Power sector proposals brighten India’s energy outlook but lasting gains need a stronger jolt of reforms

Successive governments have tried to address this problem with repeated rounds of financial restructuring and bailouts, beginning with the one-time settlement of dues owed to Central-sector power generators in 2002.

A decade later, distribution companies (discoms) again amassed large payables and unserviceable debt, contributing to economy-wide concerns of a ‘triple balance sheet’ crisis, with debt contagion at risk of spreading to lenders, other financial institutions and power-generation firms.

To mitigate this, in 2015, the Ujwal Discom Assurance Yojana scheme was implemented, wherein states took over liabilities of about ₹2.3 trillion by issuing bonds to financial institutions.

The financial overhaul proved inadequate to stem the haemorrhage as distribution losses kept mounting. In 2021, the Revamped Distribution Sector Scheme addressed this issue by making central financial assistance contingent on achieving minimum operational improvements.

This outcome-focused approach has begun to show positive results. Average technical and commercial losses have declined from 22% in 2020-21 to around 16% 2023-24. Moreover, there are early signs of improved cashflows in 2024-25 due to more timely subsidy disbursals by state governments.

Sustaining this positive trend will, however, require deeper structural and governance reforms, including greater private participation in urban distribution.

The ministry of power’s draft Electricity (Amendment) Bill, 2025, seeks to enable this. It addresses several critical regulatory issues in electricity distribution and proposes other timely reform measures.

Key changes include suo motu tariff determination if regulated entities fail to file submissions on time, cost-reflective tariffs and the elimination of cross-subsidies for manufacturing enterprises, Indian Railways and metro railways within five years.

The bill also proposes Central powers to remove state regulators for wilful violations or gross negligence and faster time-bound adjudication.

While these steps are necessary and give statutory force to principles articulated in rulings of the Appellate Tribunal for Electricity as well as the Supreme Court, they stop short of addressing the core issue—the operational independence of state regulators.

Two decades of experience reveal significant challenges to their autonomy envisioned under the Electricity Act. These have manifested as long gaps in tariff orders, persistent shortfalls in cost-reflective tariffs and the accumulation of significant regulatory assets (money owed to discoms by the state but not paid) across states.

Achieving genuine independence for state electricity regulatory commissions will require a national consensus and is a worthy reform initiative to pursue.

One possible approach is to transition from state to regional regulators, with selection committees comprising representatives of concerned states and the Centre. Creating a dedicated all-India regulatory cadre would aid this effort with domain expertise. A consensus on such reforms is not easy to attain in a federal system, but the present political context—with greater alignment between most states and the Centre—makes this an opportune moment.

As for the proposed bill, a key amendment that could be improved upon concerns the permission granted to a distribution licensee to use another licensee’s network in an overlapping area of supply. The second licensee is exempt from universal service obligations to large consumers, subject to the state regulator’s approval and consultation with the state government.

No doubt, shared network access would lower entry barriers for new suppliers and let large consumers procure power competitively without cross-subsidy surcharges or the capital costs of parallel networks.

However, this looks more like a workaround than a clean and transparent structural separation of wires and supply businesses—the direction in which mature electricity markets have moved. It also risks suppliers cherry-picking large consumers without committing to genuine universal service.

We need a clear structural separation between the network and supply businesses with transparent tariffs for each, especially for an era of ‘green open access,’ where consumers procure renewables from resource-rich areas across the country but will also need to rely on the incumbent network for periods when it is not available. This will help businesses pursue their net-zero goals.

Looking ahead, grid modernization, digitalization and climate resilience will demand large investments in distribution—estimated at about $500 billion by 2050. Relying solely on public financing is neither feasible nor efficient. To realize India’s Viksit Bharat vision, we must prioritize regulatory independence, separate network access from supplies, enable transparent cost recovery and foster private investment, particularly in urban distribution.

Strengthening these foundations will enable the power sector to play the role it must in India’s economic emergence.

The author is partner, Deloitte India.