Agricultural subsidy and cross subsidy pressure are rising

Agriculture has long played a central role in India’s development strategy. Nearly one-fifth of the country’s electricity is consumed in agriculture (PFC 2025), much of it supplied free or at heavily subsidised tariffs (Aggarwal et al. 2020). Affordable power has enabled irrigation expansion, stabilised farm input costs, and supported food security and livelihoods of millions of farmers across states. Subsidised agricultural power has therefore delivered substantial social and economic gains.

Over time, however, prevailing pricing and supply arrangements for agricultural electricity have created persistent stress within the power sector. Tariffs for agricultural consumers are set far below the cost of supply, often through unmetered arrangements, leaving a significant revenue gap (Aggarwal et al. 2020). States finance this gap through direct subsidies and crosssubsidies from other consumers. While regulators have consciously adopted this structure, agricultural supply has become one of the most significant and recurring sources of under-recovery for discoms.

In several agrarian states, including Rajasthan (JVVNL 2025), outstanding subsidy dues remain substantial, reflecting a persistent mismatch between the cost of supplying farm power and its financing. Delays in subsidy disbursement strain discom cash flows, increase reliance on short-term borrowing, and crowd out investment in network strengthening. These constraints subsequently weaken supply quality and reinforce a cycle of operational inefficiency and financial stress (Agrawal et al. 2023).

Recent reforms, such as tighter disclosure requirements (MoP 2024) and advance subsidy-payment provisions under the Revamped Distribution Sector Scheme (RDSS), have improved transparency and fiscal discipline in some states. However, these measures do not alter the underlying exposure of discom finances to rising agricultural demand.

Historically, part of the burden has been absorbed through higher tariffs on commercial and industrial (C&I) consumers (Tyagi and Tongia 2023). While cross-subsidisation reduced immediate fiscal pressure on state budgets, it also increased electricity costs for industry and services, weakened competitiveness, and accelerated the shift towards open access and captive generation. In response, regulators in several states, including Karnataka, Rajasthan, and Maharashtra, have begun rationalising tariffs and outlining trajectories to reduce cross-subsidies (Tripathi and Aggarwal 2025). Analysis by the Energy Transition Preparedness Initiative (ETPI) indicates that several states have aligned domestic tariffs with the average supply cost, while states such as Karnataka have announced a near elimination of cross-subsidy by FY 2028 (Prayas 2024). As this transition progresses, a growing share of the cost of agricultural electricity is shifting directly onto state budgets.

This shift comes at a time when farm power subsidies are already substantial. Across major agrarian states, annual agricultural electricity subsidies exceed INR 1.3 lakh crore. These outlays crowd out other development priorities and increase fiscal exposure to fluctuations in procurement costs and demand growth. Climate variability and rising irrigation needs are likely to intensify these pressures. Without a structural change in how agricultural electricity is supplied, both discom finances and state budgets will remain vulnerable.

Solarisation of agricultural demand offers a structural pathway to reduce subsidy burden by lowering cost of supply.

Agricultural solarisation: A structural pathway to moderate rising agricultural electricity costs

Solarising agricultural demand offers a viable structural shift. Supplying farm power through decentralised solar generation aligned with daytime irrigation can reduce the cost of serving the agricultural load. It displaces higher-cost grid procurement and can avoid a portion of transmission losses and associated charges. For discoms, this narrows the cost-to-serve gap. For states, it reduces the subsidy required per unit of electricity delivered.

India has sought to promote agricultural solarisation through the Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM), which aims to expand solar deployment in the agricultural sector. The scheme comprises three components: Component A, which supports the installation of decentralised gridconnected solar plants; Component B, which promotes standalone solar pumps; and Component C, which enables the solarisation of existing grid-connected agricultural pumps, including feeder-level solarisation.

In states with high agricultural loads, feeder-level solarisation can therefore function as a distributionsector intervention rather than solely a renewable energy measure. By reducing the underlying cost of supplying a structurally subsidised segment, it addresses the source of fiscal pressure rather than merely reallocating it across consumer categories.

Decentralised solar also aligns with emerging grid realities. States with high renewable penetration, such as Rajasthan, can benefit from distributed solar serving local agricultural demand, which eases network stress rather than adding to it. This approach complements grid-scale renewable expansion while addressing a long-standing distribution-sector challenge (Agrawal et al. 2023).

Despite these advantages, progress remains uneven. Agricultural solarisation continues to be implemented largely as a standalone scheme rather than as part of distribution-sector planning. A clear and comparable assessment of the fiscal relief, cost reductions, and system-level benefits achievable at different adoption scales remains limited. This brief seeks to address that gap.

State selection

The brief examines 13 major agrarian states that together account for nearly all agricultural electricity consumption in India. Five states–Maharashtra, Rajasthan, Madhya Pradesh, Telangana, and Karnataka–account for nearly 60 per cent of national agricultural power consumption. By focusing on states with high agricultural load and significant fiscal exposure, the analysis identifies where solarisation can have the greatest structural impact.

Figure 1A. Geographic coverage of the 13 states included in the analysis

Figure 1B. Methodology used for estimating the benefits of solarising agricultural power demand

Agricultural electricity already represents one of the largest recurring fiscal expenditures across the 13 states assessed in this brief. In FY 2025, annual agricultural power subsidies exceeded INR 1.3 lakh crore across these states, with agricultural electricity demand projected to continue rising through 2030. As regulators progressively rationalise cross-subsidies, an increasing share of agricultural supply costs will be borne directly by state budgets rather than remain absorbed by C&I consumers.

Under a business-as-usual trajectory, rising agricultural demand met entirely through conventional grid procurement would substantially increase annual subsidy requirements, exceeding INR 2 lakh crore by FY 2030. This growth would be driven both by higher consumption volumes and exposure to prevailing procurement costs. Agricultural solarisation alters this trajectory by lowering the per-unit cost of supplying agricultural feeders. Full solarisation of agricultural demand across these states by 2030 through decentralised generation would reduce the corresponding annual subsidy requirements, generating cumulative fiscal savings of over INR 3.3 lakh crore during FY 2025–30. In states with large agricultural loads and a significant differential between grid procurement costs and decentralised solar tariffs, these gains are structural rather than incremental.

Two system-level considerations are essential when interpreting these results. First, agricultural demand is seasonal, while solar generation is concentrated during daytime hours; aggregate energy comparisons therefore do not fully capture integration and balancing requirements. Second, higher levels of feeder-level solarisation require closer alignment with distributionlevel resource adequacy planning. Changes in net load profiles, procurement strategies, and balancing arrangements must be incorporated into planning decisions. These factors affect implementation pathways but do not alter the underlying economic case for solarisation.

The 13 states analysed account for nearly all of India’s agricultural electricity consumption, and their supply choices will materially shape the distribution sector’s fiscal trajectory through 2030. Where feeder segregation is already complete, solarisation can be scaled more rapidly. Elsewhere, deployment will need to be aligned with ongoing infrastructure upgrades under the Revamped Distribution Sector Scheme (RDSS) and related programmes.

The window for influencing the subsidy trajectory is before 2030. As agricultural demand continues to grow, delaying structural adjustments increases fiscal exposure for state governments. Solarisation does not replace broader tariff or governance reforms, but it directly addresses one of the largest cost drivers in state power systems while preserving support for farmers.

Without solarisation, state subsidy for agricultural power supply could exceed to INR 2 lakh crore annually by 2030 under business-as-usual trajectory.