fertilizer must be initiated by the MoCF, the role of that minister is crucial to success.

Initiative on and commitment to policy change under Suresh Prabhu in 1999/2000 did indeed advance the reform process until Prabhu was reassigned to the Ministry of Power. In the case of electricity reforms, Andhra Pradesh’s former chief minis-ter, Chandrababu Naidu, is an interesting case. He is widely considered as an example of a strong political leader who was prepared to pursue market-oriented reforms, including unpopular measures, in the wider public interest. The fact that Naidu lost the 2004 elections by a large margin does not neces-sarily prove that this strategy is fatally flawed. Naidu won the 1999 elections, even though he had already started a widely publicized reform agenda and even though he did not adopt the “free power” election promise that the Congress Party had put forward. Naidu’s case is rather an example that “reform by strong political lead-ership,” although not impossible, requires considerable political judgmentand skill. The tariff increase Naidu pursued in 2000 (see “Summary and Impli-cations” in Chapter 9) can be interpreted as an example of serious political misjudgment. According to some interviewees, Naidu’s advisers had convinced him that the tariff increases would be politically acceptable because the higher rates would still be low compared to those of other states. Moreover, the reformers apparently believed, based on the amount of capital that farmers invest in digging bore wells or operating diesel pumps, that farmers who owned pumps would be able to afford this tariff increase. However, what eventually mattered in the political process was the relative price increase, which was substantial—a fact that the opposition could easily capitalize on. Moreover, as stressed by several interviewees, the timing of the tariff increase was particu-larly unfortunate, because the farmers were affected by a drought. As some of the interviewed political analysts remarked, political leaders and parties differ considerably in their ability to keep an “ear to the ground.” The different approaches they use include close contact with the electorate “to feel it out,” use of party structures to get feedback from the grass-roots level, and more “scientific” methods, such as opinion surveys. Whatever approach is used, understanding public opinion seems to be an important prerequisite for reform strategies that rely on strong political leadership.

Targeting, Packaging, Sequencing, and TimingAs discussed above, targeting subsidies rather than abolishing them is one strategy to reduce political resistance while improving the equity implica-tions of this policy instrument. However, because the better-off farmers will lose from a shift to targeting, some political resistance is likely to persist. Another reform strategy that can be used to make unpopular reforms more acceptable is packaging them with more popular measures, such as improved

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access to agricultural credit or new technologies. In fact, the packaging, tim-ing, and sequencing of reforms find strong support in the literature on policy reforms (Nelson 1989; Haggard and Kaufman 1992). Packages, or clusters, of reform options and their sequencing can be most effective if they are the outcome of a negotiation or deliberation process (see the next section) that involves farmers’ organizations. For electricity supply, Table 11.3, which classifies policy options according to political feasibility and budget constraints, identifies potentially useful combinations. In principle, measures that have high political feasibility but are confronted with budget constraints should be combined with measures that face political challenges but no budget constraints. Appropriate combinations, or clusters, of reform options, depend, however, on specific conditions. The possibilities for expand-ing surface irrigation and the capacity of the public administration to imple-ment targeted approaches, for example, vary by state in India. Moreover, pack-ages may combine policy reform measures for electricity supply with measures from other fields of agricultural policy or rural development policy. Similar considerations apply to fertilizer policy. Fertilizer reforms may have to be packaged with measures from other policy areas to mitigate negative percep-tions. In combination with adjusting farmgate pricing, for example, the govern-ment could suggest increasing public investment in agriculture by channeling savings from the subsidy bill into such investments. Public investment in surface irrigation might also reduce political opposition, as the farmers would benefit directly from irrigation, whereas they derive no direct benefit from subsidies to the fertilizer industry. In the past, however, farmers have rejected such packag-ing, arguing that public investment should be increased without increasing the price of fertilizer. Moreover, there may be a considerable time lag between public investments and their beneficial effect on farm incomes. Vashishtha suggests pack-aging a rise in farmgate price with the introduction of improved technology, which can be supported by the savings from the subsidy bill. This approach is more likely to succeed if the research and knowledge underlying the policy prescriptions are communicated to stakeholders, that is, farm leaders and members of Parliament, in a convincing way. It is necessary to communicate that higher urea use and lower urea prices do not automatically result in better food security for the country. Sequencing reforms can also help overcome political resistance against reforms of electricity pricing. In this context, one sequencing issue that has received much attention is the “chicken and egg” problem of increasing the electricity price and increasing quality of supply. As discussed in the next sec-tion, sequencing can help build trust and create an environment conducive to negotiated approaches. The timing of reforms is also important for minimizing political resistance. As Kingdon (1984) has pointed out, three conditions are essential to create “windows of opportunity” for policy change: the problem pressure has to be

sufficiently high, a widely accepted policy solution needs to be available, and the political situation needs to be conducive to the change. In case of fertil-izer reform, a fiscal crisis, a crisis in the farm sector, and impending trade liberalization applied sufficient problem pressure on stakeholders to act in 1999/2000, but in the absence of a clearly accepted vision for an alternative policy, the finance minister was unable to change policy. In fact, an accepted alternative policy still needs to be developed. Research and knowledge-build-ing are essential to develop such alternatives and to create more support for alternatives through deliberation (see below). In the case of electricity, the tariff increase in Andhra Pradesh in 2000 is an example of reform being pursued even though only one of Kindgon’s three conditions was met. Because Naidu won the elections on a proreform platform, the political conditions were suitable for reform efforts. However, fiscal stress—the problem that this reform measure was intended to address—was not what farmers perceived to be the major problem. Rather, it was their declining income, aggravated by the drought. Moreover, the proposed policy solution—tariff increases without any link to quality improvements—was not very convincing, for obvious reasons. Trying to reach a consensus on a possible policy solution may allow win-dows of opportunity to be used more effectively when the other conditions (problem pressure and favorable political situation) are met. To identify the appropriate timing for reducing agricultural subsidies, it might be useful to study cases where such subsidies were, in fact, reduced or abolished.

Options for Future Reform Approaches

Building New CoalitionsBuilding new coalitions of interest groups can help overcome the political chal-lenges of policy reform. The PMGER in Andhra Pradesh is an interesting example of a new coalition that brings together farmers, farm laborers, electricity-sector employees, and environmental groups. Its success indicates that new coalitions are easier to form among groups that share the same paradigm, even if they dif-fer in their material interests. Proponents of a reform that focuses on increases in fertilizer prices or agricultural tariffs have apparently not been successful in forming a coalition with environmental groups, perhaps because of differences in core beliefs. Research may be helpful for creating new coalitions by making potential interest groups aware of the ways in which they are affected by the current situation and how they would be affected by a proposed policy change (see the section “Use of Research-Based Knowledge to Promote Policy-Oriented Learning across Discourse Coalitions”). More awareness of the distribution of the costs and benefits associated with the current policies and with alternative policy options and packages

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may also help to reduce opposition to reform. Efforts to build awareness could aim at bringing smallholder farmers into a proreform coalition. However, the challenge is to establish credibility across discourse coalitions for information about the costs and benefits of reforms. Moreover, to attract smallholder farmers to a proreform coalition, it would be necessary to create trust among them that smallholder-friendly reforms, such as targeting and packaging, would in fact be implemented.

Shifting the Political Discourse: Reframing the DebateSome policy options, especially moves toward targeted subsidies, could be promoted more easily if a shift in the policy discourse were achieved. At present, the dominant policy discourse of agrarian distress focuses on the intersectoral income disparity between the agricultural and the nonagricul-tural sectors, promoted by the difference in growth rates between sectors and the issue of farmers’ suicides. But because the agrarian-distress discourse does not differentiate between groups in the agricultural sector, it provides a strong justification for general intersectoral income redistribution rather than targeted income transfers. Targeted subsidies would be easier to implement if the public discourse focused explicitly on the problems of small and marginal farmers, on farmers without access to irrigation and modern technologies, and on agricultural laborers, rather than on the agricultural sector in general. A similar challenge can be seen in the debate on food security. Whereas proponents of market-oriented reforms argue that preserving India’s food secu-rity does not require self-sufficiency in urea production, the mainstream dis-course links the two issues in such a way that the latter is seen as a necessary condition for the former. The challenge is, of course, to identify strategies by which the public discourse can be changed. Proponents of electricity and fer-tilizer reforms have always highlighted the distributional issue, and they have often argued for a rationalization rather than a complete abolition of subsidies. Yet they have failed to persuade their opponents in the public debate that their reform proposals stem from a genuine concern for the poorer sections of the agricultural sector. Reframing the market-oriented debate on rationalizing subsidies by placing more emphasis on poverty reduction and equity, in addi-tion to macroeconomic and fiscal goals, may help to overcome political resis-tance. The government has recently tried to reframe the debate on fertilizer reform as one that addresses soil health, balanced fertilization, and increases in foodgrain production rather than fiscal and distributional issues.

