1. Energy provision for
agricultural irrigation
A case study from Andhra Pradesh,
India, and the MENA region
Christian Kimmich
IWRM, 29-06-11

2. Chapter 2:
The political economy of the
electricity-irrigation conundrum
An analytic historical perspective on
policy persistence in Andhra Pradesh
Christian Kimmich
IWRM 29-06-11 2

3. Review: problem statement
• Electricity policies of persisting subsidization
• Fast diffusion of tube well irrigation
• Groundwater over-exploitation
• Increase in energy utilization
• Inefficient use of water and energy
• Power shortages
• High costs for utilities and the state
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4. Review: state expenditures on subsidies
Table: Electricity subsidies in relation to state expenditures and GDP
Subsidies Subsidies (% of GSDP (current Subsidies
(mio INR) total expend.) prices; mio INR) (% of GSDP)
2001-02 20947 8,47% 1571500 1,33%
2002-03 10562 3,87% 1681430 0,63%
2003-04 15100 4,80% 1908800 0,79%
2004-05 13640 4,11% 2247130 0,61%
2005-06 16962 4,86% 2559410 0,66%
2006-07* 18420 4,45% 3010350 0,61%
2007-08* 24080 4,33% 3648130 0,66%
2008-09* 46150 6,57% 4158320 1,11%
2009-10* 60400 4752670 1,27%
*: Revised estimates and Budget estimates
Source: Composed on the basis of data from the Directorate of Economics and Statistics, Andhra
Pradesh , Statistical Abstract 2008, and Advance Estimates
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5. Review: “market” approaches
• “The analysis shows that unit pricing of
P
electricity influences groundwater use efficiency D S S
‘
and productivity positively. It also shows that
the levels of pricing (..) are socio- Δ
economically viable.” (Kumar 2005) P
• “the proposed discriminatory pricing regime will Q
Δ
reduce subsidies substantially (..), but remains too Q
high to be resolved without political action” (Dossani
and Ranganathan 2004)
-> Nevertheless, subsidization policies remain persistent
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6. Problem statement: the political economy
• Welfare economics:
Assumption of a “benevolent government”
However:
• Differences in understanding the functioning of
social structures and agencies
• Norms and values inherent in understanding
• Differences in normative conclusions
• Scientific and public discourse
• Interest groups and power
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7. Research questions
• Why do inefficiencies in energy and water utilization prevail?
– Which role does tube well irrigation play?
– Which role does electricity use for irrigation play?
• Why did this development path historically unfold?
– Why and how did the policy of subsidization emerge?
– Why is the policy of subsidization persistent?
– Which factors contribute to this persistence?
• How can efficiencies be improved?
– Which incentives do the stakeholders have?
– Which impediments do the stakeholders face?
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8. Outline
• The political economy narrative
• Stakeholder analysis: Who is involved?
• A theory of public choice
• Empirical evidence and preliminary results
• Utilities governance and institutional choice
• The „regulation‟ model
• The „vote bank‟ model
• Results and conclusions
• Outlook
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9. The political economy narrative
• „Vote bank‟ politics:
A promise of subsidized electricity
provision for agriculture mobilizes a
large share of the agricultural electorate
• Party competition leads to a competitive
search for votes
• Respective policies are designed to win
elections
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10. Stakeholder analysis
Figure: Principal-Agent and stakeholder relations
1. The political system
Government /
Regulator (left side)
Departments
2. Governance and
regulation of
infrastructure
Parliament Utilities
(right side)
Consumers
Public / Electorate /
(Agriculture,
Citizens
Industries, etc.)
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11. A theory of public choice
• „median voter‟ model (Downs 1957)
Hypothesis: “Political parties in a democracy formulate policy strictly
as a means of gaining votes” (Downs 1957)
• Assumptions: one issue space (e.g. re-distribution, subsidies),
two parties A and B
Figure 1: Single-peaked preferences Figure 2: Bi-modal preferences
• Implications: convergence and stability vs. divergence and imposition
• Extensions: multi-party-systems, proportional representation, coalitions
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12. Emerging party competition
Table: Election results for the Andhra Pradesh State Assembly
Party 1967 1972 1978 1983 1985 1989 1994 1999 2004 2009
Congress (INC) 165 219 175 60 50 182 26 91 185 Seats
45.4 52.3 39.3 33.6 37.5 47.2 33.6 40.6 38,6 % votes
Swatantra 29 2 - - - - - -
9.8 2.0 - - - - - -
Janata Party - - 60 - - - - -
- - 28.8 - - - - -
TDP - - - 198 202 73 219 179 47
- - - 46.3 46.2 36.6 44.1 43.8 37,6
TRS - - - - - - - - 26
- - - - - - - - 6,7
BJP - - - 3 8 5 3 12
- - - 2.8 1.6 1.8 3.9 3.7
Left Parties 20 8 14 9 22 13 34 2
15.4 9.2 5.2 4.8 5.0 5.2 6.5 3.3
Others 3 1 30 2 3 6 3 4
0.7 2.4 17.5 2.6 0.9 3.1 3.2 3.8
Independents 68 57 15 22 9 14 12 5
26.5 32.2 9.2 9.9 8.8 6.1 8.7 4.8
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13. Investments vs. subsidies in Indian agriculture
• Subsidization of
irrigation, credit,
fertilizers, and power
• “Since 1982, power
subsidy has taken the
largest share. In 1999 it
accounted for 64% of
total input subsidies in
