New Delhi: Seeking to allay concerns over a potential hike in tariffs for farmers and impact on operations of state-run power distribution companies (discoms) due to the proposed Electricity (Amendment) Act, 2025, the power ministry on Thursday said the changes will only bring in “fair competition” and bring down the cost of power supply.
She said the new law would not infringe on states’ autonomy and would in fact preserve the federal balance.
In a bill to amend the 2003 Electricity Act, released earlier this month, the power ministry proposed a slew of reforms, including greater efforts for state electricity regulatory commissions to set their own rates, bypass state discoms and end cross-subsidies that have raised concerns about rising tariffs for farmers.
In the power sector, cross-subsidization is a mechanism where some consumers, typically industrial or commercial users, pay higher electricity rates to cover the cost of providing subsidized electricity to other groups of consumers, such as households and farmers.
The ministry released a list of frequently asked questions (FAQs) on Thursday, saying the measures will bring progressive reforms aimed at strengthening the electricity distribution sector through financial discipline, healthy competition and increased efficiency.
“Competition reduces the overall cost of electricity supply by improving efficiency and accountability in supply. Shared use of the network will eliminate duplication of distribution and substations,” the ministry said. “In the electricity monopoly model, technical and commercial losses are high and are often lumped together, masking inefficiencies and theft. When state governments provide subsidized electricity to segments such as farmers or domestic consumers, the subsidy burden includes not only the intended social support but also the costs of monopoly operations,” he added.
The reforms will reduce losses and reduce the effective subsidy burden on states without changing the subsidized tariffs that consumers pay, it said.
Reviving its plans to open up India’s power distribution sector, the ministry said in its bill that it is considering allowing multiple discoms to serve one area through the existing distribution infrastructure. This would allow private firms to enter electricity distribution, a domain dominated by state-owned companies. The law currently allows parallel licensees to supply electricity in the same supply area but with their own network, potentially leading to duplication of distribution networks. Currently, only one discom operates in specific regions.
On concerns of encroaching on states’ autonomy, the ministry noted that electricity is on the concurrent list, allowing both the Center and states to enact laws. The bill envisages implementing reforms through a consultative process between them, he added.
“The proposed Electricity Board will serve as an advisory body to build political consensus. At the same time, SERCs will continue to determine tariffs, issue licenses and regulate national activities. The bill thus preserves the federal balance, promotes cooperative governance and strengthens the framework for addressing the challenges of the energy sector,” the ministry added.
The bill mentioned the delay in the revision of rates by the discoms while also giving the regulator the power to revise the rates.