Strategic BargainingStrategic bargaining is typical of negotiations between labor unions and employers. A good example of this approach is the tripartite agreement in Andhra Pradesh between the labor unions representing the electricity-sector

employees, the government, and the SEB. The agreement addressed the interests of the electricity-sector employees by protecting their job security, salaries, and benefits. This agreement alone does not, however, explain why the power-sector reform in Andhra Pradesh was possible. The reform also affected groups that were not represented at the negotiation table, such as the industrialists and households benefiting from power theft. Hence, strong leadership as well as strategic bargaining was necessary. Strategic bargaining could also be used to induce the fertilizer industry to support policy reform. A credible bargain with the fertilizer industry could be promoted if the government showed a more united face to the industry and, in its own communications, separated the issue of food security from self-sufficiency in fertilizer production. The industry is made up of a small num-ber of actors with very specific material interests: if it is convinced that the government is serious about reform and is even willing to consider a larger dependence on imports, the industry will likely be prepared to negotiate. A bargaining approach appears less applicable to the farmgate price of fertilizer and tariffs and metering for agricultural electricity. Unlike the fertilizer and electricity producers, farmers are a large and heterogeneous group. Moreover, farmers’ organizations do not represent the farmers in the same way that labor unions represent the employees, because the farmers’ organizations are fragmented and not all of them have registered members. Moreover, unlike the electricity employees, the farmers are not in a contrac-tual relationship with the state: hence any deal would require considerable trust on the part of the farmers. Another approach for the government would be to negotiate with members of Parliament over fertilizer reforms or mem-bers of the state legislative assemblies over electricity reforms. It is not clear whether the farmer’s organizations would be willing to negotiate over either fertilizer or electricity pricing. According to the theory of strategic bargaining, participants typically first consider their “best alterna-tive to a negotiated agreement” (BATNA) (Fisher and Ury 1983). For the utility employees in Andhra Pradesh, the incentives to arrive at a negotiated solution were high, as there was a “credible threat” that the government would pursue the reforms in any case. Creating a credible threat regarding fertilizer pricing and electricity pricing and metering appears more difficult. To overcome the challenges of negotiated approaches, it may be useful to think about the subsidy reform more broadly and ask the question: What should be done with the public resources that will be saved if the subsidies to agriculture are reduced? One concern, which features especially in the welfare-state-oriented discourse, is that after reducing subsidies to agricul-ture, these resources might be spent in ways that are far less desirable from an equity perspective. The market-oriented discourse argues that subsidies crowd out public investment, but there is no guarantee that the reduction

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of subsidies would automatically lead to more public investment that serves the farmers. Therefore, it would be useful to think about the agricultural policy reform as a social pact, quantify the resources that would be saved byreforming agricultural policies, and negotiate a plan that spells out how these resources would be spent for the benefit of the rural poor. In negotiating such a pact, policymakers could open more formal channels for involving farmers’ organizations than have been used in the past, such as public hearings in state legislative assemblies. As a basis for negotiation, it might well be necessary to package fertilizer and electricity reform measures with other agricultural or rural development policies (see the section “Strong Political Leadership”). For credibility, such a pact would need to be made part of the budget process. Overcoming a lack of trust is essential to the success of negotiated approaches. The interviewed farmers expressed little confidence that politi-cians and the public administration are truly interested in solving their prob-lems. As one representative of a farmers’ organization pointed out: “We do not look to anyone to solve our problems. . . . [Politicians] are just worried about their vote banks.”1 With regard to the problem of low electricity qual-ity, he said, farmers “have to leave it to God, as no government official is bothered about it.” The sequencing of reforms can play an important role in building trust (see the section “Strong Political Leadership”). If the govern-ment were able to take credible steps first, such as substantially improving the quality of the electricity supply, the feasibility of negotiated approaches would certainly increase. It would also be useful to provide easily accessible, research-based information on the costs and benefits of different policies and packages. As further detailed in the section “Use of Research-Based Knowledge to Promote Policy-Oriented Learning across Discourse Coalitions,” special efforts are needed to make such knowledge credible to members of both discourse coalitions.

Deliberative DemocracyWhereas strategic bargaining assumes that people act only in their own inter-est and that preferences are fixed, an alternative model, deliberation, can be defined as “an approach to decisionmaking in which citizens consider rel-evant facts from multiple points of view, converse with one another to think critically about options before them and enlarge their perspectives, opinions, and understandings” (Deliberative Democracy Consortium 2006). The concept of deliberation rejects the assumption that people only act strategically to pursue their own interests. However, as Fung and Wright (2001, 19) point out: “The ideal does not require participants to be altruistic or to converge upon a consensus of value and strategy, or perspective. Real-world deliberations are often characterized by heated conflict, winners, and losers. The important

1 Interview with representative of a farmers’ organization, Lehragagga, April 2, 2006.

feature of genuine deliberation is that participants find reasons that they can accept in collective actions, not necessarily that they completely endorse the action or find it maximally advantageous.” In the terms of the framework used in this paper, deliberation aims at reaching a consensus for practical action without requiring a consensus in core beliefs or central policy beliefs. It is closely associated with Haber-mas’s (1981) theory of communicative action and rational discourse, which emphasizes mutual understanding. The idea of deliberation has gained atten-tion during the past decade in the debate about deliberative democracy, an attempt to overcome some of the limitations of representative democracy by promoting civic engagement and public participation.2 A wide range of meth-ods exist for practicing deliberation, ranging from “citizen juries” involving groups of ten or twelve people to participatory events involving several thou-sand people, who deliberate with the assistance of modern communication technologies (see Gastil and Levine 2005). Such approaches have been used in a variety of settings, including environmental mediation, ex-ante technol-ogy impact assessment, and city planning and budgeting. Table 13.1 presents a set of rules that are derived from Habermas’s rational-discourse approach and can serve as guidelines for deliberative processes. Deliberative-democracy approaches show considerable potential for overcoming the long-standing problems associated with the fertilizer and electricity supply to agriculture in India. To determine which of the different deliberative approaches that have been developed in various fields would be most suitable, analysts could draw on the rich experience of deliberative approaches in environmental mediation, conflict resolution, and other fields. The widely publicized case of participatory budgeting in Porto Alegre, Brazil, shows that low levels of education are not necessarily an obstacle to using deliberative approaches (Baiocchi 2001). However, because of the hierarchies and conflicts that characterize Indian society, special efforts and awareness building among disadvantaged groups seem necessary to ensure equitable participation. Using a case study from Maharashtra, Gupte and Bartlett (2005) conclude that deliberation can work well under Indian village conditions given a conducive combination of agents, processes, and structures. Deliberative approaches could certainly draw on the experience of gram sabha (village-level) meetings, which have been promoted under the decen-tralization policy. They would require the participation of organizations that have, or could develop, the skills and expertise to convene deliberative

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2 Proponents of deliberative democracy argue that the institutional forms of representative democracy and technobureaucratic administration developed in the nineteenth century are increasingly ill-suited to solve the problems societies face in the twenty-first century (cf. Fung and Wright 2001).

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processes on the topic of electricity supply to agriculture and were perceived as sufficiently impartial. For electricity, deliberative processes might be estab-lished within the ERCs, which already have the mandate to promote public participation.

Use of Research-Based Knowledge to Promote Policy-Oriented Learning across Discourse Coalitions

Opportunities and Challenges for Policy-Oriented LearningBoth conventional reform strategies and the new strategies discussed above could benefit from a better use of research-based knowledge. As discussed in “Policy-Oriented Learning” in Chapter 3, the concept of policy-oriented learning devel-oped by Jenkins-Smith and Sabatier (1993) is used here to understand the role of knowledge in the political process. It is policy-oriented learning across groups with different belief systems that is important to effect reforms in both fertilizer and electricity policy. On electricity policy, as Chapter 10 shows, groups associated with different paradigms differ not only in their core and central policy beliefs, but also in their factual and causal beliefs. Although core and central policy beliefs are difficult to change, research-based knowledge can help build agreement on facts and causal mechanisms. Likewise, research can promote agreement about instrumental policy beliefs, which refer to technical aspects of a policy. The hypotheses presented in “Policy-Oriented Learning,” in Chapter 3 can lead to a better use of knowledge in the debates over fertilizer and electric-ity supply to agriculture. In general, the possibilities for using research-based

Table 13.1 Principles for consensus-oriented deliberation processes

Principle Explanation

Clear mandate The questions to be answered by the participants, their tasks, and their competencies must be defined and accepted at the beginning.Timing A clear time plan allows all participants to define their input. Time allowed must be sufficient for thorough discussion of the relevant topics.Equal rights All participants have equal status during the discourse activities. and duties Hierarchic structures, competencies, and power relationships outside the

discourse do not convey privileges or specific rights during the activities.Rationality Emotional arguments as well as moral statements about the positions

of other participants often block consensus arrangements. Therefore, such statements should be avoided and transformed into discussible arguments.

Feedback Interim as well as final results must be distributed to the participants as well as made available to the public, as the transparency of the approach

is an important element of its legitimation. In addition, at the beginning of discourse activities, participants should agree on the target groups for the results as well as the mode of transmission of results.

