For states that want to move farmers from erratic, subsidised grid power and diesel to cleaner solar irrigation, the hardest question is often not technical but financial: Who pays, when, and how do you keep the solution affordable without blowing a hole in the budget? Free or heavily subsidised electricity has become politically sticky; at the same time, distribution companies are under growing stress, and farmers still need reliable water. Any credible plan has to square these realities.
Maharashtra’s solar pump programme is one of the sharper attempts to do this through design rather than ad-hoc fixes. The state is working towards installing around 10.45 lakh off-grid solar pumps by 2026, including in drought-prone belts, and has treated the associated support not as a one-off handout but as a long-term investment in agriculture and renewable energy. That means accepting substantial upfront capital and subsidy commitments—on the order of ₹3,476– ₹4,980 crore a year—but doing so in a way that cuts recurring obligations over time and reduces dependence on fossil-fuel-linked irrigation.
The core idea is to redirect what would have been spent year after year on free or highly subsidised grid power into a capital asset that permanently reduces that demand. Instead of paying indefinitely for electricity that may or may not reach the field when needed, the state helps finance a solar pump once, then benefits from lower subsidy bills and a more resilient farm-power mix going forward. It is a shift from keeping the old system limping along to buying your way into a cleaner, more predictable one.
Under the hood, the model rests on two main financing pillars. The first is the Tax on Open Sale of Electricity (TOSE) fund—a dedicated account built from an extra levy on the power bills of businesses and factories. That money is ring-fenced for solar pumps; it cannot legally be diverted to other purposes, and is used to co-fund installations and repay loans. Because it grows with economic activity rather than depending on an annual budget vote, TOSE provides a reasonably stable revenue stream from non-farm consumers to support rural energy transition.
The second pillar is concessional lending from the Asian Infrastructure Investment Bank (AIIB). As a multilateral development bank, AIIB covers a significant share of project costs on terms softer than standard market borrowing. Crucially, its support is structured as results-based finance: funds are disbursed only once verifiable milestones—such as completed, working pump installations or specific grid upgrades—have been achieved. That approach tightens accountability and reduces the risk of money going out long before infrastructure appears on the ground.
By combining TOSE inflows with AIIB’s climate-aligned credit, Maharashtra has tried to keep subsidy outlays within manageable limits while drawing on international expertise in structuring such programmes. For farmers, the arrangement translates into zero monthly electricity bills for irrigation and a pump that does not depend on feeder schedules. For the state’s utilities, it offers a path to cut recurring subsidy requirements—estimated reductions of about ₹3,476 crore annually, rising towards ₹4,980 crore as the full 10.45 lakh pumps come online—and to redirect some of that fiscal space into grid modernisation, rural electrification and more competitively priced industrial power.
The broader effects go beyond balance sheets. Reliable solar irrigation can support crop diversification, more stable yields and a bit more room in household budgets, helping rural families absorb price shocks and increasingly volatile weather. At the same time, lower demand for subsidised grid power reduces losses for distribution companies, making it easier to maintain and upgrade networks that everyone—urban, rural, domestic and industrial users alike—depends on.
Because the mechanism blends a dedicated tax fund with multilateral credit, it has started to draw interest from other states. Uttar Pradesh and Gujarat, among others, are exploring TOSE-style levies and similar loan partnerships with AIIB or the World Bank as they design their own solar irrigation plans. International lenders, for their part, point to Maharashtra as a useful illustration of how fiscal innovation can unlock energy transitions in agriculture without destabilising state finances.
In that sense, the state’s solar pump financing is less a one-off success story and more a working example of how to align public money with ecological and social goals. By treating clean irrigation as infrastructure to invest in, rather than an expense to be minimised this year and worried about later, it offers a template for reconciling three competing demands at once: budget prudence, energy transition and farmer security.
This article is authored by Aruna Sharma, practitioner development economist and retd secretary, Government of India.
