Political economy of agricultural electricity tariffs: Rural politics of Indian States

Although electricity is one of the most important determinants of successful industrialization, many countries do not provide sufficient amounts of electricity at reasonable prices for industrialization. In order to inquire into the causes behind this, we investigate the factors that influence electricity tariffs for agricultural consumers at the state level in India. We conduct a dynamic panel data analysis using data for seventeen major states in India for the period from 1992 to 2012. Our estimation results suggest that as the Gini coefficient of landowning rises, the agricultural electricity tariffs become lower. However, the rural population share does not significantly affect agricultural electricity tariffs. These results indicate that state governments are responsive to the demands of large farmers (rural elites) but not to the demands of farmers more generally (rural masses). Our results are consistent with elite politics but not mass politics. Low electricity tariffs for agricultural consumers have caused insufficient investment in the infrastructure necessary for the expansion of industries, as well as high electricity tariffs for industrial consumers, which may have adversely affected the industrialization of state economies in India.