Source: Beckmann and Keck (1999), quoted in Gaisser et al. (2001, 7).

knowledge to promote policy-oriented learning are favorable in India; and in the progress that has already been made, research-based knowledge has played an important role. Compared to that of other countries with similar income levels, research capacity in India is well developed. There is a strong tradition of analytical debates and of using research-based knowledge in developing policy. In fact, a number of academic organizations and think tanks at the state and national levels have conducted research on issuesrelated to the energy supply to agriculture. Likewise, there are well-established professional forums for analytical debates. The journal Economic and Politi-cal Weekly is a prime example: it has published a wide range of articlesand commentaries on agricultural policy reform by authors associated with different paradigms. Moreover, temporary and institutionalized commissions, which bring together leading researchers, are important sources of policy advice in India. Nevertheless, fertilizer and electricity supply to agriculture are chal-lenging fields for policy-oriented learning because the level of conflict is high, and core and central policy beliefs are at stake. Moreover, some of the major questions are analytically intractable. For example, the link between electricity price and groundwater level is complex: multiple factors influence farmers’ decisions on crop choice and groundwater use. And groundwater extraction is only one factor determining groundwater levels. The knowledge and research that informed policymaking during the Green Revolution are no longer entirely relevant to the problems now facing Indian agriculture in the context of changed economic and political circumstances. Although new research and new knowledge have certainly been developed, they have evolved in piecemeal fashion and have not been communicated in ways con-ducive to an alternative discourse.

Options for Improving the Use of Research-Based KnowledgeIn view of the challenges discussed in the previous section, the following measures may improve the use of research-based knowledge for policy-oriented learning.

Establish a Clearinghouse for Research-Based KnowledgeAlthough there are extensive studies on fertilizer subsidies, nutrient imbal-ances, electricity subsidies, groundwater use, and power-sector reforms, this information is fragmented and difficult to access quickly because the stud-ies have been carried out in different states and by various national-level research institutions over a more than a decade. Likewise, the experiments and projects to which such studies may refer have been carried out in dif-ferent states and at different times. An interviewed member of the Central Groundwater Board argued that not even this institution has easily accessible, empirical studies of the link between electricity pricing and groundwater use.

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Even if information on this topic is limited, it would be more useful if it were more accessible. One way of improving access to research-based knowledge is to identify an institution that is considered to be sufficiently independent and neutral as the home of a website (a clearinghouse or digital library) where the available studies could be easily accessed (for example, in a database searchable by keywords, themes, and states).

Identify Contested Issues for Which Empirical Analysis Is LackingThe establishment of a clearinghouse would help to identify gaps in existing research and promote work in those areas. For example, this study found sub-stantial research documenting that large farmers derive more direct benefits from the fertilizer and electricity subsidies than small farmers. However, studies that take indirect effects into account, or evaluate the effect of fertil-izer and electricity subsidies on food prices, are lacking. Likewise, not much research exists on the estimated consequences of a small rise in the farmgate price of urea. For electricity, little rigorous analysis has been conducted on the link between electricity pricing and groundwater use, even though this question is central to the debate on electricity supply to agriculture. So far, representative studies based on farm-household data that evaluate water-use efficiency under different electricity-pricing mechanisms (for example, by using stochastic production frontier functions) and that account for farmers’ crop choices (for example, by using linear programming methods) are either scarce or inaccessible. Considering that a substantial proportion of stakehold-ers (see Chapter 10) do not see a strong link between electricity pricing and groundwater use, more empirical research on the issue would be justified. Following up on earlier debates (Moench 1994), it would also be useful to conduct more empirical research on the impact of changes in electricity pric-ing, the price at which pump owners sell groundwater, and the equity impli-cations of such changes. Another area where more empirical research seems justified is transaction costs, especially because this issue is significant in the debate on metering. Because metered connections for agricultural pump sets already exist in some parts of India, empirical studies on the transaction costs involved are possible.3

Promote Experimentation and LearningLinking rigorous research with policy experiments is a promising approach that has attracted increasing attention in recent years. The use of a random-

3 Some researchers believe that it is not possible to empirically measure transaction costs. How-ever, this is not the case (see, for example, Mburu et al. 2003).

ized experimental design looks especially promising for encouraging policy-oriented learning (Duflo, Glennersterzand, and Kremer 2006). This approach could be used to examine the feasibility of different types of targeting for both fertilizer and electricity subsidies. A range of other policy experiments are also of interest. For example, one could compare decentralizing electric-ity supply to user groups and to panchayati raj institutions. Another experi-ment might offer farmers the opportunity to voluntarily pay a higher price in exchange for full-time access to high-quality electricity. For fertilizers, one could compare the targeting impact of the current product-based subsidies with that of the proposed nutrient-based subsidies.

Make Research More Demand-DrivenBecause research on questions associated with the electricity supply to agri-culture is often produced and used for advocacy, it typically focuses on those aspects of an issue that the proponents of a particular policy option consider most important. However, deliberative processes that bring groups with different belief systems together might create a demand for new research-based knowledge. As a hypothetical example, the participants of such a deliberative forum might want to know more about the impact of increasing agricultural tariffs on households that buy groundwater and on agricultural laborers. Research on this question could then be commissioned to institu-tions trusted by groups with different belief systems. Research that is based on a real demand for specific knowledge is more likely to address the con-cerns of stakeholders and to be of use in the political process.

Make Research-Based Knowledge More Accessible to LegislatorsThe institutional mechanisms for making policy-relevant knowledge avail-able to Indian legislators are limited. The Planning Commission has access to research-based knowledge from leading scholars. However, there is nothing similar to a Congressional Research Service, and Indian national and state legislators do not have large staffs to read, summarize, and present to them information on policy issues. Legislators generally learn about the most press-ing problems from their constituents. They receive policy advice on agricul-tural issues from a variety of sources but primarily from NGOs, such as envi-ronmental groups.4 Farmers’ groups also receive policy advice from NGOs. Although the quality of the policy advice given by NGOs may be high, it may

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4 Interviews with members of Parliament and state legislative assemblies, New Delhi, January 10, 2006; Hyderabad, March 6 and 9, 2006; Chandigarh, March 16 and December 2 and 3, 2006.

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not represent all available knowledge. More recently, business associations have begun advising legislators on policy issues. However, the research and knowledge provided by interest groups may be biased. With more efficient dissemination of policy-relevant knowledge, legislators could make better-informed decisions on policy options.

Promoting Analytical DebatesResearch on issues related to the fertilizer and electricity supply to agricul-ture has, so far, often been used in an “advocacy fashion,” in line with the hypotheses reported earlier (“Policy-Oriented Learning” in Chapter 3). Con-sidering that it is a topic with regard to which core and central policy beliefs are at stake, this observation is well in line with hypotheses summarized earlier. Promoting analytical debates that focus on reviewing the data, the analytical methods, and the assumptions of studies that are used to advo-cate a particular position would help to make better use of research-based knowledge in the debate and to promote consensus and evidence-based deci-sionmaking. For example, the World Bank study on the power supply to agri-culture in Andhra Pradesh and Haryana (2001b) presented a model simulation (called the “accelerated reform scenario,” covering a period of six years), according to which the income of small and marginal farmers would increase by 100 percent to 120 percent because of an improvement in the quality of the electricity supply, which would lead to fewer losses caused by motor burn-outs and to higher crop yields due to more reliable water supply. In this scenario, farmers would face an electricity price increase of approximately 470 percent. Many observers find such a result unrealistic. An analytical debate on the methodology and assumptions of this scenario could reduce disagreement about such findings. To give another example, an analytical debate might help clarify why available studies differ in their assessments of farmers’ willingness to pay for electricity.

Increasing Diversity in Analytical ForumsA range of analytical forums in India (commissions, journals, professional associations) are prestigious and attract leading researchers. However, not all of these forums are in themselves diverse in the sense that they include researchers with different value and belief systems. In particular, temporary government commissions on specific topics tend to be set up with a bias in favor of one position or paradigm (see, for example, Expert Group, Government of Punjab 2003). To promote policy-oriented learning across groups with dif-ferent belief systems, it would be useful to promote forums in which lead-ing researchers associated with different paradigms could meet and resolve analytical debates.

CHAPTER 14

ConclusionsREGINA B IRNER, SURUPA GUPTA, AND NEERU SHARMA

This monograph has analyzed why so few political solutions to the prob-lems of fertilizer supply and to the “electricity–groundwater conun-drum” have emerged after more than a decade of reform efforts.

