Macroeconomics

Is there public support for higher electricity prices in India?

  • Blog Post Date 23 August, 2013
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Johannes Urpelainen

Johns Hopkins University

JohannesU@jhu.edu

Even though India´s power sector does not generate enough electricity to meet the rapidly growing demand, policymakers hesitate to increase tariffs due to popular opposition. This column discusses results from a survey experiment in rural Uttar Pradesh that shows that providing people with information about the relationship between low electricity tariffs and inadequate generation has a significantly positive effect on public support for higher prices. However, privatisation is unpopular, as people have a strong preference for state control of the power sector.



India´s power sector is characterised by a wide gap between supply and demand (Chatterjee 2012). In large part due to low electricity tariffs in many states, investment in power plants fails to match the rapidly growing demand for electricity. Agricultural electricity tariffs are particularly low, prompting large farms to extract so much groundwater in water-scarce states such as Punjab that the water table is rapidly falling (Shah et al. 2004). However, tariff increases have proven politically difficult due to popular opposition to higher electricity prices (Santhakumar 2003, 2008). Since politicians worry about the electoral consequences of tariff increases, they fail to increase electricity prices to levels that would allow supply and demand to meet, while enhancing the energy efficiency of India´s economy.

How can popular support for higher electricity prices be built in India? We conducted a small survey experiment in two villages located in the Shahjahanpur district of Uttar Pradesh (Aklin et al. 2013). We tested the hypothesis that raising awareness about the need to increase electricity prices to improve the availability and reliability of electricity supply could increase support for a price increase. The experimental analysis supported the hypothesis. However, we also found that the respondents had a strong preference for state control of the power sector, as privatisation received little support with or without the awareness intervention.

Support for higher electricity tariffs: A survey experiment in rural Uttar Pradesh

In the survey experiment, we assigned a total of 600 villagers into three groups. One group was the control group (received no intervention), another group received a frame emphasising state responsibility for adequate power supply, and the third group received a frame that explained the relationship between higher electricity tariffs and increased power generation due to the better profitability of investment. The experiment was conducted between February and April 2013.

The main outcome measure was support for higher electricity prices. We also looked at the impact of the intervention on support for free electricity provision and privatisation. Our expectation was that the informational frame about the need to increase electricity prices for reliable supply would produce the highest levels of support for a tariff hike.

The results showed that both interventions increased support for higher electricity prices. On a 0-4 scale with higher values indicating more support, the average level of support in the control group was 2.37. It increased to 2.67 with the state responsibility intervention and to 2.82 with the power generation intervention1. This shows that villagers respond to new information about the effects of electricity prices on the power sector. Moreover, an emphasis on state responsibility for adequate supply increases support for higher electricity prices, provided that supply improves.

At the same time, the opposition to privatisation as a solution for improving power generation was widespread. The average level of support was only 0.82 on a 0-4 scale and the differences between the three experimental groups were not statistically significant. This shows that although the subjects were willing to support higher prices in exchange for better supply, they had a strong preference for state control of the power sector.

Implications for power sector reform in India

Subject to the caveat of a small sample size, the analysis offers two important insights into the politics of power sector reform in India. First, there seems to be support for higher electricity tariffs among the rural population. If policymakers can frame the need for higher electricity tariffs as a means to improve access to power and design a regulatory framework that creates incentives for investment, higher electricity prices could be popular in rural areas deprived of power. Public opposition to higher electricity prices seems to be at least partly driven by a lack of knowledge about the relationship between power prices and incentives to invest.

Second, any power sector reform based on privatisation will receive less public support than one based on regulatory reform and state control. While the 2003 Electricity Act opened power generation to privatisation, it was also politically controversial and implementation remains partial. Our findings suggest that a public solution could be politically more feasible, though one should remember that regulatory reform itself presents practical challenges (Dubash and Rao 2008).

Although our analysis was exploratory, it highlights the importance of political-economic research for power sector reform in India. Although the political difficulties of rationalising India´s power sector are in plain sight, there is surprisingly little research on public opinion about power sector reform. The findings from our study show that such research can inform reform efforts and base them on concrete evidence about public opinion and perceptions. This is important because in a democratic society with frequent elections, the successful implementation of economic reform depends on popular support and legitimacy.

The author would like to thank Michaël Aklin, S.P. Harish, and Patrick Bayer for helpful comments on a previous draft of this column.

Notes:

  1. The differences between the control group and the two other groups were statistically significant.

Further Reading

  • Aklin, M., Bayer, P., Harish, S.P. and Urpelainen, J., (2013), ‘When Do People Support Electricity Price Increases? A Survey Experiment in Rural Uttar Pradesh’, Unpublished Working Paper, Columbia University.
  • Chatterjee, E. (2012), “Dissipated Energy: Indian Electric Power and the Politics of Blame”, Contemporary South Asia, 20, 91-103.
  • Dubash, N. K. and Rao, D. N. (2008), “Regulatory Practice and Politics: Lessons from Independent Regulation in Indian Electricity”, Utilities Policy, 16, 321-331.
  • Santhakumar, V. (2003), “Impact of Distribution of Costs and Benefits of Non-Reform: Case Study of Power Sector Reforms in Kerala between 1996 and 2000”, Economic and Political Weekly, 38, 147-154.
  • Santhakumar, V. (2008), ‘Analysing Social Opposition to Reforms: The Electricity Sector in India’, Sage.
  • Shah, T., Scott, C., Kishore, A. and Sharma, A. (2004), ‘Energy-Irrigation Nexus in South Asia: Improving Groundwater Conservation and Power Sector Viability’, International Water Management Institute (2nd edition).
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