Solarisation as Fiscal Reform – Recasting India’s Power Subsidy Regime

Solarisation as Fiscal Reform Latest News

• India’s States collectively spend nearly ₹2.4 lakh crore annually on electricity subsidies, primarily for agriculture and domestic consumers. 
• The Union government is increasingly repositioning its flagship solar schemes not merely as clean energy initiatives, but as fiscal reform tools aimed at gradually eliminating this subsidy burden.
• With India’s installed power capacity reaching 535 GW (March 2026)—including about 150 GW solar and 54% from non-fossil sources—solarisation is emerging as a key instrument in both energy transition and public finance restructuring.

Reframing Solar Policy – From Climate to Fiscal Strategy

• Programmes like PM–KUSUM (for agriculture) and PM Surya Ghar (for households) are now being framed as mechanisms to –
  • Replace subsidised grid electricity with low-cost solar power
  • Reduce States’ recurring subsidy outgo
• Over time, solarisation could eliminate cross-subsidy burdens, especially those borne by industrial and commercial users.

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Key Schemes Driving the Transition

• PM-KUSUM (Agricultural solarisation):
  • Focus: Solarisation of agricultural feeders and installation of standalone solar pumps.
  • Impact: Reduces dependence on expensive grid power and diesel pumps. Enables decentralised solar generation near substations.
• Case study (Maharashtra model):
  • Mukhyamantri Saur Krishi Vahini Yojana (MSKVY): Launched in 2017 for installing decentralised solar plants of 2-10 MW capacity within a 5 km radius of agriculture-dominated substations.
  • Outcomes: Reduction in cross-subsidy charges, ability to lower tariffs for consumers, and replacement of diesel pumps with solar pumps.
  • MSKVY 2.0 target: 16 GW. Far exceeds Central Financial Assistance (CFA) under PM-KUSUM (~4.5 GW).
• PM Surya Ghar (Rooftop solar for households):
  • Conventional model: Demand-driven, with about 35 lakh households covered. However, poor households with free/subsidised electricity lack incentive to adopt solar.
  • Utility-Led Aggregation (ULA) model:
    • Utility installs rooftop solar: Either through own capital or RESCO (renewable energy service company) model.
    • Benefits: Zero upfront cost for consumers. States save on domestic subsidy expenditure.
    • Coverage: Approved in States like Assam, Odisha, Bihar, Chhattisgarh, Andhra Pradesh.
    • Target: 30 lakh installations through ULA and another 35 lakh through the normal mode, bringing the total to approximately 1 crore by March 2027 — the Surya Ghar scheme’s headline target.

Institutional and Policy Challenges

• Fragmented governance: The Union Ministry of New and Renewable Energy (MNRE) lacks administrative authority (Under the Electricity Act, 2003, and the Energy Conservation Act, 2001) over India’s renewable energy sector.
• Domestic manufacturing vs cost efficiency:
  • The ALMM (Approved List of Models and Manufacturers) mandates use of domestic solar equipment in government-backed projects to promote Atmanirbhar Bharat in solar manufacturing.
  • However, domestic equipment is costlier and in limited supply, and States may prefer cheaper imports (e.g., Chinese solar cells) potentially undermining domestic industry.
• Behavioural and structural constraints: Poor households lack economic incentive to shift to solar, vendors face supply constraints and cost pressures, and States vary in fiscal capacity and political willingness.

Way Forward

• Policy and institutional reforms:
  • The MNRE should be recognised as the “Central Government” in all matters pertaining to renewables under the Electricity Act, 2003.
  • Strengthen coordination between the MNRE, Ministry of Power, and the State DISCOMs.
• Scaling innovative models: Expand ULA for inclusive solar adoption. Replicate Maharashtra’s decentralised solar feeder model across States.
• Balancing domestic manufacturing and affordability: Rationalise ALMM norms to ensure availability and affordability of domestic equipment. Provide incentives for domestic manufacturing scale-up, and technology upgrades.
• Fiscal incentivisation for States: Link central assistance to reduction in subsidy burden, adoption of solarisation models.

Conclusion

• India’s solar push is undergoing a strategic shift—from a climate-centric narrative to a fiscal sustainability framework. 
• By leveraging schemes like PM-KUSUM and PM Surya Ghar, the Centre aims to transform recurring subsidy liabilities into capital investments in clean energy. 
• However, success hinges on resolving institutional fragmentation, manufacturing constraints, and behavioural barriers. 
• If effectively scaled, solarisation could become a cornerstone of both India’s energy transition and fiscal federalism reform.

Source: TH