Rural Electrification in India an overview

Rural Electrification in India an overview

By
Rajkiran Bilolikar
&
Ravi Deshmukh
MBA (Power) Management
National Power Training Institute, Faridabad

Rural Electrification in India an overview

Table of Contents

Sr. No
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Page No
Introduction
Rural Electrification in view of Electricity Act 2003
Govt. Strategy
Rural Electrification in India in view of five year plans
Importance of Irrigation in Rural Electrification
Review of selected Rural Electrification (RE) Schemes
i) Pradhan Mantri Gramodaya Yojna (PMGY)
ii) Kutir Jyoti Program (KJP)
iii)Minimum Needs Program (MNP)
iv)Accelerated Rural Electrification Program (AREP)
v) Rural Electricity Supply Technology Mission (REST)
vi)Rajiv Gandhi Grameen Vidyutikaran Yojana
Conclusion
References

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Introduction
Expansion of electrification and electricity services are vital to both the economic and social
development of India. The current state of electricity services in most of the states of India is
worse than ever. Some of the signs of this crisis are severe shortcomings in
a) Access to electricity for rural and urban poor,
b) Generation capacity that cannot meet peak demand and
c) Reliability of supply, in terms of predictability of outages and quality of power supply.
According to National statistics, shortages in energy demand and peak power demand have been
around 8% and 12% on average between 2000 and 2003. Industry, farmers and households have
invested in a substantial amount of equipment and capital in the form of captive power plants,
generators, inverters, and voltage stabilizers to address issues of supply and its quality. India, with
an average annual per capita electricity consumption of 400 kWh, is far behind countries such as
China (900 kWh), Malaysia (2500 kWh), and Thailand (1,500 kWh).
Inspite of various attempts to achieve 100% rural electrification, India has achieved 44%
electrification to rural households only. According to the 2001 Census, 6.02 crore households use
electricity as the primary source of lighting out of a total of 13.8 crore households in the country.
Countries with large population without access to electricity
Population w/out access to % of world
Country
electricity (Million)
total
India
579.10
35.44
Bangladesh
104.40
6.39
Indonesia
98.00
6.00
Nigeria
76.15
4.66
Pakistan
65.00
3.98
Ethiopia
61.28
3.75
Myanmar
45.30
2.77
Tanzania
30.16
1.85
Kenya
27.71
1.70
Nepal
19.50
1.19
DPR
of
17.80
1.09
Korea
Mozambique 16.42
1.00
World Total
1634.20
100.00
Source: IEA, 2002

Per
capita
electricity
consumption (kWh)
393
102
390
85
374
24
74
55
107
61
1288
47
2343

Transmission and Distribution (T&D) losses in India have risen from 25% in 1997-1998 to
around 33% in 2003-2004. In countries such as China, Malaysia, and Thailand, they are less than
10%. The State Electricity Boards (SEBs) that bear primary responsibility for distribution face
irregularities in billing and rampant theft of electricity. It is estimated that of the total power
generated, only about 55% is billed, and around 41% is realized. Cost recovery has declined from
82% in 1992-1993 to 69% in 2001-2002. While just about everyone agrees on the end-point,
(restoring the financial health of the SEBs and power utilities, increasing generation capacity, and
lowering T&D losses) how to tread the narrow and difficult political path to achieving that goal
remains a challenge.

Despite of all these challenges India has to move forward with its Rural Electrification program
as it plays a crucial role in overall development of the country.

Rural Electrification in view of Electricity Act 2003

For the first time Electricity Act 2003 mentions rural electrification in a law. Section 6 of the act
mandates the hitherto implied Universal Service Obligation by stating that the government shall
endeavor to supply electricity to all areas including villages and hamlets. Section 5 further
mandates the formulation of national policy on RE focusing specially on management of local
distribution networks through local institutions. Giving a further boost to RE, the act in Section 4
also frees stand-alone generation and distribution networks from licensing requirements.
Subsequently, the GoI has released a draft paper on National Rural Electrification Policy.
Definition of Electrified Village according to the Union Government is
A village will be deemed to be electrified if electricity is used in the inhabited locality within the
revenue boundary of the village for any purpose whatsoever
New definition proposed by the Standing Committee on Energy reads as
The basic infrastructure such as distribution transformers and or distribution lines is made
available in the inhabited locality within the revenue boundary of the village including at
least one hamlet/ Dalit Basti as applicable.
Any of the public places like schools, Panchayat office, Health centre, Dispensaries,
Community Centres, etc avail power supply on demand; and
The rating of distribution transformer and LT lines to be provided in the village would be
finalized as per the anticipated number of connections decided in consultation with the
Panchayat/ Zilla Prishad/ Distirct Administration / who will issue the necessary
certificate of village electrification on completion of works; and
The number of households electrified should be minimum 10% for villages which are
unelectrified, before a village is declared electrified.
This definition is wider and more inclusive and it is hoped that a similar or a slightly modified
version of the same will be accepted for census purposes.
The broad goals of RE as set out in the draft REP(Rural Electrification Policy), referred to as
AARQA goals, are as follows:
Accessibility electricity to all households by 2012
Availability adequate supply to meet demand by 2012
Reliability- ensure 24 hour supply by 2012
Quality- 100% quality supply by 2012
Affordability- pricing based on consumer ability to pay
REP seeks to achieve 100% household electrification by 2012 primarily through grid extension,
and stand-alone systems. Pursuant to the REP all state governments are required to formulate
state level strategies and notify the same within 6 months from the notification of the REP.

Govt. Strategy
Both the Government of India Planning Commissions strategy for the development of rural India
as well as the United Nations Millennium Development Goals (MDGs) for the next ten years are
inherently dependent on the integration of electricity services to achieve a set of varied
development goals.
Viable and reliable electricity services result in increased productivity in
a) agriculture and labor,
b) improvement in the delivery of health and education,
c) access to communications (radio, telephone, television, mobile telephone),
d) improved lighting after sunset,
e) facilitating the use of time and energy-saving mills, motors, and pumps, and
f) increasing public safety through outdoor lighting.
Rural electrification at a household level provides at the very minimum services such as lighting
and communications (e.g. radio/television) and can increasingly meet the aspirations of the rural
populations to own other household appliances. Household electrification also increases the
likelihood that women will read and earn income.
Under the current 5-Year Plan, the Planning Commission states that rural electrification and
power service reforms are high development priorities. The central government also recognizes
that the current state of energy services could significantly impede Indias economic growth on a
national scale beyond the rural and agrarian contexts. This realization, along with Indias
gradual economic upswing, has brought the depressed state of energy service providers into the
forefront of energy sector reforms.

Rural Electrification in India in view of five year plans

The 1st Plan emphasized that support for projects that ensure that irrigation potential is met. At
this point, only 1 in 200 villages were connected to grid supply across the country.
The 2nd plan named rural electrification as an area of special interest, and proposed to cover all
towns with a population of 10,000 or more. Only 350 out of a total of 856 were eventually
electrified.
The 3rd Plan for the 1st time raised the issue of efficiency in the sector. The REC (Rural
Electrification Corporation) was created in 1969 with renewed focus on poverty alleviation.
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The target based approach of rural electrification was developed in the 4th and 5 Plan periods,
with focus on pump set energization and guidelines for village grid connectivity for all villages
with a population of at least 5000.
The early 80s saw major changes in conjunction with the creation of the Commission for
Additional Sources of Energy (CASE) in 1981, which evolved into a full-fledged Ministry for
Non-Conventional Energy Sources (MNES) in 1992.
The 6th and 7th Plan periods witnessed the launch of innovative rural energy programs like the
National Program on Improved Chulha (NPIC) in (1983), The National Project on Biogas

Development (1981-82), Special Program Agriculture (SAP) and integrated energy programs like
IREP (Integrated Rural Energy Planning) and Urjagram.
With the institutionalization of the MNES in the early 90s, rural energy provision now largely
rests with the RECs and MNES. Covering a wide range of technology and fuel options including
renewable sources, national efforts at rural energy provision offer a variety of programs to
address the range of energy requirements of rural populations.
Growth in the period from 1947 until reforms were instated in 1991 was impressive in increasing
capacity generation from 1362 MW in 1947 to nearly 1,23,558 MW by 2004-2005. Despite a per
capita power consumption increase from 15.55 Kwh to 606 Kwh, SEBs were financially weak.
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The 4 Plan and the findings of the Venkatraman Committee report (created to examine the
financial working of the SEBs), concurred that SEBs should at the very least aim at revenues
sufficient to cover operational and maintenance charges, depreciation of reserves and interest
charges on the capital base
Even as the 40 year period saw nearly 80% of the country connected to grid supply, up from the
few urban pockets of electricity supplied at the time of independence, the SEBs cumulatively
were being given an annual gross subsidy of Rs.7,450 crores by 1991-92, losing about Rs.4,021
crores a year and showing an average rate of return (without subsidy) of about -12.5%. By March
31, 2001 the gross subsidy had shot up to Rs. 38,000 crores a year with total SEB outstanding to
CPSU and others at Rs.27,760 crores.
While electricity was perceived as a public good, there was lack of clarity as to who should pay
for it. The lack of transparent and well defined subsidies that would be paid from the exchequer to
the SEBs to implement specific government policies led to tariffs that were not sustainable.
Despite the recommendations of the Venkataraman Committee (1964), which suggested that
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SEBs should aim at an overall return of 11 percent, and the 6 Plans calling for an energy pricing
policy, the commercial principles underlying tariff revision more often than not were superseded
by political considerations.
The first report of the Standing Committee on Energy, Fourteenth Lok Sabha 2004-05, had
identified rural electrification as an essential infrastructure input for improving productionoriented activities and speeding up the pace of development of the rural economy. In its
submission to the committee for the year 2004-05, the Ministry of Power outlined a new strategy
involving creation of a Rural Electricity Distribution Backbone (REDB), Village Electricity
Infrastructure (VEI). This also included distribution transformers in each village where grid
access was feasible, and a decentralized distributed generation (DDG) and supply for villages
where grid connectivity or NCES (non conventional sources of energy) might not be possible or
cost effective. The committee, while accepting the Ministry of Powers new proposal, had,
however, highlighted that despite the availability and sanctioning of funds, the actual utilization
of funds for rural electrification projects was low.

Importance of irrigation in Rural Electrification

Irrigation pumping for agriculture has been cited by many as one of the principle causes of poor
cost recovery of SEBs and a prime cause of the poor financial health of the SEBs. However, one
needs to acknowledge that irrigation reduces poverty by increasing employment, incomes and
real wages and by reducing food prices for rural and urban poor. In India, in un-irrigated districts
(less than 10% area irrigated), 69 % of people are poor, while in irrigated districts (more than
50% area irrigated), poverty level drops to 26%. Agricultural performance is fundamental to
India's economic and social development and will critically determine the success of efforts in
poverty reduction. Hence a sudden and substantial shift away from current pricing of electricity
for agriculture could have jeopardize agriculture, an activity that is the primary source of
livelihood in rural areas, accounting for 72% of India's population
Irrigated agriculture is critical to the Indian economy. Hence a nuanced approach to reforming
agriculture pumping (AP) tariffs is needed. A move towards greater cost recovery must be
accompanied by reliable service that meets the needs of agriculture. A two-step approach is
proposed by Mr Vijay Modi in his work Improving Electricity Services in Rural India, The
Earth Institute at Columbia University with the first being recommended in the short term in areas
where metering of AP with 24-7 supply is not immediately feasible.
a. The first step would be to separate the three-phase AP supply from household
single-phase supply and then this AP network would be energized by scheduling power supply
when it is needed most through reliable timed-delivery (determined by rainfall and soil moisture
requirements) in accordance with the local agriculture needs and during off-peak hours to reduce
costs. This will allow the system to better meet agriculture needs while at the same time reducing
the supply of electricity for agriculture and hence effectively curtailing agriculture subsidies
(allowing flat-rate tariffs to become closer to cost recovery) and at the same time reducing
wasteful use of energy and groundwater. This will require co-ordination of the utility with local
agriculture/water experts along with a campaign and community dialogue that would promote the
benefits of such an approach.
b. The next step would be to move toward agriculture subsidies that are provided
directly to the consumer in the form of a smart card that incorporates low tariffs for the first
block of lifeline consumption. Smart-card metering technology makes is possible to provide the
subsidy directly to the consumer as opposed to the service provider. The higher initial investment
of such a technology is already cost-effective for consumption levels typical of agriculture. The
lifeline electricity consumption level would correspond to the demands and sustainable water
yields of small farmers in a region. In aggregate, this would then pave the way for substantially
higher cost-recovery from agriculture while ensuring that the small farmers growing non waterintensive crops are not adversely impacted. Metering technologies using smart cards are already
used in South Africa. Higher cost recovery would pave the way for facilitating greater generation
capacity as well as in reducing the adverse impact on industry of higher tariffs and poor quality
supply.

Review of Select Rural Electrification (RE) Schemes

Rural electrification is the backbone of rural economy and a basic input for rapid rural
development. It is also the main infrastructure for ensuring speedy growth of the agriculture
sector and agro based industrial structure in rural areas. By March, 31st 2004, 86% of villages
had been electrified. In addition, out of the total estimated pump set potential of 195.94 lakh,
about 141.15 lakh pump sets (63%) had been energized. During 2003-04, about 2,706 new
villages had been electrified and about 2.5 lakh pump sets were energized.
The main sources of funding for current rural electrification programs are:
1. The Rural Electrification Corporation
2. Plan allocation to the States.
3. Funds support from Government as loan and grant
4. Institutional financing bodies like commercial banks
5. International financing agencies like OECF etc
The Rural Electrification Corporation (REC) was established as a public sector undertaking in
July, 1969. Initially, the principal objectives of the corporation were to finance RE schemes and
promote rural electricity co-operatives for funding rural electrification projects across the country.
The tasks assigned to the corporation have occasionally been expanded. The main objects
currently are:
i.
To subscribe to special rural electrification bonds that may be issued by the State
Electricity Boards on conditions to be stipulated from time to time.
ii.
To promote and finance rural electricity co-operatives in the country.
iii.
To administer the money received from the GoI and other sources such as grants.
iv.
To promote, organize or carry on the business of consultancy services and/or project
implementation in any field of activity in which it is engaged in India and abroad.
v.
To finance and/or execute works on small/mini/micro-generation projects, to promote
and develop other energy sources and to provide financial assistance for leasing out the
above sources of energy.
vi.
To finance survey and investigation of projects.
vii.
To promote, develop and finance viable decentralized power system organizations in
cooperative, joint, private sector, panchayat and/or local bodies.
Reported status of Rural Electrification, March 2004
Electrified states
States
Electrified
villages (%)

Electrified
households (%)

Punjab
Haryana
Gujarat
Maharashtra

100.00
100.00
100.00
100.00

91.90
82.90
80.40
77.50

Tamil Nadu
Kerala
AP
Himachal P
Karnataka

100.00
100.00
100.00
99.38
98.91

78.20
70.20
67.30
94.80
78.50

Electrified states
States
Electrified
villages (%)
MP
Rajasthan
Chhattisgarh
West
Bengal
Orrisa
North-east
UP
Bihar
Jharkhand

97.43
98.38
94.0
83.63

Electrified
households
(%)
70.00
54.70
53.10
37.50

80.15
75.32
58.73
50.00
26.00

26.90
33.20
31.90
10.30
24.30

Source: Planning Commission, 2005

Some of Rural Electrification Schemes run by GOI discussed below.

Pradhan Mantri Gramodaya Yojna (PMGY)

The PMGY launched in 2000-2001 provided additional financial assistance for minimum services
by the central government to all states on a 90% loan and 10% grant basis. These included rural
health, education, drinking water and rural electrification. The PMGY, with an outlay of about Rs
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1600 crores during the 10 Plan period, was being coordinated and monitored by the Rural
Development Division of the Planning Commission. More importantly, under PMGY states had
the flexibility to decide on the inter-reallocation of funds amongst the 6 basic services. Thus
states could enhance allocations to expedite the pace of rural electrification. The scheme has been
discontinued from 2005 onwards.

Kutir Jyoti Program (KJP)

KJP was initiated in 1988-89 to provide single point light connection (60 w) to all Below Poverty
Line (BPL) households in the country. KJP provides 100% grant for one time cost of internal
wiring and service connection charges and builds in a proviso for 100% metering for release of
grants. Nearly 5.1 million households have been covered under the scheme to date. The scheme
was merged into the Accelerated Electrification of One Lakh Villages and One Crore
Households in May 2004 and now into the Rajiv Gandhi Grameen Vidyutikaran Yojana
(RGGVY).

Minimum Needs Program (MNP)

The MNP, exclusively targeted states with less than 65% rural electrification (by the old
definition) provides 100% loans for last mile connectivity. The program resources are drawn from
the Central Plan Assistance. Rs. 775 crore was released during 2001-03 for rural electrification
under the MNP. The scheme was discontinued in 2004-05 on account of difficulties in
implementation.

Accelerated Rural Electrification Program (AREP)

The AREP, operational since 2002, provides an interest subsidy of 4% to states for RE programs.
The AREP covers electrification of un-electrified villages and household electrification and has
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an approved outlay of Rs. 560 crore under the 10 Plan. The interest subsidy is available to state
governments and electricity utilities on loans availed from approved financial institutions like the
REC (Rural Electrification Corporation), PFC (Power Finance Corporation) and from NABARD
under the Rural Infrastructure Development Fund (RIDF).

Rural Electricity Supply Technology Mission (REST)

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The REST was initiated on 11 September 2002. The missions objective is the electrification of
all villages and households progressively by year 2012 through local renewable energy sources
and decentralized technologies, along with the conventional grid connection.
REST proposes an integrated approach for rural electrification and aims:
To identify and adopt technological solutions
To review the current legal and institutional framework and make changes when necessary
To promote, fund, finance and facilitate alternative approaches in rural electrification, and
To coordinate with various ministries, apex institutions and research organizations to
facilitate meeting national objectives
Accelerated Electrification of One Lakh Villages and One Crore Households, MNP and Kutir
Jyoti have now been merged with the RGGVY

Rajiv Gandhi Grameen Vidyutikaran Yojna

The RGGVY is the latest national RE scheme launched by the Ministry of Power to execute the
vision for rural electrification as enunciated in the NCMP and recommended by the Chief
Ministers conference in 2001. The plan was instated in April of 2005 with the following
objectives:
100% electrification of all villages and habitations in the country
Electricity access to all households
Free of cost electricity connection to BPL (Below Poverty Line) households
For achieving the said objectives, the RGGVY envisions creating a:
Rural Electricity Distribution Backbone (REDB) with at least one 33/11 KV (or 66/11 KV)
substation in each block
Village Electrification Infrastructure (VEI) with at least one distribution transformer in each
village/habitation
Decentralized Distributed Generation (DDG) systems where the grid is not cost-effective or
feasible
Upon launching the RGGVY Smt. Sonia Gandhi, Chairperson of the National Advisory Council,
stated: "Rural electrification in all its aspects forms a key - I would say the key - component of
Bharat Nirman. The diversification of the rural economy, so very essential to manage the
demographic pressures in the countryside, depends critically on the easy availability of reliable
power."

Conclusion
There has been substantial investment in the physical electricity infrastructure of the country
since independence. There have been numerous programs in just the last decade for accelerating
rural electrification. These programs have focused on infrastructure investments but not on
management; on ambitious coverage targets but not on financing or creating incentives for
sustainable maintenance of infrastructure stock; on triage of emergency measures and not on
providing reliable services. The windfall if any from reduced subsidies would have to be invested
back in the maintenance of the crumbling infrastructure, in modernization of the system for
transparent accounting and in new infrastructure. Additionally, investment in building
management skills within newly created Distribution Companies (DisCom) would be needed.
With a missionary zeal on the quality and reliability of electricity supply, it will be possible to
charge industry (large and small) tariffs that will ensure full cost-recovery and more - resources
needed to cross-subsidize social goals of the electricity sector. The economies of scale in power
production have a unique advantage in that the cost of captive power for industry and the cost of
coping mechanisms adopted by medium level consumers (SMEs, commercial enterprises, shops
or wealthy households) is significantly higher than the bulk costs of electricity generation that a
large DisCom would have to otherwise pay.

Reliable 24-7 supply to schools, clinics, hospitals, water schemes (where needed), telecom
facilities, government offices, rural markets and small businesses (e.g. grinding and agroprocessing) is essential to meeting the services that the rural populations need. Many of these
institutions are public facilities and a close dialogue with the district officers and the
representative local bodies is needed to ensure that the supply to these institutions is reliable, and
that costs of supply are accounted for through either transparent subsidies or funds transferred
between the appropriate government body and the service provider.

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For domestic supply in rural areas, the RGGVY scheme has set an ambitious challenge. For this
to succeed the political climate will need to be created that empowers the SEBs to enforce the
rules of the Electricity Act 2003. This will require that rural household connections receive
reliable service at least during evening hours when domestic rural supply is most needed. One
way to carry out this tricky balancing act while generation capacity constraints are being met and
AT&C (aggregate technical and commercial) loss reduction requirements are met is to
supplement timed evening hour supply with installation of load-limiters in households that were
connected with Kutir Jyoti scheme or for new households that are going to be covered under the
BPL provisions of the RGGVY.
rd

The Chief Ministers conference held on 3 March 2001 recognized the need to take approach RE
in a de-politicized manner. This political commitment towards achieving the goal of 100% village
electrification in a sustainable manner is evidenced through the passage of the Electricity Act
2003, through changes in the definition of an electrified village and through the merging of a
number of RE programs into one umbrella program - the Rajiv Gandhi Grameen Vidyutikaran
Yojna (RGGVY).

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References
1. Improving Electricity Services in Rural India Vijay Modi
Working paper series,
Centre on Globalization and sustainable development,
The Earth Institute at Columbia University
2. Impact of Power Sector Reform on Poor a case study of South and South East
Asia A.R.Sihag, Neha Mishra and Vivek Sharma, TERI, India.
3. Guide to Electricity Laws in India Raj Singh Niranjan.
4. Planning commission, GOI website www.planningcommission.nic.in
5. www.powermin.nic.in Ministry of Power website.

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