India’s government navigates complex reforms to ensure affordable electricity for consumers while strengthening utility finances and integrating renewable energy, signalling a major shift towards cost-reflective tariffs and grid resilience.
India is trying to walk a narrow line between keeping power bills affordable and making sure utilities remain financially sound enough to maintain and expand the grid. In a written reply to the Rajya Sabha, the Minister of State for Power, Shripad Naik, said the government has built a policy framework under the Electricity Act, 2003 that is designed to protect consumers while allowing distribution companies to recover costs and invest in infrastructure. The legal structure includes the National Electricity Policy, the Tariff Policy and regulations issued by central and state bodies, with state electricity regulators setting retail tariffs after considering procurement, transmission and supply costs.
The broader argument is that low tariffs alone cannot sustain the system. The Act requires tariffs to move gradually towards the cost of supply, and the Central Government has pushed several measures to keep prices in check, including competitive procurement, access to power exchanges and cheaper coal use for some plants. At the same time, the draft National Electricity Policy, 2026, proposes more frequent tariff revisions, automatic pass-through of fuel and power purchase costs and a gradual shift towards recovery of fixed costs through demand charges. The policy also suggests a stabilisation fund to soften sharp swings in power costs for consumers.
Consumer protection remains a central part of the framework. The Electricity (Rights of Consumers) Rules, 2020 set standards for new connections, billing, metering, service quality and grievance redressal, while the draft policy calls for 24×7 reliable supply and stronger online complaint systems. Reuters has previously reported that India’s power sector reforms are increasingly aimed at making tariffs more reflective of actual costs, a shift that analysts say is necessary if utilities are to avoid mounting losses and delayed payments.
The reply also underlined the scale of the build-out now under way. The government said India’s generation planning assumes installed capacity could reach 874 GW by 2031-32, with substantial additions in thermal, hydro, nuclear, renewable and storage capacity. The International Energy Agency has said India’s renewables challenge is no longer only about adding solar and wind, but about integrating them into the system through flexibility, storage and smarter grid operations. In that context, the government pointed to pumped storage, battery energy storage, transmission upgrades, market reforms and stronger forecasting as key tools for balancing intermittent renewable power with round-the-clock demand.
To improve utility finances, the Centre has also linked some state borrowing flexibility and lending norms to reforms in the power sector and has tightened rules on subsidy accounting and fuel-cost pass-through. The Revamped Distribution Sector Scheme, launched in July 2021, remains a major pillar of that effort, with an outlay of Rs. 3,03,758 crore and support for loss reduction and smart metering. Naik said the average hours of supply have risen sharply over the past decade, with rural supply increasing from 12.5 hours in FY14 to 22.6 hours in FY26 and urban supply edging up from 22.1 hours to 23.4 hours over the same period.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
