By Shivanand Pandit
On 23 September 2025, the Ministry of Power released the Draft Electricity (Second Amendment) Rules, 2025, aimed at overhauling the financial health of state-owned power distribution companies (discoms). This marks yet another attempt—one among many in the past three decades—to address their persistent fiscal distress. Cumulative losses of discoms have reached around ₹6.9 lakh crore, largely due to deep-rooted structural inefficiencies and political constraints.
The new draft follows a recent Supreme Court directive emphasizing that power tariffs must reflect the actual cost of supply. In this context, the Centre has proposed legislative reforms to “strengthen and modernize” the electricity sector, aligning it with the evolving needs of the industry. This reform push is particularly urgent as Indian businesses face increasing global competition, supply chain challenges, and mounting input costs. Domestically, industries also struggle with delays in statutory clearances and inefficient logistics that inflate both cost and time of operations.
Globally, India’s industrial electricity tariffs are, on average, higher than China’s, but lower than those in the United States and even more competitive when compared to Europe. This suggests there is still scope to reduce power costs and enhance India’s industrial competitiveness. However, except for Gujarat, most industrialized states—such as Tamil Nadu and Karnataka—continue to see industrial consumers cross-subsidizing household and agricultural users, a distortion that undermines efficiency and reform efforts.
Core elements of the Bill
The draft Bill, seeks to strengthen the financial health of discoms, which continue to suffer from structural inefficiencies and a persistent gap between consumer tariffs and the actual cost of electricity supply. Acknowledging the Supreme Court’s observations on this mismatch, the draft Bill empowers Regulatory Commissions to independently determine cost-reflective tariffs suo motu if discoms fail to file their petitions within prescribed timelines. It further mandates that such tariffs take effect from April 1 of each financial year to ensure timely cost recovery and financial discipline. Accordingly, amendments have been proposed to Sections 61(g), 64(1), and 66 of the Electricity Act.
To promote industrial competitiveness and reduce energy costs for enterprises—particularly for micro, small, and medium enterprises (MSMEs)—the draft Bill introduces reforms aimed at tariff rationalization and demand growth. It allows State Commissions, with the concurrence of State Governments, to exempt distribution licensees from the Universal Service Obligation (USO) for consumers eligible for open access (i.e. with demand above 1 MW). In such cases, a designated licensee would be responsible for maintaining supply at a premium rate if other arrangements fail. Furthermore, the Bill proposes to eliminate cross-subsidies for manufacturing enterprises, Railways, and Metro Railways within five years of the amendment’s commencement. It also empowers the Central and State Governments to frame rules for captive generation and introduces a new definition of “manufacturing enterprise” under Section 2(42a).
In support of India’s energy transition and renewable goals, the Bill empowers the Central Electricity Regulatory Commission (CERC) to develop innovative, market-based mechanisms and products. It also introduces binding non-fossil energy consumption obligations, mirroring the framework of the Energy Conservation Act, 2001. Complementary provisions include the addition of a definition for “Energy Storage System” under Section 2(26a), amendments to Section 86(1)(e) to encompass non-fossil energy obligations, and a new Section 142(2) prescribing penalties for failure to meet Renewable Purchase Obligations (RPOs). Together, these provisions aim to accelerate the shift toward cleaner, more sustainable sources of power.
To enhance ease of living and ease of doing business, the draft Bill proposes consumer-centric and efficiency-oriented measures. It authorizes the Central Government to prescribe nationwide minimum service benchmarks, ensuring that State regulations cannot fall below these standards. The Bill also limits the assessment period for unauthorized electricity use to one year prior to inspection, ensuring proportional enforcement. Further, it reduces the pre-deposit required for filing appeals from 50% to 33% and allows the appellate authority to waive or reduce this amount in cases of hardship. It also removes the requirement for a Central Government “no objection” certificate when granting licenses in areas that include defence establishments, thereby reducing bureaucratic delays.
To strengthen regulatory governance, the Bill enhances accountability within electricity regulatory bodies. It allows Central and State Governments to refer complaints against members of the CERC and SERCs for failure to discharge duties and expands the grounds for removal to include wilful violations or gross negligence. A new 120-day timeline is introduced for the disposal of adjudicatory matters by these commissions, promoting efficiency and transparency. Additionally, the Appellate Tribunal for Electricity (APTEL) will be expanded from three to seven members to increase adjudicatory capacity and expedite case resolution.
The draft Bill introduces several structural and institutional reforms. It defines “Electric Line Authority” and revises provisions related to land use and transmission infrastructure to ensure fair compensation and efficient implementation. The Central Electricity Authority (CEA) will be empowered to issue cybersecurity regulations for the power system, addressing modern risks. Distribution licensees may also be permitted to share network infrastructure under regulatory oversight. The Bill further broadens the Central Government’s rule-making powers to cover captive generation eligibility, transmission mechanisms, and standards for laying electric lines. Notably, it proposes the creation of an Electricity Council—a high-level forum comprising Union and State Power Ministers—to foster cooperative decision-making across India’s power sector.
Is the Bill pushing for privatisation?
