Day 2: Research Session – Energy

The purpose of this session was to present IGC-funded research on energy. It was chaired by Professor Michael Greenstone, Director of the Energy Policy Institute at the University of Chicago and the Research Director for the IGC’s Energy programme. Professor Greenstone highlighted the importance of energy in economic growth, saying that there is a strong correlation between the available of energy and living standards.

The first research presentation was by Professor Nicholas Ryan (Yale University). Titled “Lighting up Bihar”, it highlighted an incentive scheme for increasing electricity distribution revenue in the state of Bihar in India. The research project aims to increase revenue of the electricity utility by providing an incentive to electricity users at the level of the feeder area. These incentives include higher supply of electricity. They found that revenue from electricity consumers improved dramatically in only two months in the area where the incentive of higher electricity was provided. This pilot is now being expanded in Bihar.

Responding to this, Mr. Sanjay Kumar Singh, Secretary to the Chief Minister, Government of Bihar said that there was a clear commitment from the Chief Minister to improve electricity provision. This increased support for this scheme also provided a signal to electricity consumers that the Government is committed to providing more electricity if consumers pay for electricity in full.

The second presentation, by Prabhat Barnwal (Columbia University) was on the impact of a direct benefit transfer mechanism for cooking fuel subsidy in India. India’s cooking fuel subsidy is provided by reducing the price of a certain kind of LPG cylinders for domestic use. Due to this subsidy, a large black exists to sell the cheaper LPG cylinders to non-eligible users.

The Government decided to link the distribution of these subsidized LPG cylinders with biometric identification of eligible households, by linking each eligible LPG customer to his/her unique identification and linked bank account. Subsidies were transferred to the bank account of eligible households instead of reducing the price of the LPG cylinder.

Mr Barnwal tried to estimate how this policy reduced leakage of subsidy which is a perennial problem. When this policy was introduced, there was a drop in total LPG consumption for those households that were paid the subsidy using the biometric identification, compared to the comparison group. The price of LPG cylinders in the black market was also affected after this policy is implemented. Thus, biometric verification was effective in reducing leakage and the fiscal burden of the subsidy for the period under review. These results can be generalized and biometric verification of eligible households to link subsidy payments can be extended to all welfare and subsidy programs.

By Sohaib Athar, Country Economist, IGC Pakistan