Indian agriculture”
(Fan et al. 2008: 165-6)
Input subsidies and public investments in agriculture
Source: Fan et al., IFPRI, 2007
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14. The electorate: a policy majority?
Table: Population, agricultural electorate, and pump-set owners
1971 % 1981 % 1991 %
Cultivators 5794701 32%1 7407938 33% 7891167 28%
Agricultural laborers 6828685 38%1 8325017 37% 11625159 41%
Total working population 18005999 41%2 22629101 42% 28445482 43%
Rural population 35100000 81%2 41062000 77% 48621000 73%
Total population 43503000 100% 53550000 100% 66508000 100%
Registered agricultural 185733 3%3 422418 6% 1134519 14%
connections (pump-sets)
1 : percentage of total working population; 2: percentage of total population; 3: percentage of cultivators
• laborers are working on the farms with pump-set owners
• many cultivators are dependent on water markets from tube well owners
• politicians cater to large landowners/‟patriarchs‟ as key swing voters with
an entire community (Lal 2003)
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15. The electorate: a policy majority?
Survey: Stratified random sample (N=800) from Hyderabad, AP
• Farmers should receive electricity for free.
Yes No Don‘t know
442 248 110
55% 31% 14%
• Do you think that agriculture pays a fair price for electricity?
Yes No Don‘t know
357 65 378
45% 8% 47%
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16. Preliminary results
• Single-peaked preferences:
absence of cleavages, stable policy
• Party competition and
anti-incumbency (floating) voters
Unanswered questions:
• Why did party competition emerge in the first place
during the 70s?
• Why did this type of subsidization policy emerge?
– Why no election gifts, direct payments or investment subsidies?
– Why no race to the bottom in party competition?
• Why does an urban majority support the policy?
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17. Questions?
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18. Stakeholder analysis
Figure: Principal-Agent and stakeholder relations
1. The political system
Government /
Regulator (left side)
Departments
2. Governance and
regulation of
infrastructure
Parliament Utilities
(right side)
Consumers
Public / Electorate /
(Agriculture,
Citizens
Industries, etc.)
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19. Electricity governance in AP, till 1998
• State monopoly, governed
by a State Electricity Board
(SEB), which vertically
integrates generation,
transmission, and
distribution
• Tariff setting through
aggregate revenue
requirement and rate-of-
return regulation
Source: Victor and Heller (2007: 4)
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20. Theories of utilities governance & regulation
• If the electric utility is a monopoly, prices/tariffs cannot emerge out of
competition (Mill 1848, Commons 1932)
• Tariff policy can be realized through efficiency considerations,
• but can also become subjected to monopoly rents and partial interests
• Information asymmetry of regulation,
• also an opportunity for taxation and subsidization (Crew and Kleindorfer 2002)
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21. Theories of public and institutional choice
• Models of party competition: median voter, issue spaces
(Hotelling 1929, Downs 1957, Mueller 1976, etc.)
• Electoral and business cycles (Persson and Tabellini 2000)
– Credible and enforceable commitment
– Observable and verifiable results
– Repeated games, information, and rational expectations
Analytical frameworks:
• Actor-centered institutionalism (Scharpf 1997)
• Institutional Analysis and Development (Kiser and Ostrom 1982, Ostrom 2005)
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22. A „regulation‟ model
• SEB: High transaction costs
A
(personnel & enforcement) of
SEB
A
metering
SGE
P
D
S
p
SGE: State Government Executive p‘ S‘
SEB: State Electricity Board (Utility)
A: Agriculture q q‘ Q
• A: Dynamic incentives:
increase of production
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23. Regulation: cross subsidization
Figure: Comparison of tariffs for agriculture and industry in Paise (INR)
Source: India Infrastructure Report 2008
-> Within „soft‟ budget constraints
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24. A 'vote bank' model
SGE(Pa) • Pa/Pb: vote maximization,
V promises constrained by
SGE(Pb) credibility
O(Pb) • V: impartial and partial
SGE(Pa)
interests, rational
SGE(Pa) V expectations
SGE(Pb)
• SGE: policies constrained by
promises and future vote
maximization
Alternatives? (election gifts, direct payments,
investment subsidies)
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25. Results and conclusion
• Transaction costs: saving on metering
• Budget constraints: cross subsidization
• Easy political exploitation of tariffs because of utility characteristics
• Repeated interaction:
feasible and credible promise, rational expectations of voters
• Increased production: food security to reduce inflation
• Urban electorate: food prices, networks, discourse
-> The subsidization policy is likely to persist
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26. Outlook
Which problems of electricity
utilization for irrigation are
farmers facing?
How can efficiency of energy
use for irrigation be
improved?
IWRM 29-06-11 26

27. Chapter 2:
The political economy of the
electricity-irrigation conundrum
An analytic historical perspective on
policy persistence in Andhra Pradesh
Christian Kimmich
IWRM 29-06-11 27