Farmers' willingness to pay for power in India: conceptual issues, survey results and implications for pricing

Abstract

The objective of this paper is to develop strategies useful for raising prices of rural power in India. Such power is currently subsidized and policymakers are eager to make the transition to more efficient prices. The traditionally used measure, willingness to pay (WTP), is shown to have no useful policy implications due to the rationing of power. Using survey data from rural Andhra Pradesh, we show that the utility's cost of power exceeds the income generated by the power. This suggests a political problem—the possibility that low power prices have led to large-scale farming of unproductive land—that will be hard to resolve. Our survey also shows that subsidies are regressive with income. We use measured WTP for higher income groups to propose a discriminatory pricing regime that will raise total revenue by 20%. When combined with removing the causes of motor burnout, such as voltage fluctuations, and eliminating rostering, subsidies can be reduced substantially but probably remain too high to be resolved without political action.