With regard to fertilizer supply, the study concentrated on why the GoI has not been able to reduce or better target the fertilizer subsidy despite several attempts. The study shows that the ability to raise farmgate prices is constrained by coalition politics and by political representatives of owners of medium-sized and large farms. The government has also been unable to target the subsidies more narrowly at small and marginal farmers because of opposition from owners of medium-sized and large farms and logistical problems perceived to be associated with the change. The study also shows that reform of the policy framework for production and distribution of fertil-izers has failed because of the presence of a strong coalition consisting of the fertilizer industry, the MoCF, and the MoA, which has successfully argued that policy reform would reduce India’s self-sufficiency in fertilizer produc-tion and therefore its food security. The advocates for change in policy are fewer and less articulate and consistent in their message. Finally, the reform of fertilizer subsidies has been stymied by the inadequate supply of natural gas in India. In the case of electricity supply to agriculture, the study suggests that similar explanatory perspectives, focusing on material interests as drivers of political processes, go a long way toward explaining the current situation. However, as with fertilizer, these explanatory approaches miss one important dimension of the problem. The long-standing and unresolved problems asso-ciated with fertilizer and electricity supply to agriculture are due not only to entrenched interests, path dependencies, and electoral and bureaucratic politics, but also to a clash of two value and belief systems that are important in Indian politics: On one end of the spectrum are those who believe that

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the market forces offer the ultimate solution to both the economic and the environmental problems associated with the fertilizer and electricity supply to agriculture, and that state intervention—in view of inherent state failure—should be limited to a minimum. At the other end of the spectrum are those who believe the state must act to protect both the farmers and the environ-ment and to promote food self-sufficiency. Both groups have a positive self-representation, as defenders of the public interest, or advocates of the poor and disadvantaged, and a negative other-representation, labeling each other as neoliberals or populists. Efforts to bridge the gaps between these two groups, which are associated with different material interests and different value and belief systems, have remained limited. Moreover, researchers have typically taken one side or another. The study has identified a wide range of policy options that would help to overcome the economic, distributional, and environmental problems associated with the electricity supply to agriculture. Although not all these solutions are what the proponents of the market-oriented paradigm consider first-best, many options may be quite effective, and several are unlikely to meet major political resistance. In particular, community-oriented solutions, such as decentralization and devolution, are promising options that offer a third way between state and market, or “socialism” and “capitalism.” For fertilizer, the study identifies fewer policy options that are unlikely to encounter major political resistance. However, it does identify a range of political strategies that could be used to promote change in both fertilizer and electricity policy, including methods of deliberative democracy and a better use of research-based knowledge to promote policy-oriented learning. The authors hope that some of the considerations presented here will be helpful for stakeholders and policymakers associated with different value and belief systems in finding solutions for the common good.

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About the Authors

Regina Birner was a senior research fellow in the Development Strategy and Governance Division of the International Food Policy Research Institute, Wash-ington, D.C., at the time this study was conducted. She is currently professor of Social and Institutional Change in Agricultural Development at the Institute of Agricultural Economics and Social Sciences in the Tropics and Subtropics at the University of Hohenheim, Stuttgart, Germany.

Surupa Gupta is assistant professor in the Department of Political Science and International Affairs, University of Mary Washington, Fredericksburg, Va., U.S.A.

Neeru Sharma was a research analyst in the Development Strategy and Governance Division of the International Food Policy Research Institute, Washington, D.C., at the time this study was conducted and was based in the Institute’s New Delhi office. She is currently a consultant for the World Bank’s New Delhi office.

222

Index

223

Page numbers for entries occurring in figures are suffixed by f, those for entries occurring in notes by n, and those for entries in tables by t.

Actors. See Interest groupsAdvocacy coalitions, 12–13, 21, 23, 24, 154.

See also Discourse coalitionsAgrarian crisis: debates on fertilizer subsidies

and, 70; discourse coalition views of, 143–44; discourse of, 198; as election issue, 116, 123, 132; electricity policies and, 178; farmers’ suicides, 70, 116, 123, 143–44, 178

Agricultural cooperatives, 148–49, 175Agricultural labor organizations, 132–33Agricultural policies: debates on, xviii; food

self-sufficiency as goal of, xviii, 3, 176, 188–89; of India, xv; political economy of reforms of, 13–18; public investment, 46; reforms of, 13–14; state responsibilities, 11, 13. See also Electricity policies; Fertilizer policies

Agricultural subsidies. See SubsidiesAgriculture: contract farming, 148; crop

diversification in, 127, 148, 163, 175; discourse coalition views of general situation in, 140t, 143–45; employment in, 35; growth rates of, 35, 143; in Indian economy, 35–36, 36t; organic, 136, 191; productivity of, 37, 46, 57; research and extension, 176, 203. See also Electricity supply to agriculture; Fertilizer; Food production; Irrigation

Agriculture, Ministry of. See Ministry of Agriculture

Akalis, 123Alagh, Y. K., 53, 55Alagh Committee, 41–42, 53, 55, 76All India Agricultural Workers Union, 132–33All India Kisan Sabha, 59, 130, 134, 139Amritsar, Golden Temple of, 121Analytical debates, 26, 206Analytical forums, 26–27, 203, 206Andhra Pradesh: Agricultural Workers Union,

133; agriculture in, 100t; comparisons to Punjab, 107, 128; economic reforms in, 111–12; electricity policy evolution in, 108–18, 144; electricity reform in, 106, 106t, 113, 194, 195, 197, 198–99; electricity

subsidies in, 103–4, 104t, 105t, 108–11; electricity supplies in, 101; electric pumps in, 99; farmers’ organizations in, 108, 110, 114, 130, 155, 190; fertilizer subsidy distribution in, 46; fertilizer use in, 47, 48; Green Revolution in, 110; groundwater development in, 102, 103; interest-group politics in, xix; irrigation in, 101, 110, 113–14, 175; irrigation policies of, 115–16, 118; legislative assembly of, 131; politicians in, 108–9, 195; power sector performance in, 106–7, 107t, 118; power-sector reforms in, xxiv, 109, 111–17, 129, 133, 154–55, 156; public administration of, 136–37; socioeconomic indicators of, 99, 100t; water resources in, 20, 115–16

Andhra Pradesh Commission on Farmers’ Welfare, 166, 180

Andhra Pradesh Electricity Reform Act, 113Andhra Pradesh Electricity Regulatory

Commission (APERC), 113, 114–15, 135b, 152

Andhra Pradesh State Electricity Board (APSEB), 113, 199

Andhra Pradesh Water and Land Trees Act (APWALTA), 115–16, 118, 181

APERC. See Andhra Pradesh Electricity Regulatory Commission

APSEB. See Andhra Pradesh State Electricity Board

APWALTA. See Andhra Pradesh Water and Land Trees Act

Awasthi, Surinder, 124

Badal, Parkash Singh, 123, 124Bardhan, P., 7–9, 12, 15Bargaining. See Strategic bargainingBartlett, R., 201Beliefs: central policy, 23; core, 23, 77–83,

140–42t, 142, 143, 154; factual and causal, 23, 202; instrumental policy, 23, 145, 155; interests and, 23–25; policy, 23; secondary, 23; specific, 23, 140–42t, 142, 143; stability of, 24

Belief systems: classification of, 23, 24f; of discourse coalitions, 22–23

Bharatiya Janata Party (BJP): in Andhra Pradesh, 113, 114; coalition governments of, 50, 52–53, 62; fertilizer policies of, 62–63, 70, 194; in Punjab, 123, 128

Bharatiya Kisan Union (BKU), 59, 60, 118, 120, 121–22, 130

BJP. See Bharatiya Janata PartyBKU. See Bharatiya Kisan Union

Caste system, 114, 124, 201Central Groundwater Board, 203Central policy beliefs, 23Chemicals and Fertilizers, Ministry of. See

Ministry of Chemicals and FertilizersChidambaram, P., 56Class structure, 8. See also Large and

medium-sized farmers; Small and marginal farmers

Clearinghouses, research, xxv, 203–4Coalition politics, 5, 10, 11, 15. See also

Electoral politics; Political partiesCoalitions, xxiii, 197–98. See also Advocacy

coalitions; Discourse coalitionsCollective-action problems, 59, 128, 165–66Communist Party of India (CPI), 123Communist Party of India (Marxist; CPI-M),

59–60, 115, 130, 132, 145, 151–52Community-oriented paradigm, 78; challenges

of policies, 174; devolution, xxi, 18, 156; electricity policies and, 139, 148–49, 173–75, 208; groundwater management options, 166, 175. See also Cooperatives

Conceptual framework, 21–27, 22fConfederation of Indian Industries (CII), 9, 59Congress Party: in Andhra Pradesh, 108, 109–10,

111, 114, 116, 117; election promises on electricity policies, 108, 109–10, 111, 114, 116, 125, 127; electoral support for, 52; electricity subsidy policies of, 16, 144; farmers’ organizations affilliated with, 59, 130; fertilizer policies of, 50, 63; leaders of, 128; in Punjab, 119, 120, 122, 123, 124–27, 125t, 127, 128; as umbrella party, 11

Consensus development, 155, 201, 202tContract farming, 148Cooperatives: agricultural, 148–49, 175;

electricity, 153–54, 156, 165Core beliefs, 23, 77–83, 140–42t, 142, 143, 154Corruption, 16, 18, 62, 109, 118, 165CPI. See Communist Party of IndiaCPI-M. See Communist Party of India (Marxist)Credit Rating Information Services of India

Ltd. (CRISIL), 106, 118Crop diversification, 127, 148, 163, 175

Dalits, 114, 124, 127DAP. See Diammonium phosphateDeaton, A., 8Decanalization of imports, 92, 92n, 95Decentralization and devolution, xxi, 18,

