How to Target Residential Electricity Subsidies in India

The report finds that electricity subsidies in Jharkhand are regressive, with a significant portion of benefits accruing to wealthier households. Using survey data from over 900 households, the authors analyze the current subsidy incidence and simulate three targeting options: using poverty ration cards, revising volumetric consumption slabs, and implementing a proxy means test (PMT). The analysis suggests that revising volumetric slabs offers the most significant potential for fiscal savings and improved targeting without excluding the most vulnerable, while the PMT approach based on existing SECC variables shows high inclusion and exclusion errors.

• Current electricity subsidy distribution in Jharkhand is regressive; among rural households, the richest 40% receive 61% of benefits, while the poorest 40% receive 25%. A similar pattern exists for urban households, where the top two quintiles receive 60% of benefits and the bottom two receive 25%.
• Targeting subsidies exclusively to households with poverty ration cards (BPL, AAY, or PH) would reduce annual subsidy costs by INR 163 crore (USD 23 million), representing a 17% reduction of the 2019 total subsidy.
• Rationalizing volumetric limits by setting the highest subsidy for consumption up to 50 kWh per month and removing subsidies for those consuming over 300 kWh per month could save the state approximately INR 306 crore (USD 44 million) annually.
• A proxy means test (PMT) based on Socio Economic Caste Census (SECC) variables would save the government INR 327 crore (USD 47 million) annually, but the authors caution against it due to high exclusion and inclusion errors.
• Electricity affordability is a concern for the poorest households; the poorest expenditure quintile spends 12.8% of their household expenditure on electricity, compared to only 3.7% for the wealthiest quintile.
• The COVID-19 pandemic exacerbated the financial instability of distribution companies (DISCOMs) by shifting demand toward the domestic sector and reducing revenues from commercial and industrial consumers.
• The report recommends a short-term approach of removing subsidies for households consuming more than 300 kWh per month and lowering the initial subsidy cutoff to 50 kWh per month, provided seasonal variations are considered.

APA

Sharma, S., Moerenhout, T., & Aklin, M. (2020). How to Target Residential Electricity Subsidies in India. International Institute for Sustainable Development. https://www.iisd.org/system/files/2020-09/target-residential-electricity-subsidies-india-step-2.pdf

Chicago

Sharma, Shruti, Tom Moerenhout, and Michaël Aklin. How to Target Residential Electricity Subsidies in India. International Institute for Sustainable Development, 2020. https://www.iisd.org/system/files/2020-09/target-residential-electricity-subsidies-india-step-2.pdf.

Wikipedia

{{cite report |last1=Sharma |first1=Shruti |last2=Moerenhout |first2=Tom |last3=Aklin |first3=Michaël |title=How to Target Residential Electricity Subsidies in India |publisher=International Institute for Sustainable Development |date=September 2020 |url=https://www.iisd.org/system/files/2020-09/target-residential-electricity-subsidies-india-step-2.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sharma2020how, author = {Sharma, Shruti and Moerenhout, Tom and Aklin, Michaël}, title = {{How to Target Residential Electricity Subsidies in India}}, institution = {International Institute for Sustainable Development}, year = {2020}, month = sep, url = {https://www.iisd.org/system/files/2020-09/target-residential-electricity-subsidies-india-step-2.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }