India is home to one of the world's largest populations without electricity access. Traditionally, the Government of India has extended rural electrification using two instruments: consumption subsidies and free connections to households below the poverty line (BPL). This study centers on subsidies for electricity consumption, examine their size, frequency, and distribution to households. It uses poverty as a lens through which to focus more closely on these concepts, asking such questions as how well subsidies are targeted to BPL households. The study findings demonstrate that subsidies cover 87 percent of all electricity consumed by India's households. Furthermore, residential subsidies are large compared to the cost of electricity and the small cross-subsidy amounts taken from non-subsidized residential consumption. Moreover, the vast majority of electrified households receive a net subsidy on their electricity consumption. About 87 percent of subsidy payments go to households living above the poverty line (ABL) instead of to the poor, and over half of subsidy payments go to the richest 40 percent of households. The key factor driving this outcome is tariff design. Only some states have highly concessional BPL tariffs. In most states, tariffs for the non-poor are subsidized nearly as much as BPL tariffs. Because non-poor households consume significantly more electricity than poor households, they are eligible for significantly higher subsidies. Owing to the relatively low access rate among poorer households, many of them are unable to take advantage of tariff subsidies.

Table of Contents:
Chapter 1: Introduction • Setting Residential Tariffs • Study Goal and Objectives • Data Sources • Terminology and Key Concepts • Targeting the Poor • Structure of This Report • Annex 1A: National Sample Survey Description • Annex 1B: Technical Note on Matching Households and Tariff Schedules • Notes Chapter 2: Patterns of Residential Consumption and Subsidy and Cost Trends • Residential Sector Profile • Subsidy and Cost Trends • Notes Chapter 3: Residential Tariffs Overview • Tariff Structures • Tariff Schedule Characteristics • How Fixed Charges Impact the Poor • Concluding Remarks • Notes Chapter 4: Subsidy Size and Household Distribution • Average Supply Cost and Tariffs • Subsidy Prevalence and Magnitude • Distribution of Subsidies and Cross-Subsidies • Concluding Remarks Chapter 5: Targeting of Subsidies • Subsidy Incidence • What Prevents Better Subsidy Targeting? • Concluding Remarks • Notes Chapter 6: Cost of Residential Subsidies • Cost Summary • State and Power-Sector Expenditures • BPL Tariff Eligibility • State-Level Cost Variations • Concluding Remarks • Notes Chapter 7: Toward Better Subsidy Performance • Good Practices in India • Meeting Medium-Term Policy Goals: Model Tariff Structures • Near-Term Policy Actions • Shortcomings of IBT Adjustments • Additional Considerations • Looking Ahead • Note Appendix A: Household Electricity Consumption • Appendix B: Subsidy Incidence and Cost • Appendix C: Average Cost of Electricity Supply and Average Effective Tariffs • Appendix D: Average Subsidies and Cross-Subsidies • Appendix E: Household Distribution, by Subsidy Status and Average Subsidy and Cross-Subsidy • Appendix F: Subsidy Incidence and Targeting • Appendix G: Gross and Net Fiscal Cost of Average Subsidy Boxes • Figures • Tables