153–54, 156, 165, 173–74Delhi, power-sector reforms in, 151, 151nDeliberative democracy, xxiv, 200–202, 205Department for International Development

(DFID; U.K.), 137Department of Agriculture and Cooperation

(DoAC), 69, 75, 76, 191–92; annual report of, 32

Department of Fertilizers (DoF): annual report of, 32; fertilizer policy reforms and, 85, 191; goals of, 65; interest groups and, 10; opposition to fertilizer policy reforms, 95, 96; relations with industry, 61, 75, 76; responsibilities of, 186

Devolution, xxi, 18, 156DFID. See Department for International

DevelopmentDhawan, B. D., 20Dhindsa, Sukhdev Singh, 59, 63, 71Diammonium phosphate (DAP), 51, 60, 65–66,

94Diesel pumps, 100, 102t, 103, 150, 195Discourse analysis, 21Discourse coalitions: advocacy coalitions,

12–13, 21, 23, 24, 154; definition of, 21–22; interests in, 24–25; policy-oriented learning across, 85–86, 154–56; political resources of, 25; value and belief systems of, 22–23. See also Market-oriented paradigm; Welfare-state-oriented paradigm

Distributional problems: electricity policy reforms and, 157, 158f, 161–62; subsidies and, xviii, xix

DoAC. See Department of Agriculture and Cooperation

DoF. See Department of FertilizersDubash, N. K., 11, 16, 19, 111

Economic and Political Weekly, 203Economic capital, 25Economic reforms: in Andhra Pradesh, 111–12;

as context of policy reforms, 4; debates on, 190; in India, 7, 43, 64, 193; international pressure for, 13; leaders of, 12; politics of, 7–13, 52; poverty reduction effects of, 7–8

Electoral politics: economic reforms as issue in, 52; farmers and, 60, 132; promises on electricity policy, 108, 109–10, 111, 112, 114, 116, 125, 127–28, 178; voters in Punjab, 124, 125t, 126t. See also Political parties

224 INDEX

Electrical Engineers Association, 133Electricity Act of 2003, 106, 154, 185Electricity cooperatives, 153–54, 156, 165Electricity policies: comparison to fertilizer

policies, xix–xx, 185–92; discourse coalitions and, 138–39, 142; election promises on, 108, 109–10, 111, 112, 114, 116, 125, 127–28, 178; flat-rate tariffs, 108, 109, 119, 120–21, 128, 150; interest and institutional influences on, 130–37, 190–91; metering, 115, 119, 138, 149–50, 161, 177–79, 204; policy-oriented learning in, 154–56; public opinion on, 124, 125t; relationship to other policy fields, 4, 5f; scholarship on, 5, 16–18; tariffs, 100, 102f, 120–21; water issues in, 20. See also Electricity subsidies; Free electricity policies

Electricity policy reforms: in Andhra Pradesh, 106, 106t, 113, 194, 197, 198–99; budget constraints on, xxi, 174t, 175–77; classifi-cation of, 157, 161; community-oriented, 139, 148–49, 173–75, 208; decentralization and devolution, xxi, 18; evaluation of options, 166–81, 168–69t; for fiscal and distributional problems, 157, 158f, 161–63; groundwater management, 157, 160f; links between options, 161; national Electricity Act, 106, 154, 185; options for, 18, 208; political challenges of, xix, xxi–xxii, 128, 177–81, 207–8; political feasibility of, xxi–xxii, 167, 170–71t, 172–81, 174t; price increases, 113, 115, 161, 162, 163–64, 177–78, 197; privatization, 114, 127, 133; in Punjab, 106, 106t; quality improvements, 157, 163–65, 174–75; resistance to, 113, 115, 126, 127, 149–50; scholarship on, xvi–xvii, 15–18; sequencing of, 196; status of, 106, 106t; targeted subsidies, 117, 145; time restrictions, 117, 161, 162–63; transaction costs of, 178, 204

Electricity regulatory commissions (ERCs): public participation and, 202; in Punjab, 123, 155; role of, 106, 152–53; scholarship on, 17; statistics publication and, 164–65, 175; tariffs set by, 161n

Electricity subsidies: in Andhra Pradesh, 103–4,104t, 105t, 108–11; criticism of, xv, 3; discourse coalition views of, 140–41t, 144–47; distribution of, 104, 104t, 105t; as entitlement, 178; environmental problems associated with, xv; origins of, 16; as percentage of state expenditures, 103–4, 104t, 105t; in Punjab, 119–21, 122–23, 124; reduction efforts, xvi, 111–17; size of, 103–6, 104t, 145; by states, 100–101; supporters of, 138; targeted, xxi–xxii, 117, 145, 155, 179

Electricity supply to agriculture: consumer satisfaction with, 164; consumption reductions in, 162–63; interest groups in, 167, 170–71t, 172, 186–87; power theft, 18, 163, 164, 179; priority of, 180; problems in, 3–4, 18, 101, 103f; quality of, xvi, xxi, 3, 131, 157, 159f, 163–65, 174–75; stakeholders in, 31f, 138–39, 138t, 154–55. See also Electricity policies

Electric pumps: energy-saving devices for, 117, 161, 162, 177; metering of, 119; owners of, 100, 102t, 117, 150, 162, 195; use of, 99, 101t

Energy–groundwater nexus, 18–19; discourse coalition views of, 141t, 146–47, 155–56; policy reforms and, 160f, 161; scholarship on, 18. See also Electricity policies; Groundwater

Energy policies: federal and state responsibilities for, 15; prices of, 66. See also Electricity policies

Engineers Association, 127, 133, 134, 152, 191Environmental groups: electricity policies and,

134, 146, 172–73, 190–91; fertilizer policies and, 191; policy roles of, 187

Environmental problems: carbon footprints, 47; groundwater use, xv, 20, 101–2, 104f, 146–47, 187; market-oriented views of, 78t; nutrient imbalances in soils, xv, 44, 46–47, 187; welfare-state coalition views of, 78t

ERC. See Expenditure Reforms CommissionERCs. See Electricity regulatory commissionsEssential Commodities Act of 1955, 41Expenditure Reforms Commission (ERC), 32,

53, 54, 68, 70, 71, 74, 75, 132Experiments, xxv

Factual and causal beliefs, 23, 202FAI. See Fertiliser Association of IndiaFAO. See Food and Agriculture OrganizationFarmers. See Large and medium-sized farmers;

Small and marginal farmersFarmers’ organizations: in Andhra Pradesh,

108, 110, 114, 130, 155, 190; coordination bodies for, 59; emergence of, 45; irrigation management by, 114; of large farmers, 110–11, 120; lobbying by, 59, 69, 131; middle-class, 111; opposition to fertilizer policy reforms, 84–85; in political economy of electricity supply, 130–32, 149–50, 152–53, 167, 172; in political economy of fertilizer, 58–60, 191; in political economy of reforms, 68–69, 190, 191, 199; political party affiliations of, 130; political power of, 111, 131–32, 172, 190; protests by, 16,

INDEX 225

Farmers’ organizations (continued) 131, 190; in Punjab, 118, 120, 126, 130,

190; reforms supported by, 60, 155; regional, 69; types of, 59

Farmers’ suicides, 70, 116, 123, 143–44, 178Farmers’ unions, 59Fertiliser Association of India (FAI), 52, 54,

61, 62, 74, 85Fertilizer: benefits of use of, 3; consumption

of, 36–38, 38t, 39t, 40t, 41, 42t, 43, 56; demand for, 56; imports of, 41, 42t, 51, 53; international comparisons of, 38t; organic, 191; production of, 36, 41, 42t; self-sufficiency in production of, 77–85,81t, 86, 95; use by farm size, 37, 38t; use by state, 37–38, 39t, 47–48. See also Nitrogenous fertilizers; Urea

Fertilizer Industry Coordination Committee (FICC), 61, 65

Fertilizer policies: comparison to electricity policies, xix–xx, 185–92; evolution of, 43–45; interest and institutional influences on, 67–76, 190, 191; interest groups in, 58–67, 186; nutrient-based, 44, 64, 94; policy-oriented learning in, 85–86; price controls, 44–45, 56; promoting use of, 3; relationship to other policy fields, 4, 5f; scholarship on, xvii, 5, 15; stakeholder map for, 30f; story lines on, 78–79, 80–81t

Fertilizer policy reforms: approaches to, xviii, xxii; discourse coalition views of, 81t, 82–83; evaluation of options, 87, 88–89t, 92–94; leadership role in, 194–95; need for, 3; nutrient-based pricing, 94; objectives of, 87, 88–89t; options for, xviii, 55, 64, 74, 208; packaging of, 196; political challenges of, xviii, 15, 83, 207; political feasibility of, xx, 90–91t, 95–96; rationales for, 45–48; recent efforts, xv–xvi, 41–42, 43–44, 48–55, 86; reduced subsidies, 86; resistance to, 43–44, 72–73, 74, 84–85, 95, 96, 207; status of in 2009, 55–57; supporters of, 52–53, 60, 83–84; targeted subsidies, 64, 83–84, 85, 94; for urea, 71–76; winners and losers from, 67

