Draft Electricity (Amendment) Bill 2025

A Decisive But Uneven Reform: The Draft Electricity (Amendment) Bill, 2025

₹4,27,000 crore. That’s the combined debt burden of India’s discoms as of March 2025, according to Power Ministry data. The Draft Electricity (Amendment) Bill, 2025, released barely six months after this figure was made public, attempts to wrestle with this crushing financial reality. Central to the reform are three contentious proposals: cost-reflective tariffs, a phased elimination of cross-subsidies, and private sector entry into distribution. Each presents opportunities but also risks that merit close attention.

The Instruments of Reform

At its core, the Bill seeks to address the financial hemorrhaging of state-run discoms while pushing India toward a competitive, transparent power market. It proposes the following:

• Cost-reflective tariffs: State Electricity Regulatory Commissions (SERCs) would be mandated to publish tariff orders aligned with the National Tariff Policy before the financial year begins, sidestepping chronic delays. Industrial and commercial consumers are to bear actual electricity costs, while household and agricultural subsidies are funded by direct fiscal support.
• Phase-out of cross-subsidies: Industrial users currently overpay to subsidize cheaper electricity for households and farmers. A five-year plan aims to replace hidden subsidies with transparent Direct Benefit Transfers (DBT), improving fiscal discipline.
• Private sector participation: Monopoly control by state discoms—accounting for over 90% of the market—would be eroded by the entry of private players using shared distribution infrastructure. Large consumers would also be allowed to buy power directly from generators.
• Mandating renewable energy consumption: Penalties ranging ₹0.35–0.45/kWh would be levied for failing to meet renewable energy obligations, ensuring alignment with clean energy goals.

Perhaps the boldest structural intervention is the establishment of a National Electricity Council, chaired by the Union Power Minister. With state ministers as members, this body could theoretically resolve inter-state regulatory disputes. The reform also includes cybersecurity measures for the power grid and stricter accountability for members of the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions.

Steel-manning the Pros

The argument in favor of this Bill is nothing if not compelling. Take fiscal transparency, for example: the elimination of cross-subsidies promises to expose the true costs of power distribution. By shifting to DBT-supported subsidies, the government reduces leakages and improves the financial position of discoms, which lost over ₹70,000 crores in FY 2024 alone due to non-recovery of costs.

Equally important is industrial competitiveness. Under the current pricing system, electricity costs for industries are inflated by 20–50% to compensate for household subsidies. Cost-reflective tariffs would ease this burden, attracting investment and fostering efficiency. The exemption of cross-subsidy charges for new manufacturing units—a five-year incentive—is designed to bolster the Make in India initiative.

Private sector entry, meanwhile, introduces competition—a crucial ingredient for service improvements. Discom monopolies are infamous for inefficiency and patchy service quality, especially in urban areas. By shifting control, the Bill envisions smarter grids and better service delivery.

The Critics Speak

While the intent appears well-founded, the road to implementation is fraught with hazards. The most glaring risk is fiscal pressure. The transition to DBT-based subsidies will burden state governments already grappling with fiscal deficits exceeding 3% of GDP. According to CRISIL estimates, the annual direct subsidy outlay could exceed ₹1,20,000 crore when cross-subsidies are entirely phased out—funds that few states can spare.

Second, there is the issue of equity. Private players will naturally gravitate toward urban and profitable regions, leaving rural and low-income areas underserved. The exemption of discoms from universal service obligations for open access consumers above 1 MW—a move meant to attract industrial investment—risks deepening this rural-urban divide.

Even the governance structure raises questions. The National Electricity Council, while seemingly collaborative, risks centralizing power disproportionately at the Union level. This is a familiar pattern in Indian federalism, where state governments frequently find their regulatory autonomy undermined. Further, the penalties for members of CERC and SERCs for “gross negligence” are remarkably undefined, potentially creating avenues for political misuse.

Lessons from Germany's Energiewende

If comparisons are to be drawn, Germany’s Energiewende (energy transition) offers an instructive case. Much like the Indian draft Bill, Germany’s reforms prioritized renewable energy obligations and competitive tariffs. However, Germany approached subsidy elimination with a meticulous, long-term framework. The Renewable Energy Act balanced industrial competitiveness with equitable access by subsidizing rural grid modernizations. Despite initial fiscal challenges, Germany’s strategy ensured widespread buy-in from stakeholders—something the Indian Bill risks overlooking.

Where Things Stand

It is hard to deny that the Draft Electricity (Amendment) Bill, 2025 is ambitious. Transparency in subsidy delivery and competition in distribution have been long overdue reforms. Yet, the timeline for cross-subsidy elimination appears unrealistic, given state fiscal capacities. Moreover, rural electrification risks being deprioritized—a glaring equity failure in a largely rural country. The policy’s success will depend not on its drafting but on its execution: are states equipped to manage deficit shocks? Will private players truly deliver in underserved regions?

For now, it seems the Ministry of Power has chosen efficiency at the potential expense of equity—a decision that could become politically untenable unless carefully managed.

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