Background and Rationale

Tamil Nadu’s agricultural sector faces a dual challenge: rising energy demand and growing subsidy burden from free electricity provided to farmers. In FY 2023–24 alone, agricultural electricity consumption reached 17,541 million units (MU), accounting for nearly one-fifth (19.52%) of total electricity sales in the state. This has pushed the state’s agricultural electricity subsidy burden up by 2.4 times, from ₹2,996 crore in FY 2014–15 to ₹7,287 crore in FY 2025–26

At the same time, marginal farmers dominate Tamil Nadu’s agricultural landscape, with 85% of holdings under one hectare and 74% of agricultural households classified as marginal. These households typically earn ₹10,600–10,700 per month and face high debt burdens, with over 60% indebted and average loans ranging from ₹39,000 to ₹71,000.

Despite this vulnerability, the benefits of free electricity are unevenly distributed, with larger farmers owning multiple or higher-capacity pumps consuming more power and capturing a disproportionate share of subsidies. This inequity calls for targeted welfare delivery, ensuring that scarce public resources directly benefit those most in need.

The Role of PM-KUSUM-C (IPS)

The Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyaan (PM-KUSUM) Component C – Individual Pump Solarisation (IPS), presents a strategic solution. By solarising existing grid-connected pumps, the scheme offers:

• Reliable daytime power for irrigation.
• Opportunities for additional income, as farmers can export surplus solar energy to the grid.
• Reduced fiscal pressure, as long-term subsidies for free power are replaced with a one-time capital investment.

Tamil Nadu currently has 2.34 million energised agricultural pumps. By prioritising marginal farmers , the state can maximise welfare impacts.

Key Challenges

Two critical gaps hinder participation by marginal farmers:

• High Upfront Costs: Under the 30:30:40 cost-sharing model, farmers must contribute 40% of the system cost. Even with institutional credit, this remains unaffordable for most marginal farmers.
• Lack of Targeted Beneficiary Selection: Current first-come, first-served enrolment favours better-off farmers.

Why Beneficiary Targeting is Important

Tamil Nadu’s free power policy has expanded irrigation access but created fiscal strain and inequitable benefit distribution. Larger farmers with multiple pumps consume more electricity and receive greater subsidies, while marginal farmers benefit less. By prioritising marginal farmers for PM-KUSUM-C (IPS) through targeted business  models, Tamil Nadu can:

• Enhance rural livelihoods by reducing dependency on debt and providing new income streams.
• Lower long-term subsidy burdens by shifting farmers to self-generation.
• Support equitable energy access, ensuring smaller farmers are not left behind in the energy transition.

Business Models for PM KUSUM-C (IPS)

Auroville Consulting evaluates business models to bridge the gaps for marginal farmers:

• Market-Driven: The current business-as-usual model with existing subsidy.
• Full Subsidy Model: Eliminates farmer contribution, with the state recovering costs through reduced future subsidies.
• Build–Operate–Transfer (BOT) Model: EPC firms install and operate systems for a time period, with no upfront cost to farmers later transferring the ownership to farmers.
• Peer-to-Government (P2G) Model: Farmers sell surplus power to government entities at a premium rate.
• Super RESCO Model: Third-party developers own and operate the systems while providing lease payments and solar incentives to farmers.
• Zero-Interest Finance: Similar to market driven model, but consumers get an interest free loan to finance rooftop solar (with MNRE subsidy), and the government pays the interest.

Conclusion

Tamil Nadu stands at a crossroads where agricultural energy policies can either deepen inequities or foster inclusive growth. By prioritising marginal farmers in PM-KUSUM-C (IPS) implementation, the state can establish a targeted welfare delivery model that addresses rising subsidy costs and strengthens rural livelihoods.