Fertilizer producers: capacity of, 41, 42t; costs of, 72, 73; efficiency of, 50, 65, 92; energy consumption of, 62; feedstocks used by, 65; groupwise concession scheme, xx, 41, 76, 92–93, 95–96; industry associations, 52, 54, 61, 62, 74, 85; interests of, 60–62, 71–76; lobbying by, 71, 72, 73, 74; oppo-sition to fertilizer policy reforms, 95; outside India, 73, 93; political influence of, 61, 71, 191; prospective effects of reforms on, 82–83, 92–93; relations with government, 65, 74, 75, 76; subsidies to,

44–45, 46, 83, 187; support of subsidies, 62. See also Urea plants

Fertilizer subsidies: beneficiaries of, 15, 68–69; criticism of, xv, 3, 51; direct payments to farmers, 57, 68, 74; distortions caused by, 45; distribution of, 46; environmental problems associated with, xv, 44, 46–47, 187; expenditures on, 3, 38–41, 40t, 45, 56; introduction of, 44–45; nutrient profiles, 37, 40t, 56, 57; to producers, 44–45, 46, 83, 187; reduction efforts, xviii, 48–55; supporters of, 15, 62; targeted, 54, 64, 83–84, 85, 94, 96. See also Fertilizer policy reforms

FICC. See Fertilizer Industry Coordination Committee

Finance, Ministry of. See Ministry of FinanceFiscal deficits: federal, 39, 53–54; reduction

efforts, 50–51, 64; of states, 53–54, 126Food and Agriculture Organization (FAO), 85–86Foodgrains: demand for, 56; minimum support

prices of, 70; production of, 3, 36, 46, 119; rice and paddy, 36, 70, 110, 112, 117, 147, 163, 176; wheat, 36, 70, 119

Food prices: crisis of 2008, 189; impact of fertilizer policy reforms, 87, 88–89t

Food production: efforts to increase, xv; self-sufficiency in, xviii, 3, 176, 188–89

Food security: debates on, 198; electricity supply and, 180; link to fertilizer self-sufficiency, 81t, 82, 85, 95; link to self-sufficiency, xviii; paradox of persistent hunger and, 85–86; as policy goal, 46, 188–89

Food subsidies, 45, 110, 112Frame conditions, 25Franchising, 165Free electricity policies: adoption by states,

121n, 128; in Andhra Pradesh, 117, 118, 119, 129, 137, 144; criticism of, 123–24, 127, 136; farmers’ organizations and, 131; power-sector reforms and, 118, 129; public opinion on, 124, 125t; in Punjab, 123–24, 125–26; for scheduled castes and tribes and other backward classes, 124, 127

Fung, A., 200–201

Gandhi, Sonia, 128Gill, S. S., 121GoI. See Government of IndiaGokak, A. V., 52, 53Gokak Committee Report, 62Government of India (GoI): agricultural policy

goals of, 3; executive decisionmaking, 10. See also Economic reforms; and individual ministries

226 INDEX

Gradualism, stealthy, xxii, 9, 14, 16, 193–94Green Revolution: in Andhra Pradesh, 110;

fertilizer consumption and, 41, 43, 44; groundwater use and, 147; implications of, 188–89; policies supporting, 14, 44, 110, 188–89; in Punjab, 119

Groundwater: as common-pool resource, 165; conservation of, xv, 115–16, 127,175, 176; depletion of, 157, 160f, 165–66;development of, 101–2, 104f; market for, 101, 150, 162, 204; overexploitation of, 20, 101–2, 104f, 146–47, 187; state management of, 136–37, 175–76; supplies of, 101–3, 103f; surface water and, 19–20; well regulation and ownership, 166, 180–81. See also Energy–groundwater nexus; Irrigation

Groupwise concession scheme, xx, 41, 76, 92–93, 95–96

Guha Thakurta, P., 15Gupte, M., 201

Habermas, J., 201Hajer, M. A., 21, 22nHaldea, Gajendra, 126Haldea committee, 126–27Haldea Report, 150High voltage distribution systems (HVDS), 164,

177Hindu nationalism, 12Human capital, 25, 134HVDS. See High voltage distribution systems

IASRI. See Indian Agricultural Statistics Research Institute

ICRA. See Investment Information and Credit Rating Agency

Ideas: in political economy of reforms, xvii, 5, 11–13; self-sufficiency in fertilizer production, 77–85. See also Beliefs; Discourse coalitions

Ideologies, 22nIlchman, W. F., 21IMF. See International Monetary FundImports: of fertilizer, 41, 42t, 51, 53, 93, 189;

of natural gas, 74Independent power producers (IPP), 16, 123Indian Agricultural Statistics Research Institute

(IASRI), 47Indian constitution, 185Industry. See Fertilizer producersInstitutions: bureaucratic politics, 75–76;

policymaking levels, 185–86; in political economy of reforms, xvii, 5–6, 9–11, 69; scholarship on, 9–11; veto power of, 10, 11

Instrumental policy beliefs, 23, 145, 155

Interest groups: agricultural, 8–9; coalitions of, xxiii, 197–98; deliberative processes and, 200–202, 205; policy advice by, 205–6; in political economy of electricity reforms, 130–37; in political economy of electricity supply, 167, 170–71t, 172, 186–87; in political economy of fertilizer, 58–67, 186; in political economy of reforms, xvi–xvii, xix, 4, 5, 8–9, 67–76, 190–92; proprietary classes, 8; at state level, xix; supporters of status quo, 4, 72, 83, 84–85

Interests: beliefs and, 23–25; in discourse coalitions, 24–25

International financial institutions: conditionality of, 13; fertilizer policy reforms supported by, 84; power-sector reforms and, 137; Washington Consensus and, 12

International Monetary Fund (IMF): loans from, 49, 50; Washington Consensus and, 12

Investment Information and Credit Rating Agency (ICRA), 106

IPP. See Independent power producersIrrigation: access to, 100–103, 102f; in Andhra

Pradesh, 115–16, 118; diesel pumps for, 100; groundwater, 3, 19–20; participatory, 175; promoting use of, 3; in Punjab, 119, 123, 127; state policies on, 113–14; surface-water, 19–20, 118, 163, 175–76. See also Electricity supply to agriculture; Electric pumps; Energy–groundwater nexus; Pumps

Jat caste, 119, 120, 126Jenkins, R., 9, 11, 12, 13, 14, 15Jenkins-Smith, H. C., 12–13, 21, 25, 26Jodhka, S. S., 124Johl, S. S., 122Joint Parliamentary Committee (JPC), 32, 51Joshi, Sharad, 122JPC. See Joint Parliamentary Committee

Kheti Virasat Mission, 130, 135–36Kingdon, J. W., 196–97Knowledge. See Research-based knowledgeKozel, V., 8Kumar, A., 127, 128Kumar, S., 15, 122–23

Labor unions, 132–33, 198–99. See also Engineers Association

Lal, Sumir, 17–18, 112Landholdings: average sizes of, 100, 100t;

distribution by size, 36, 37tLarge and medium-sized farmers: electricity

subsidies to, 104, 105t; fertilizer subsidies paid to, 46; interest articulation of, 69;

INDEX 227

Large and medium-sized farmers (continued) organizations of, 110–11, 120; parties

representing, 63; political representation of, 59, 71; in Uttar Pradesh, 63

Leadership, political, xxii, 12, 194–95. See also Politicians

Learning. See Policy-oriented learningLegislatures: policy responsibilities of, 185;

in political economy of reforms, 10–11; research-based knowledge available to, 205–6; state, 131, 185. See also Parliament; Politicians

Liberal Farmers’ Movement, 59, 130, 139, 146, 149, 151

Lobbying: by farmers’ organizations, 59, 69, 131; by fertilizer producers, 71, 72, 73, 74

Lok Sabha, 59. See also Parliament

Mahalingam, Sudha, 16Malnutrition, 85–86Market-oriented paradigm, 77–79; on

agricultural policies, xviii, 148; on agricultural situation, 143; debates involving, xix, 190, 206, 207–8; electricity policy views of, 138–39, 140–42t, 170–71t, 172, 173; on electricity regulatory commissions, 152; on electricity subsidies, 140–41t, 144–46; on environmental problems, 78t; fertilizer policy views of, 79, 80–81t, 82–83, 191; on metering, 149; on power-sector reforms, 150–51, 153; on role of state, xviii, 78t; self- and other-representations of, 78t, 139, 142; stakeholders in, xix, 138t; on subsidies, 199–200; supporters in government, 191; values of, 77

Media: analytical forums, 26–27, 203; fertilizer policy reforms supported by, 84

Metering: discourse coalition views of, 149–50; incentives for switching to, 115; political feasibility of, 177–79; price increases and, 161, 177–78; in Punjab, 119; supporters of, 138; transaction costs of, 204

