The Green Energy-Groundwater Paradox: An Economic Evaluation Of PM-KUSUM (2019)

Policy Update
Rashi Kothari

Background

The Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan (PM-KUSUM) was launched by the Ministry of New and Renewable Energy (MNRE) in 2019 to solarize India’s agricultural sector, enhance energy security, and provide clean daytime power to farmers. Historically, the expansion of green energy in Indian agriculture was restricted by the heavy fiscal burden of power subsidies and a deep reliance on diesel-powered pumps.

The primary rationale behind introducing the scheme was to transition the agricultural sector away from fossil fuels while lowering the staggering power subsidy bill borne by state power distribution companies (DISCOMs). In the recent 2026 budget announcements, the fiscal allocation for solar pumping schemes saw an expanded push to ₹5,000 crore to address the execution delays in grid integration (PRS Legislative Research, 2026).

Traditionally, groundwater extraction has featured a natural economic brake. Pumping water required either expensive diesel or grid electricity. Even where grid power was heavily subsidized, it was rationed thus restricting farmers to a few unpredictable hours of electricity at night, which naturally limited extraction. By introducing standalone solar pumps under Component B of the scheme, PM-KUSUM removes both limitations. While this successfully drives clean energy adoption, it creates an unintended paradox: giving farmers reliable, day-time power with zero fuel costs removes the economic constraints on water extraction, accelerating the depletion of India’s already critically over-exploited aquifers.

Functioning

The institutional framework of PM-KUSUM relies on a coordinated financing structure involving the central government, state governments, DISCOMs, and beneficiary farmers. The scheme operates across three core components:

Component A: Setting up 10,000 MW of small, decentralized, grid-connected solar power plants on barren or agricultural lands.
Component B: Installing standalone, off-grid solar agricultural pumps.
Component C: Solarizing grid-connected agricultural pumps, allowing farmers to use solar energy for irrigation and sell surplus power back to the grid.

The funding structure for standalone pumps under Component B utilizes a tripartite subsidy arrangement for average states:

Total Project Cost = 30% (Central CFA) + 30% (State Subsidy) + 40% (Farmer Share / Credit)

On the ground, this arrangement completely alters pumping economics. The variable cost of pumping drops to zero, and the daily time constraint is entirely removed. Farmers gain access to continuous, cost-free daytime irrigation, turning sunlight directly into an unrestricted extraction tool.

Performance

Empirical indicators track a steady rise in solar pump deployment alongside an intensifying depletion of national groundwater reserves. According to the Lok Sabha Estimates Committee report, while capital deployment for decentralized solar plants faced bottlenecks—recording 641 MW of installed capacity against targets by late 2025 (Lok Sabha Estimates Committee, 2025)—the adoption of solar pumping systems has steadily advanced across key agricultural states. However, this rapid solarization directly correlates with heightened pressure on shared water tables.

Table 1: PM-KUSUM Rollout Metrics and Ambient Groundwater Variables (2025–2026)

Metric / Indicator	Baseline Status	Realized Impact (2025–2026)	Primary Structural Source
Annual Groundwater Extraction	239 Billion Cubic Meters (2022)	247 Billion Cubic Meters (2025)	Central Ground Water Board (CGWB)
Over-Exploited Aquifer Units	–	11% of total national assessment units	CGWB Dynamic Resources Report
Grid-Connected Solarization	Target: 1.5 Lakh Pumps	60,828 Pumps Sanctioned	Estimates Committee Report
Critical Water Table Status	–	3% of national units categorized as “Critical”	CGWB National Compilation

Source: Compiled by the author based on disclosures from the Central Ground Water Board (2025) and the Lok Sabha Estimates Committee Report (December 2025).

This solar-driven volume expansion has reshaped localized farming practices. Backed by free energy, the area under water-intensive crop cultivation—particularly rice and sugarcane—has grown significantly. This has created an acute structural imbalance: solar capacity additions are rising, but the extraction of groundwater continues to outpace its natural annual recharge, resulting in critical water table drawdowns across states like Rajasthan and other North-Western and Central India zones (Central Ground Water Board, 2025).

Impact & The Core Economic Paradox

The structural outcomes of PM-KUSUM present a direct manifestation of the Water-Energy-Food (WEF) Nexus, highlighting how an uncoordinated solution in one sector can trigger severe externalities in another. Specifically, highly subsidized clean energy (Energy) drives unrestricted groundwater pumping (Water), which temporarily inflates cash-crop yields like rice (Food), but ultimately threatens long-term food security as the underlying water table collapses. This behavioral shift represents a fundamental distortion of Garrett Hardin’s Tragedy of the Commons, where a shared resource is depleted because individual incentives override collective sustainability.

By removing the variable cost of energy, the economic model of pumping shifts down to a zero marginal cost constraint:

This individual optimization behavior completely ignores the social cost of resource depletion, pushing private extraction volumes far past the socially optimal equilibrium (Q_social). Under traditional grid-rationing or diesel pricing, marginal costs (MC>0) acted as a barrier against excessive pumping. Once a standalone solar pump is installed, the variable cost of extracting an additional unit of groundwater drops to zero. An individual farmer captures 100% of the marginal benefit of intensive irrigation, while the marginal cost, the long-term drop in the local water table, is a negative externality shared collectively by the entire village.

