India’s electricity reforms: We mustn’t let the latest effort fizzle out

This is an urgent goal, given new pressures on Indian industry to turn more competitive, be it trade headwinds or higher supply chain costs. Back home, to their detriment, businesses contend with cost and time burdens imposed by protracted statutory approvals and inefficient logistics.

In the global arena, on average, our electricity tariffs for industrial use are higher than in China, but lower than what factories in the US pay, and even lower if compared to Europe.

We have room to lower this and improve our competitive edge. Barring Gujarat, in industrialized states—like Tamil Nadu and Karnataka—industrial consumers of electricity subsidize household and farm consumers.

The draft Electricity Amendment Bill of 2025, among other measures, seeks to eliminate that cross-subsidy in five years. This alone, however, would be inadequate, since electricity is a concurrent subject in India’s Constitution and it is for states to implement this reform. Their reluctance to shake off populism, or at least pay for it, has been evident.

Most state electricity regulators are hardly independent and approve tariffs that are less than the cost of supply. As a result, at a national level, the dues owed to utilities, termed ‘regulatory assets,’ have ballooned over the years to a staggering ₹3 trillion, as estimated, while the pile-up of losses is more than twice this.

Even though the Centre’s tariff policy as early as 2006 sought to bring down the cross-subsidy to under 20% of the average supply cost by 2011, it is far from done. To loosen this regulatory capture, the amendments seek to hold individual regulators accountable. If they violate the norms, they are liable to be sacked. This, however, is a double-edged sword, since a change in a state’s government can result in a political witch-hunt against those who refuse to play ball on populist moves that the state budget does not need to fund.

So, unless adequate safeguards are built at the implementation level, what little is left of regulatory independence could be at threat. Hopefully, the amended law will cap regulatory interference, especially since it also seeks to upgrade the Centre’s interaction with states via an Electricity Council that engages with state power ministers to arrive at a consensus on reforms.

This platform could also help unlock an opportunity to improve the quality of consumer service, as proposed by the Centre. Thus far, distribution utilities have had a monopoly, since barriers to competition are high, with new players required to set up parallel wires to supply consumers with electricity.

The amendments aim to let new entrants access existing networks. Once the Bill is enacted, state administrations would be expected to invite rival players. The economic merits of this are clear: lower bills for the consumer, thanks to more efficient power procurement, and lower costs for the utility on the maintenance of supply infrastructure. The platform could push the political class to implement the plan and reduce space for political parties to mis-portray it as ‘privatization’ in their poll rhetoric.

Overall, the success of these measures, along with the Bill’s other proposals, would require the Centre to meaningfully engage and nudge states, while helping out with any financial support that the latter may need. This would speed up this vital sector’s path to commercial viability.