Is it time for India’s ailing power distribution sector to celebrate? Earlier this month, the Union government released the proposed amendments it wishes to introduce to the Electricity Act, 2003. The official justification for the changes in the legislative framework for power distribution is that the sector has been suffering from huge losses, with regulatory delays weakening its financial viability and cross-subsidisation of tariffs, where higher tariffs on industry impact industrial competitiveness, constraining economic growth.
Hence, the Union power ministry on October 9 released the Draft Electricity (Amendment) Bill, 2025, to a wide range of stakeholders, seeking public comments and suggestions. The Draft has made several good suggestions to address the concerns afflicting the power distribution sector. No surprise that they have also been generally welcomed by many industry players, experts, and commentators. A closer look at the proposed changes, however, will reveal many aspects that the government must bear in mind if its stated goals for power distribution reforms are to be achieved.
Take the first proposal on tariff recovery for distribution companies. On paper, over 63 power distribution entities operating in 32 states and Union Territories show the average tariff collection efficiency at over 96-97 per cent. At the aggregate level, this may not look like a very alarming number for a sector that by March 2024 had accumulated a total debt of Rs 7.53 trillion and a loss of Rs 6.3 trillion. But the problem is that their receipt is much below what they should be collecting if the regulators had issued timely orders on tariff revisions. In the absence of such revisions, even a decent rate of bill collection hides a more serious financial challenge for most of the distribution agencies.
Why is there a huge gap between what they should ideally collect and the level of tariffs enforced by the regulators? Of the 32 states and Union Territories, only 13 have seen their electricity regulators issue timely tariff orders for 2024-25. In other words, more than half the states will be collecting tariffs based on what was decided a year or two earlier. How delayed are these tariff orders? Of the 63 distribution utilities, 57 had got their tariff orders for only up to 2022-23, with almost half of them being delayed, including those in Delhi.
The proposed amendments to the Electricity Act, 2003, have envisaged a bold remedial step in this area. In order to prevent delays in tariff revisions, the law will empower the state electricity regulatory commissions to determine tariffs suo motu, so that fresh tariffs are implemented from the start of a new financial year. Remember that the delayed tariff orders are not solely the result of regulators taking an inordinate amount of time to finalise their decisions. The delays take place also because distribution entities (many of which are administratively controlled by the state governments where they operate) do not submit their tariff petitions on time. For the states, a tariff revision is often a politically avoidable situation.
More reassuring is the proposed law that will make it mandatory for regulatory commissions to fix tariffs that reflect the actual costs of purchasing and supplying power to end-consumers. State governments will still be free to support specific consumer classes that may need concessional power by offering subsidies on their behalf. The objective is to put an end to the pernicious practice of cross-subsidies in tariffs, where industrial consumers incur a substantially higher cost for their power consumption to subsidise the consumers the state desires to support.
Yet another amendment proposed by the government is to facilitate competition within a state among power distributors and allow consumers to make a choice. This will essentially permit a new power distributor to enter an area and use the existing distribution network for a fee charged by its owner to offer electricity to consumers. This will also facilitate what is described in the power sector as open access. Apart from reducing costs and delays in creating dedicated distribution infrastructure for the last-mile supply of power, it would also improve competition and expand consumer choice.
There is no denying that all these changes are much needed in India’s power distribution sector. But will the Modi government be able to pull it off? Political resistance to these changes, particularly from states and thousands of workers in state-owned distribution companies, could be a major hurdle. Changes in land acquisition laws and farm-sector legislation had to be rolled back since there was political resistance to accepting them in many states. Even the new labour codes, which have been passed by Parliament, are yet to be notified because not all states have agreed to embrace those changes.
Why talk only about political problems in bringing about changes in land, labour or farm-sector laws? What happened just about three years ago should not be forgotten. Almost all the changes that the government is now proposing in the Electricity Act, 2003, had been proposed in August 2022. The Electricity Amendment Bill of 2022 was introduced in the Lok Sabha. The Modi government, then in its second term and enjoying a bigger majority than now in its third term, faced a major pushback from trade unions and power-sector workers. Immediately, the 2022 Bill was sent to the Standing Committee of Parliament for its examination. The country did not hear of that Bill again till at least the general elections of 2024. And since that Bill was introduced in the Lok Sabha, it was buried along with the dissolution of the House in 2024.
Is there any hope now that the Modi government will be able to overcome any political resistance to those proposals in the form of a new amendment Bill for the power distribution sector? Some recent developments may inspire hope. One, the buzz in New Delhi’s corridors of power is that the Union government, in the wake of uncertainties caused by United States President Donald Trump’s tariffs and visa policies, is now gearing up for a series of bold and reformist policy measures to sustain the country’s growth momentum. The reform of the goods and services tax (GST) rates, along with an improvement in its institutional structure for redressing appeals and the promise of ending the inverted duty structure, is one such example.
The second development offering hope for the proposed changes is a little-noticed provision in the draft amendment Bill. This is about the creation of an Electricity Council. The new body is expected to facilitate consensus-based reforms in the power sector. Remember that power is in the Concurrent List of the Indian Constitution, and hence the views of the states cannot be easily ignored. The Electricity Council is modelled on the GST Council. It is to be chaired by the Union minister for power, with state electricity ministers as members and the Union power secretary as member-convenor. The Electricity Council is expected to advise the Centre and the states on power policy matters, foster consensus on reforms, and coordinate their effective and efficient implementation. Hopefully, a body like the Electricity Council will encourage the states to be part of this process to bring about the much-needed changes in the power sector and halt the downhill journey of the power distribution companies.
AK Bhattacharya is the Editorial Director, Business Standard. He tweets @AshokAkaybee. Views are personal.
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