Component C of the scheme introduces a “prosumer” solution to address this by allowing farmers to sell surplus solar power back to the grid. Under this approach, the feed-in tariff (P_grid ) acts as a price signal that makes wasting a unit of energy equal to losing actual cash revenue. By treating solar energy as a potential cash crop, the framework attempts to restore an opportunity cost to pumping water, making every unit of power used to pump an unneeded volume of groundwater a unit of foregone income.

However, this price signal only works if the grid feed-in tariff (P_grid) is high enough to compete with crop earnings. If a farmer earns more cash per acre by using free solar power to irrigate water-intensive crops like sugarcane than by selling that electricity back to the DISCOM, irrigation remains the more profitable choice. When crop returns heavily outweigh solar tariffs, the opportunity cost mechanism fails to prevent groundwater depletion.

Emerging Structural Vulnerabilities

Zero-Cost Pumping and Open-Access Extraction: The elimination of fuel and electricity bills removes the financial check on water volume use, turning groundwater into an unmonitored open-access resource.
Geographical Mismatches in Subsidy Design: The Lok Sabha Estimates Committee (2025) notes that rigid pump capacity parameters fail in areas with falling water tables, forcing deep-aquifer states like Rajasthan to push for higher-horsepower pumps that worsen deep-tier water depletion.
Evacuation Bottlenecks and Net-Metering Delays: Delays in grid-infrastructure creation by local DISCOMs prevent the rollout of Component C, leaving farmers unable to feed power back and stranding them in a pure extraction loop.
Sub-station Distance Constraints and Evacuation Costs: The scheme does not provide institutional support for the high costs of long-distance grid connection lines when small-scale farmers are located far from the nearest electrical sub-station.

Way Forward

Executing a Phased Transition Toward Component C Governance: Regulators should orchestrate a disciplined, phased transition away from unmonitored off-grid configurations, prioritizing feeder-level grid integration to structurally bind energy generation to financial optimization incentives.
Mandating Smart Metering and Digital IoT Governance: State regulators should require the installation of Internet of Things (IoT) sensors and smart water meters on solar pumps to build real-time, transparent water-accounting frameworks.
Financing Dual-Use “Agrivoltaic” Solar Systems: As recommended by the Lok Sabha Estimates Committee, funding should expand toward agrivoltaic designs where elevated panels provides shade against extreme heat and creates a steady income stream, encouraging farmers to harvest solar energy from their fields instead of over-pumping deep aquifers.
Tying Pump Subsidies to Micro-Irrigation Mandates: Central and state agencies should make solar pump subsidies strictly contingent on using drip or sprinkler irrigation systems, ensuring that efficient energy generation is structurally bound to disciplined water consumption.

References

Central Ground Water Board (CGWB). (2025). National Compilation on Dynamic Ground Water Resources of India, 2025. Ministry of Jal Shakti, Department of Water Resources, River Development and Ganga Rejuvenation, Government of India.
https://cgwb.gov.in/cgwbpnm/publication-detail/1741

Central Ground Water Board (CGWB). (2025). Annual Ground Water Quality Report, 2025. Ministry of Jal Shakti, Department of Water Resources, River Development and Ganga Rejuvenation, Government of India.
https://cgwb.gov.in/cgwbpnm/publication-detail/1743

Hardin, G. (1968). The Tragedy of the Commons. Science, 162(3859), 1243-1248.
https://math.uchicago.edu/~shmuel/Modeling/Hardin,%20Tragedy%20of%20the%20Commons.pdf

Ministry of Finance. (2026). Economic survey 2025–26: Industrial performance and digital infrastructure. Government of India.
https://www.indiabudget.gov.in/economicsurvey/doc/Infographics%20English.pdf

Ministry of New and Renewable Energy (MNRE). (2026). Scheme-wise Cumulative Physical Progress & Annual Dashboard Reports. Government of India. https://mnre.gov.in/en/year-wise-achievement/

The Ministry of Power(2026) Annual Report 2025-26. Government of India.
https://www.powermin.gov.in/static/uploads/2026/05/df68bc7bf21a7e46d1b01529930c137d.pdf

Parliament of India, Lok Sabha Estimates Committee. (2025). Report on the implementation of Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PM-KUSUM) and PM Surya Ghar: Muft Bijli Yojana. PRS Legislative Research. https://prsindia.org/policy/report-summaries/implementation-of-pm-kusum-and-pm-surya-ghar

PRS Legislative Research. (2026). Demand for grants analysis: Ministry of new and renewable energy (Union Budget 2026-27).

World Resources Institute (WRI). (2024). Mapping the Impacts of Solar Water Pumps on Farmers’ Lives: Building a Results Framework for Components A and C of PM-KUSUM. WRI Working Papers. https://www.wri.org/research/mapping-impacts-solar-water-pumps-farmers-lives

About the Contributor

Rashi Kothari is a Research & Editorial Intern at IMPRI. She is currently pursuing an undergraduate degree in Economics at Delhi University. An aspiring policy researcher, she has a keen interest in advanced econometrics, public policy, and urban sustainability. With a long-term goal of contributing to national policy-making frameworks, she is focused on utilizing rigorous data analysis to address contemporary economic and structural challenges.Health Policy Governance

Acknowledgement

I would like to express my sincere gratitude to IMPRI for providing the opportunity to draft this policy update article and for offering a rigorous environment that connects research with policy practice. Special thanks go to the editorial board and coordinators for their insightful feedback and guidance in structuring this piece in the required format.

Reviewers: Rathin Pathak and Ameya Satam

Disclaimer: All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.