Andhra Pradesh government has decided to introduce Direct Benefit Transfer (DBT) on the subsidy extended as free electricity to farmers. This program will initially start with one district by December 2020. Andhra Pradesh will be one of the first states to adopt this program.

The decision comes after the central government issued a draft proposal for the amending the Electricity Act 2003 to address issues in the power sector. The center also recommended for the state regulatory commissions to set tariffs without accounting for subsidies. The subsidies would be directly provided to the consumer by the government by way of DBT.

The Andhra government, through a notification, has stated that the government will pay the power charges to the farmers who will, in turn, pay the DISCOMs.

In all, there are more than 1.7 million agriculture electric connections that consume 12,232 MU. The annual subsidy on these connections amounts to ₹83.53 billion (~$1.14 billion). The subsidy per connection is ₹47,601 (~$650).

In June, the Andhra Pradesh cabinet approved the proposal to develop a 10 GW mega solar power project for the benefit of the farmers in the state. To meet the subsidies sustainably, the government felt that there is a need for evolving an alternative mechanism to provide quality power and a nine-hour daytime free power supply to farmers.

The government has set up the Andhra Pradesh Green Energy Corporation Ltd as the nodal agency to implement this plan.

The government plans to spend ₹17 billion (~$232 million) to set up new infrastructure for power generation and transmission. Installation of smart meters for the agricultural connections wherever it is feasible in also in the proposal.

About Direct Benefit Transfer

Under the National Electricity Policy, electricity is subsidized for the agricultural sector and domestic consumers below the poverty line. This subsidy is partly recovered through higher tariffs paid by the industrial and commercial electricity consumers (cross-subsidy charges) and direct subsidies from state governments to the DISCOMs. Now, the government proposes that the subsidy to any category of consumers has to be provided through Direct Benefit Transfer.

The government introduced DBT in 2013, crediting subsidies on liquified petroleum gas (LPG) consumers, directly to their bank accounts, to reduce pilferage or delays. The subsidy is generally credited directly to consumers’ bank accounts as soon as they book the first subsidized LPG cylinder before delivery, so they can purchase the next cylinder at a market rate until the cap of 12 cylinders per year is reached.

The DBT program, if efficiently implemented, could reduce the cross-subsidy charges, making open access projects more attractive.

Andhra Pradesh, along with Maharashtra and Tamil Nadu DISCOMs, had initially objected to the proposal stating that the DBT for electricity consumers eligible for subsidies would be premature and might not have the same intended effects as in the case of consumers receiving subsidies on LPG.