Ministry of Agriculture (MoA): Department of Agriculture and Cooperation, 69, 75, 76, 191–92; fertilizer policy reforms and, xviii, 41–42, 75, 84–85, 95, 96; fertilizer policy role of, 66; ministers, 56, 63, 71, 190; mission of, 66

Ministry of Chemicals and Fertilizers (MoCF): Fertilizer Industry Coordination Committee, 61, 65; fertilizer policy reforms and, xviii, 75, 84–85, 95, 194–95; leaders of, 52–53, 56, 63; reforms supported by, 52–53; relations with industry, 65–66. See also Department of Fertilizers

Ministry of Finance (MoF): budgets of, 75; farmgate prices of urea set by, 49, 69; fertilizer subsidy reforms proposed by, 53–54, 75, 83–84, 95, 191, 194; market-oriented views of, 191; ministers, 56, 74; publications of, 32, 84; roles of, 64, 75. See also Fiscal deficits

Ministry of Petroleum and Natural Gas (MoPNG), 32, 66–67, 192

Ministry of Power, 137, 154MoA. See Ministry of AgricultureMoCF. See Ministry of Chemicals and FertilizersMoF. See Ministry of FinanceMooij, J., 13

Naidu, Chandrababu, 108–9, 112–17, 118, 195, 197

Naphtha: prices of, 66; urea plants using, 56, 61, 65

National Common Minimum Program, 63, 63n, 64

National Democratic Alliance (NDA), 13, 50, 51–52, 53–54, 60, 62, 70

Nationalism, 12Natural gas: allocation of, 48; fertilizer

producers’ use of, 48; imports of, 74; price decontrol of, 73; prices of, 48, 66, 72–73, 74, 92; production of, 66; supplies of, 86; urea plants using, 56, 57, 61, 72–73, 86, 92–93, 95

NDA. See National Democratic AllianceNeoliberalism, 8, 11–12, 13, 77New Pricing Scheme (NPS), 41, 44, 54–56, 63, 76New Public Management, 165, 180Newspapers. See MediaNGOs. See Nongovernmental organizationsNitrogenous fertilizers: consumption of,

40t; environmental impact of, 46–47; overuse of, 36, 187; price controls on, 56; producers of, 60; production of, 41; subsidies of, 37, 40t, 45

Nongovernmental organizations (NGOs): electricity policies and, 134–36, 139, 190–91; farmers’ interests represented by, 59; farmers’ organizations and, 130; policy advice by, 205–6

NPS. See New Pricing SchemeNutrient imbalances, xv, 44, 46–47, 187Nutrient mining, 46–47Nutrient profiles of fertilizer subsidies, 37,

40t, 56, 57

Orissa, power-sector reforms in, 17, 151, 151n

Paddy, 70, 117, 147, 163, 176Palmer-Jones, Richard, 150

228 INDEX

Pant, K. C., 54Paradigms. See Belief systems; Community-

oriented paradigm; Market-oriented paradigm; Welfare-state-oriented paradigm

Parliament: agricultural interests represented in, 58, 59, 69; economic policymaking role of, 10–11; Lok Sabha, 59; policy responsibilities of, 185. See also Legislatures; Politicians

Paswan, Ram Vilas, 56Pawar, Sharad, 56Pedersen, J. D., 9People’s Monitoring Group on Electricity

Regulation (PMGER), 133, 134–35, 135b, 139, 147, 154, 190–91, 197

Petroleum subsidies, 45Phosphate fertilizers: diammonium phosphate

(DAP), 51, 60, 65–66, 94; price decontrol of, 56; production of, 41; single super-phosphate, 45, 56, 60

Planning Commission: electricity policies and, 173; fertilizer policy reforms supported by, 84, 191; on government expenditures, 75; leaders of, 54; members of, 148, 149, 164; publications of, 19, 32; research-based knowledge available to, 205

PMGER. See People’s Monitoring Group on Electricity Regulation

Policy beliefs, 23, 145, 155Policy-oriented learning, 25–27; across

coalitions, 85–86, 154–56, 202–6; consensus development and, 155; in electricity policy, 154–56; in fertilizer policy, 85–86; opportunities for, 202–3; research-based knowledge used in, 202–6

Policy reforms: approaches to, xxii–xxiii, 197–202; comparison of electricity and fertilizer fields, 185–92; experimentation, xxv, 204–5; explanations of failures, 5; interrelationship of fields, 4, 5f; negotiations on, 196, 198–200; packaging of, xxiii, 195–96, 200; political challenges of, xv, xvi; political feasibility of, xx–xxii, xxv–xxvi, 6, 8; political strategies for, xxii–xxiv, 193–97; scholarship on, xvi–xvii, 14–18; sequencing of, xxiii, 196, 200; timing of, xxiii, 196–97. See also Electricity policy reforms; Fertilizer policy reforms

Political capital, 25, 172–73Political feasibility: of electricity policy

reforms, xxi–xxii, 167, 170–71t, 172–81, 174t; of fertilizer policy reforms, xx, 90–91t, 95–96; of policy reforms, xx–xxii, xxv–xxvi, 6, 8; of targeted subsidies, xxii–xxiii, 96, 195

Political leadership. See Leadership, political; Politicians

Political parties: coalition politics and, 5, 10, 11, 15; farmers’ interests represented by, 59, 60, 63, 132; farmers’ organizations affilliated with, 130; fertilizer policies of, 62–63, 84–85; regional, 11, 108, 119. See also individual parties

Political-resource theory, 21Political strategies: choosing, 193; coalition-

building, xxiii, 197–98; deliberative democracy, 200–202, 205; packaging and sequencing of reforms, xxiii, 195–96, 200; for policy reforms, xxii–xxiv, 193–97; reframing debates, xxiii–xxiv, 198; stealthy gradualism, xxii, 9, 14, 16, 193–94; strategic bargaining, xxiv, 198–200

Politicians: in Andhra Pradesh, 108–9, 195; audiences of, 17; constituencies of, 17, 58; representation of farmers’ interests, 59, 69, 131. See also Legislatures; Political parties

Populism: distorted, 17; in electricity policies, 111, 121n, 123–24, 127; legitimate, 17; meanings of, 77; “new”, 113; rhetoric of politicians, 112, 112n, 114, 128

Potassic fertilizers, 41, 56Poverty, 7–8. See also Small and marginal

farmersPower sector: performance of, 106–7, 107t,

118; public administration of, 137. See also Electricity; Utilities

Power-sector reforms: in Andhra Pradesh, xxiv, 109, 111–17, 129, 133, 154–55, 156; cooperatives, 153–54, 156, 165; decentralization, 153–54, 156, 165, 173–74; discourse coalition views of, 141–42t, 150–52; privatization, 114, 150–52, 151n, 179–80, 191; in Punjab, 119, 123, 126–27, 150, 156; results of, 129; status of, 106

Power theft, 18, 163, 164, 179Prabhu, Suresh, 52–53, 195Prayas Energy Group, 134, 135bPress. See MediaPrice supports, 187–88Privatization: in electricity sector, 114, 127,

133, 150–52, 151n, 179–80, 191; opposition to, 191; political challenges of, 179–80; in telecommunications sector, 151

Protectionism, 12, 68, 109PSEB. See Punjab State Electricity BoardPSERC. See Punjab State Electricity Regulatory

CommissionPublic administration, 64–67, 75–76, 136–37,

165, 180, 191–92. See also individual ministries

INDEX 229

Public Affairs Center, 164Pumps. See Diesel pumps; Electric pumpsPunjab: agriculture in, 99–100, 100t, 119–20;

comparisons to Andhra Pradesh, 107, 128; electricity policy evolution in, 118–28; electricity reform in, 106, 106t; electricity subsidies in, 103, 104t, 105t, 119–21, 122–23, 124; electric pumps in, 99; farmers’ organizations in, 118, 120, 126, 130, 190; fertilizer subsidy distribution in, 46; fertilizer use in, 47–48; fiscal deficit of, 126; Green Revolution in, 119; groundwater development in, 101–2; interest-group politics in, xix; irrigation in, 119, 123, 127; legislative assembly of, 131; political parties in, 63; power sector performance in, 106–7, 107t; power-sector reforms in, 119, 123, 126–27, 150, 156; public administration of, 136–37; river-sharing agreements of, 127; social and political unrest in, 119, 121–22; socioeconomic indicators of, 99, 100, 100t; voter characteristics in, 125t, 127t

Punjab Electrical Engineers Association, 151Punjab State Electricity Board (PSEB), 120,

121, 133, 134, 152, 191Punjab State Electricity Regulatory

Commission (PSERC), 123, 155

Raghuraman, S., 15Rajan, C. S., 11, 16, 111Rajasekhara Reddy, Y. S., 109, 116, 117–18,

144Ramachandran, M. G., 111Rama Rao, N. T., 108, 109–10, 111, 112, 112nRao, P. V. Narasimha, 7, 50, 112Rashtriya Lok Dal (RLD), 59, 63Rational-discourse approach, 201Reddy, V. R., 20Reforms. See Electricity policy reforms;

