The goals sound straightforward enough: fairer tariffs, cleaner energy, and enhanced financial transparency. But beneath the reformist rhetoric lies a deep current of political tension.

Electricity, after all, is as much about power, in the literal sense, as it is about politics.

At the core of India’s power woes lies distribution companies (better known as DISCOMs), most of which have been saddled with debt. By June 2025, their combined loss had reached beyond ₹6.9 trillion ($77.7 billion), despite previous bailout attempts such as UDAY in 2015 and the Revamped Distribution Sector Scheme (RDSS) in 2021.

The arithmetic is similarly abysmal: DISCOMs spend roughly ₹6.8 per unit to supply power, but recover only ₹5.2 per unit in revenue. That ₹1.6 gap translates into an annual loss of nearly ₹1.2 lakh crore. Subsidies and political freebies have kept the system on life support for years.

Tariffs, Subsidies, And A Cost Reality Check

The draft bill attempts to upend this equation. It proposes that tariffs finally reflect the true cost of supply — no more artificially cheap electricity. State regulators will be required to fix realistic rates, while subsidies for farmers and low-income households will be routed directly through direct benefit transfers (DBT).

Cross-subsidies, wherein industries pay inflated rates to offset cheaper power for others, are to be phased out within five years. At present, industrial consumers pay around ₹7.5 per unit — about 25 per cent above the cost of supply — while farmers in states such as Punjab and Telangana often consume electricity for free.

That imbalance is not just an accounting problem: it is an economic one. A 2024 RBI study found that industrial power tariffs in India are 10 to 15 per cent higher than in China and Vietnam, eroding competitiveness in key sectors such as steel and chemicals. The government hopes that cost-reflective pricing will attract investments under initiatives such as Make in India and the Green Hydrogen Mission.

Opening The Distribution Market

Another significant change is the push to open up the distribution market. The bill allows multiple licensees to share existing infrastructure — much like how telecom companies do. A new Electric Line Authority will fast-track transmission approvals, while a National Electricity Council will coordinate policy between the Centre and the States.

Private players such as Tata Power and Adani Electricity, who currently cater to less than 10 per cent of the distribution market, could expand rapidly, especially in urban and industrial regions.

But trade unions and state utilities fear selective “cherry-picking,” wherein private firms target profitable zones and leave rural areas — and their losses — to States-run DISCOMs.

Greening The Grid

The reform also takes a tougher stance on renewable energy compliance. States and utilities will face penalties for missing clean energy targets, while the Central Electricity Regulatory Commission (CERC) will manage a market-based compliance framework.

Although renewables now make up 32 per cent of installed capacity, their share in actual generation remains around 22 per cent. The goal is to push that to 50 per cent by 2030 — aligning with India’s Paris Agreement commitments.

Governance, too, is set for a reboot. Regulatory commissions will have stricter deadlines for issuing tariff orders, and the Appellate Tribunal for Electricity (APTEL) is being expanded to clear a backlog of over 600 cases. 

Political Pushback

Predictably, not every state is impressed. Kerala, Tamil Nadu, and Punjab have accused the Centre of trying to "centralise" control over what is constitutionally a shared subject under the Concurrent List. Kerala’s Electricity Minister called the draft a “roadmap to privatisation.”

Their financial worries aren’t unfounded. States collectively shoulder more than 85 per cent of India’s power subsidies — ₹1.6 lakh crore in FY2024–25. Many fear that DBT-based subsidies and the phasing out of cross-subsidies could strain state budgets, particularly in election years.

Consumer groups also warn of a “tariff shock.” Rural and low-income households, which currently pay barely 40 per cent of the actual cost of supply, could see bills spike sharply. Without a robust DBT system, the transition could hit 25 to 30 crore consumers in rural India. PRS Legislative Research estimates that even a ₹1 per unit increase would cost rural families ₹1,000 to ₹1,200 annually, while the total cost to set up infrastructure needed for DBT could cost around ₹25,000 crore.

The Fiscal Fault Line

The numbers paint a worrying picture. By mid-2025, delayed subsidy payments had piled up to ₹75,000 crore. State borrowings for power have jumped 35 per cent since 2020. In Punjab, power subsidies consume nearly 23 per cent of total revenue, pushing its fiscal deficit to four per cent of the GSDP. Andhra Pradesh and Tamil Nadu each spend close to ₹10,000 crore a year on free electricity for farmers.

Industry bodies such as CII and FICCI have welcomed the reforms, arguing that they could reduce industrial energy costs and draw in private investment of ₹2 to ₹3 lakh crore. Renewable energy developers, however, want clearer rules and fewer overlaps between Central and State regulators. Investors, too, remain cautious: the politics of federal control could easily derail what looks good on paper.

Reforms vs. Reality

India’s power sector has heard promises of reform before, too. The UDAY scheme was supposed to make DISCOMs profitable by 2019 — a deadline that was extended twice. Despite ₹4.5 lakh crore in central support since 2015, average aggregate technical and commercial (AT&C) losses still hover around 20 per cent.

In this sense, the draft amendment bill is another ambitious attempt to clean up a sector that has long defied repair. If executed well — with pilot projects, full metering, and political buy-in — it could save ₹30,000 to ₹40,000 crore a year in efficiency gains, cut industrial tariffs by up to 20 per cent, and accelerate the shift to renewables.

But timing matters. With ten States headed for polls and the Lok Sabha elections barely a year away, electricity remains one of India’s most politically charged issues. The real challenge is not just passing the bill — it is persuading States that fiscal prudence and political populism can coexist on the same grid.

(The writer is an economic analyst and journalist. Views are personal.)