Restructuring Punjab’s Farm Subsidies: From Blanket Support to Targeted Empowerment

A judicious mix of targeted income transfers, rational electricity pricing, inclusive beneficiary registers and smart reinvestment can break that cycle of sluggish economy.

About the Author

Karan Bir Singh Sidhu, IAS (Retd.)
With almost four decades of service in the Punjab cadre, KBS Sidhu rose to the posts of Special Chief Secretary and Principal Secretary (Finance), shaping the state’s fiscal and economic priorities. An alumnus of the University of Manchester (M.A., Economics), he has steered landmark initiatives in agrarian reform, public-finance management and the wider regulation—both direct and indirect—of India’s agricultural sector. His on-ground administrative experience and academic grounding underpin the policy analyses and reform blueprints he now contributes to national discourse.

Bold Reforms in Punjab’s Farm Subsidies Proposed

1. Why the Subsidy Model Must Change

Punjab’s agriculture rests on two expensive pillars: free electricity for nearly fourteen lakh tubewells and open-ended procurement of wheat and paddy at Minimum Support Prices (MSP). The power subsidy alone now tops ₹10,000 crore a year—more than the state spends on public health and rural development combined. Yet groundwater tables are collapsing, smallholders remain cash-strapped and the fiscal room for new investment has vanished. A different architecture is overdue, one that rewards efficiency and channels scarce resources to the households that genuinely need them.

2. The Power Subsidy Paradox

Free power was conceived in the 1990s as a lifeline for food-grain self-sufficiency. Three decades on, it has morphed into a regressive transfer. Large farmers with multiple pump sets capture the lion’s share; small and marginal farmers often irrigate through hired pumps or canals and receive little direct benefit. Meanwhile, the assured zero-cost supply encourages reckless pumping—Punjab now extracts roughly 165 percent of its annual groundwater recharge. Retaining the current regime condemns both the exchequer and the aquifers.

2A. The Mandi Math: Subsidy vs. Real Return

Punjab’s 2024-25 mandi arrivals—about 170 lakh tonnes of paddy (≈ ₹35,000 crore) and 120 lakh tonnes of wheat (≈ ₹25,000 crore)—generate a combined turnover of ~₹60,000 crore. Even assuming a generous gross-margin ratio of 1 : 6, the total value-addition that actually stays in the rural economy is only ~₹10,000 crore. That figure is identical to the ₹10,000 crore electricity subsidy the state pays each year for farm tubewells—meaning the exchequer spends about 17 % of the crops’ entire gross value just to underwrite “free” power. Put differently, for every ₹100 earned at the mandi gate, ₹17 is siphoned off in a single input subsidy, even before counting fertiliser rebates, canal upkeep or the un-priced drawdown of groundwater. Such a skew makes plain that the current blanket subsidy architecture fails the most basic cost-benefit test.

3. Moving from Price Subsidy to Direct Benefit Transfer

A credible alternative is to halve the power subsidy over three years and redirect the freed-up ₹5,000 crore directly to cultivators through a state-top-up of PM-Kisan. Even with the scheme’s beneficiary base having shrunk to about 6–7 lakh families, the top-up would lift their annual support from ₹6,000 to roughly ₹82,000—enough to cover a substantial part of input costs without distorting relative prices of electricity, seed or fertiliser.

Implementation in Three Steps

1. Trust-building advance – credit ₹25,000 into each verified farmer’s account in Year 1 before the first electricity bill is raised.

2. Flat un-metered tariff – introduce a single, easy-to-understand charge per horsepower instead of unit-based billing, limiting administrative friction.

3. Seamless recovery – deduct the tariff automatically from procurement proceeds paid through National Settlement Route (NSR)-linked bank accounts; no farmer queues, no utility losses.

4. Recognising the Invisible Cultivator

PM-Kisan currently excludes hundreds of thousands of active tillers—share-croppers, oral lessees, daughters-in-law managing ancestral plots—because they lack land titles. A revamped database must allow tenant self-declaration countersigned by the owner and endorsed by the panchayat. Once verified, such cultivators would receive the same DBT as land-owning farmers, plugging a major equity gap.

5. Bringing Agricultural Labourers into the Safety Net

Punjab’s landless labour force numbers in the lakhs, yet it receives none of the large input subsidies. A modest “Green Work Dividend” of ₹5,000 per labour household—funded from the remaining ₹5,000 crore power-subsidy savings—would acknowledge their role in sustaining the state’s food economy. Aadhaar-linked voter rolls within each revenue estate can form the backbone of an authentic, leakage-free register.

6. Reforming Rural Credit and the Arthiya Nexus

Cheap power has bred high-risk mono-cropping, pushing many farmers to borrow heavily from commission agents (arthiyas) at usurious, even punitive, interest rate. Any subsidy reform must move in tandem with credit reform: capping informal interest rates, mandating settlement through banking channels and launching a state-backed crop-diversification loan with interest subvention limited to the first two seasons of a new crop. Lower dependence on paddy will, in turn, curb electricity consumption.

7. Re-pricing Electricity without Punishing Productivity

Phasing out free power must not become a blunt instrument. A two-part tariff—low fixed charge per horsepower plus an escalating block for consumption above a seasonal quota—can preserve affordability for efficient users while nudging wasteful irrigators toward micro-irrigation. Simultaneously, Punjab State Power Corporation Limited should install smart meters at the feeder level, not the farm gate, to measure aggregate usage and deter pilferage without antagonising individual farmers.

8. Re-calibrating MSP to Reflect True Costs

With electricity no longer free, the Centre will face legitimate pressure to fold actual power costs into its MSP cost sheets (A2 + FL + C2). This enhances Punjab’s bargaining leverage while exposing the implicit cross-subsidy the state has long shouldered. Transparent cost accounting will also strengthen the case for diversifying procurement beyond wheat and paddy toward pulses, maize and oilseeds.

9. Redirecting Fiscal Space to Rural Infrastructure

Savings from subsidy rationalisation should flow into capital works that raise total factor productivity:

• Water-saving infrastructure – community solar pumps, micro-irrigation grids, canal-lining and recharge ponds.

• Post-harvest assets – modern grain silos, refrigerated warehouses and village-level primary processing units.

• Digital agriculture backbone – soil-health mapping, e-extension services and AI-driven market intelligence accessible on mobile platforms.

Each rupee spent here yields a multiplier far greater than a rupee spent on an electricity bill the farmer never sees.

10. Political Economy and Sequencing

Reform will fail if framed as an assault on farmers. It must be sold as a shift from in-kind subsidy to income security. Up-front DBT, time-bound tariff caps and guarantees that no pump will be disconnected in the first two years can soften resistance. Parallel investments in rural jobs, health and schooling will broaden the coalition for change beyond cultivators to the wider electorate.

11. Towards a Greener, Golden Tomorrow: A Leaner, Fairer Agrarian State

Persisting with blanket subsidies locks Punjab into a cycle of fiscal crisis, environmental depletion and economic stagnation. A judicious mix of targeted income transfers, rational electricity pricing, inclusive beneficiary registers and smart reinvestment can break that cycle. The goal is not merely to save ₹10,000 crore but to repurpose it—creating an agriculture that is financially viable, ecologically resilient and socially just.