The draft Bill under consideration represents a grave betrayal of India’s social contract. By attempting to redefine electricity—a basic human necessity—as a tradable commodity, the Bill threatens to deepen inequality, burden the poor, and devastate already strained state finances. Its push for “aggressive privatisation” reveals a clear intent to surrender public welfare to corporate profit. Allowing multiple private licensees to operate in the same area using the public-funded network will create a predatory system of “cherry-picking,” where private firms target lucrative industrial and commercial consumers, while domestic and rural households are abandoned to weakened state-run discoms. The planned dismantling of the cross-subsidy mechanism within five years will destroy the delicate balance that has kept electricity accessible to the poor and farmers.
Far from being a reform, this Bill is a blueprint for institutionalising inequality. The government’s push for smart metering, touted as a technological upgrade, is merely a tool to facilitate corporate billing efficiency and surveillance—benefiting businesses, not citizens. Lessons from Odisha and Delhi, where privatisation led to soaring tariffs, job losses, and declining service quality, are being willfully ignored. Instead of correcting these past failures, the proposed legislation aims to replicate them nationwide, turning electricity from a right into a privilege dictated by profit margins.
Equally alarming is the Bill’s assault on India’s federal fabric. It concentrates power in the hands of the Centre, undermining the constitutional authority of states over their own energy policies and regulatory commissions. This centralisation is particularly unjust at a time when states are already struggling with fiscal distress and inequitable GST distributions. The Centre of Indian Trade Unions has rightly declared that electricity must remain a social right, not a commodity. The government must withdraw this regressive Bill and commit to strengthening public utilities, investing in sustainable generation, and safeguarding every citizen’s right to affordable, reliable power—not every shareholder’s right to profit.
To sum up
The draft Bill represents a notable milestone in India’s efforts to reform and strengthen its power sector. Provisions aimed at modernizing the distribution segment—such as mandating cost-reflective tariffs, proposing exemptions from Universal Service Obligations (USOs) for commercial and industrial consumers, and permitting shared use of distribution infrastructure among licensees—are expected to alleviate the financial stress faced by distribution companies. Additionally, measures to enhance power market operations and streamline regulatory processes—including the creation of the Electric Line Authority, the imposition of timelines for proceedings before the Appropriate Commission, and the establishment of the Electricity Council—are likely to bolster investor confidence, reflecting the government’s proactive approach to transforming the electricity sector.
However, despite these progressive steps, states are likely to resist the directive to eliminate cross-subsidy charges, which are levied by state governments to bridge their funding gaps. While the Bill aims to enhance industrial competitiveness by setting a clear timeline for phasing out these charges, it may also strain the finances of discoms, as surcharges form a significant part of their aggregate revenue requirement (ARR). Since electricity falls under the concurrent list—shared between the Union and state governments—the bill’s effectiveness hinges on state-level acceptance. The 2022 version of the bill failed due to lack of consensus. However, the proposal to establish an electricity panel comprising Union and state ministers—similar to the GST Council—could help foster agreement. In Q2 FY26, power demand rebounded with a 3.4% year-on-year increase, following a 1.3% decline in Q1 FY26 caused by an early monsoon. This resurgence coincided with a 19% rise in renewable energy generation, which led to a 1.5% drop in thermal power demand. As a result, thermal-focused companies are expected to post only a modest 2% aggregate EBITDA growth in Q2. If the proposed bill is passed, it could further increase pressure on these firms.
In addition, the draft Bill raises serious concerns regarding public sector interests, workers’ rights, and national sovereignty. By paving the way for privatization, the Bill threatens employment security, equitable service delivery, and democratic accountability. Electricity, as a critical public utility, must remain under public ownership, management, and oversight. There should be no privatization, no corporatization, and no compromise on the principles of public service.
The real solution to the challenges facing India’s power sector lies not in transferring public assets to private entities for profit, but in democratizing and strengthening public ownership. The focus must be on ensuring that electricity serves the nation and its people, rather than private interests. Strengthening state-owned discoms should be the priority. This requires adequate funding to modernize infrastructure, reduce technical and commercial losses, and provide comprehensive training to staff rather than outsourcing work to contractors. True efficiency can be achieved by empowering employees to participate in decision-making, not by placing control in the hands of corporations driven by profit.
Protecting workers’ rights is essential. All employees should enjoy secure, permanent employment, with guaranteed pensions and benefits. The use of contract or outsourced labor should be phased out. Trade unions and collective bargaining must be legally protected to ensure fair treatment and provide workers with a meaningful voice in the sector.
Electricity must remain a public service that is affordable, reliable, and accessible to all segments of society. This includes guaranteeing supply to rural areas, farmers, and low-income consumers, while maintaining social equity through appropriate cross-subsidies. Decision-making in the sector should be participatory, involving both workers and consumers, with full transparency, public consultations, and state-level oversight. The central government should act in a supportive role, ensuring that electricity policy promotes regional development and public welfare rather than facilitating private profit. In essence, the draft Bill’s promise of modernization must not come at the cost of public ownership, workers’ welfare, or social equity. India’s power sector should remain a public good—managed democratically, strengthened institutionally, and dedicated to serving the people.