Fertilizer policy reformsRegional farmers’ organizations, 69Regional political parties, 11, 108, 119Rent seeking, 9–10Research and extension, 176, 203Research-based knowledge: availability to

legislators, 205–6; clearinghouses of, xxv, 203–4; demand for, 205; experimentation and, xxv, 204–5; future research, xxv, 204; role in reforms, xxiv–xxv, 26–27, 202–6

Research methods, 27–28, 32Retention Price Scheme (RPS), 43, 44–45, 50,

51–55, 65, 71, 72Rhetoric-implementation gap, 17Rice, 36, 110, 112. See also Foodgrains; PaddyRLD. See Rashtriya Lok Dal

RPS. See Retention Price SchemeRuet, Joël, 16–17

Sabatier, P. A., 12–13, 21, 25, 26, 154SAD. See Shiromani Akali DalScheduled castes and tribes, 114, 124, 127SEBs. See State electricity boardsSecondary beliefs, 23Sen, Anindya, 15Shah, Tushaar, 18, 149, 150Shastri, V., 12Shine, Sushil Kumar, 118Shiromani Akali Dal (SAD): BKU and, 120;

fertilizer policies of, 63, 70; leaders of, 59, 119, 123; Punjab governments, 119, 121, 122, 123, 127, 128

Sikh community, 119, 120, 126Singh, Ajit, 59, 63, 71Singh, R., 15Singh, Tavleen, 123–24Single superphosphate, 45, 56, 60Sinha, Yashwant, 53–54, 74Small and marginal farmers: electricity

subsidies to, 104, 105t; electric pumps used by, 99; interests of, 68; lack of political power, 58–59; number of, 36; subsistence farming by, 36. See also Targeted subsidies

Social capital, 25, 134Soils: marginal productivity of, 47; nutrient

imbalances in, xv, 44, 46–47, 187Specific beliefs, 23, 140–42t, 142, 143Stakeholders: in electricity supply to

agriculture, xvii, 31f, 138–39, 138t, 154–55; in fertilizer policy, xvii, 30f; in policy processes, 13; at state and national levels, 186. See also Interest groups

State electricity boards (SEBs): in Andhra Pradesh, 113, 199; privatization of, 16; in Punjab, 120, 121, 133, 134, 152, 191; reforms of, 16–17

States, Indian: fertilizer use in, 37–38, 39t, 47–48; fiscal deficits of, 53–54, 126; groundwater development in, 101–2, 104f; irrigation in, 101t; policies roles in, 192; policy responsibilities of, 11, 13, 185; public administration of, 136–37, 192. See also Andhra Pradesh; Electricity subsidies; Punjab

Stealthy gradualism, xxii, 9, 14, 16, 193–94Strategic bargaining, xxiv, 198–200Subsidies: agricultural, 186–87; criticism of,

xv, 199; expenditures on, 45; food, 45, 110, 112; interest groups supporting, 4; public support of, 12; redistribution as purpose of, xviii, xix. See also Electricity subsidies; Fertilizer subsidies; Targeted subsidies

230 INDEX

Suicides, of farmers, 70, 116, 123, 143–44, 178

Surface water: groundwater and, 19–20; irrigation, 19–20, 118

Suri, K. C., 111

Tamil Nadu: electricity subsidies in, 110–11; fertilizer use in, 47

Tamil Nadu Agriculturalists Association, 110–11

Targeted subsidies: consensus on, 155; for electricity, xxi–xxii, 117, 145, 155, 179; for fertilizer, 54, 64, 83–84, 94, 96; political feasibility of, xxii–xxiii, 96, 195

Tax evasion, 163TDP. See Telugu Desam PartyTelecommunications sector, privatization in,

151Telugu Desam Party (TDP), 108, 109–10,

111–17Tikait, Mohinder Singh, 122Transaction costs, of electricity policy

reforms, 178, 204Tsebelis, George, 10

UF. See United FrontUnique Identification Authority of India, 179nUnited Front (UF) governments: fertilizer

price increases by, 50; fertilizer subsidies and, 51, 63, 86; National Common Minimum Program, 63, 63n

United Kingdom, Department for International Development, 137

United Progressive Alliance (UPA), 64United States Agency For International

Development (USAID), 137, 156UPA. See United Progressive AllianceUphoff, N. T., 21Urea: domestic capacity, 56; global price of,

56, 71; imports of, 93, 189; New Pricing Scheme for, 41, 44, 54–56, 63, 76; policies on, 41–42, 71–76; pricing reforms for, 41–42, 43, 95–96; retail prices of, 54, 56; self-sufficiency in production of, 65, 85, 86; subsidies of, 39. See also Nitrogenous fertilizers

Urea, farmgate prices of: automatic increases in, 67–68, 70–71, 93–94, 96; determination of, 49, 56, 69, 186; increases in, 44, 45, 47, 49–50, 51, 69, 70, 92, 93–94; influences on, 67–71; politics of, 70, 95, 96

Urea plants: costs of, 72; feedstocks used by, 61, 72; interests of, 61; naphtha-based, 56, 61, 65; natural gas use by, 56, 57, 61,

72–73, 86, 92–93, 95; number of, 60–61; policy reforms and, 88–89t, 92–93

USAID. See United States Agency For International Development

Utilities: electricity subsidies and, 118, 191; employees of, 127, 133–34, 135b, 152, 165, 172, 180, 191, 198–99. See also Electricity

Uttar Pradesh, large and medium-sized farmers in, 63

Vajpayee, Atal Bihari, 194Value and belief systems, 22–23, 22n. See also

Belief systemsVan Dijk, T. A., 22Varshney, A., 9, 14, 76Vashishtha, P. S., 94, 196Venkateshwarlu, S., 15Veto power, 10, 11

Washington Consensus, 11Water. See Groundwater; IrrigationWater and Energy Nexus Activity (WENEXA),

137, 156, 174, 177nWeber, Max, 77n, 166Welfare-state-oriented paradigm, 77–79;

on agricultural policies, xviii, 148; on agricultural situation, 143–44; debates involving, xix, 190, 206, 207–8; electricity policy views of, 138–39, 140–42t, 170–71t, 172, 173; on electricity regulatory commissions, 151–52; on electricity subsidies, 140–41t, 144–47; on environmental problems, 78t; fertilizer policy views of, 79, 80–81t, 82–83; on metering, 149–50; on power-sector reforms, 153–54; on role of state, xviii, 78t; self- and other-representations of, 78t; stakeholders in, xix, 138t; on subsidies, xviii, 199; values of, 77

Wells. See GroundwaterWENEXA. See Water and Energy Nexus ActivityWheat, 36, 70, 119. See also FoodgrainsWorkers: agricultural, 132–33; utility

employees, 127, 133–34, 135b, 152, 165, 172, 180, 191, 198–99

World Bank: agricultural studies by, 143, 148; conditionality of, 13; fertilizer policy reforms and, 84; loans from, 114, 116–17; power-sector reforms and, 16, 114, 115, 126, 137, 146; Power Supply in Agriculture, 18, 206; projects funded by, 123; Washington Consensus and, 12

World Trade Organization (WTO), 52, 53Wright, E. O., 200–201WTO. See World Trade Organization

INDEX 231

Regina Birner was a senior research fellow in the Development Strategy and Governance Division of the International Food Policy Research Institute, Washington, D.C., at the time this study was conducted. She is currently professor of Social and Institutional Change in Agricultural Development at the Institute of Agricultural Economics and Social Sciences in the Tropics and Subtropics at the University of Hohenheim, Stuttgart, Germany.

Surupa Gupta is assistant professor in the Department of Political Science and International Affairs, University of Mary Washington, Fredericksburg, Va., U.S.A.

Neeru Sharma was a research analyst in the Development Strategy and Governance Division of the International Food Policy Research Institute, Washington, D.C., at the time this study was conducted and was based in the Institute’s New Delhi office. She is currently a consultant for the World Bank’s New Delhi Office.

gricultural policy reform is one of the major challenges facing India today. Such reform is required in order to reduce poverty through faster agricultural growth and to promote more sustainable use of natural resources while ensuring food security. Subsidy policies that

promote the use of fertilizer and of electricity for groundwater irrigation are in particular need of reform. While subsidies for these two inputs played a crucial role in achieving India’s Green Revolution, they have been criticized during the past decade for benefiting large-scale farmers more than smallholders, placing a fiscal burden on the state, and having negative environmental effects. By analyzing the evolution of these input subsidy policies and examining the political processes involved in efforts to reform them, this study throws new light on the factors that have so far prevented a move toward more pro-poor and environmentally sustainable agricultural input policies in India. The authors show that electoral politics, institutional factors, and policy paradigms or belief systems all play an important role in blocking reform. They identify several policy reform options, as well as political strategies that can overcome past obstacles to reform. Community-based policy solutions, new coalitions for policy reform, fresh approaches to the policy debate, innovative and consensus-oriented forms of deliberation, and effective use of research-based knowledge can all make positive contributions to Indian policy reform. The analyses and proposals presented in this study will be a valuable resource for policymakers and stakeholders concerned with the politics of agricultural development.

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