Power bills may rise after Centre proposes index-linked pricing

Governments and consumer groups, on the draft policy, within 30 days.

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Significantly, about 45% of India's power demand comes from the agriculture and residential categories.

(BLOOMBERG)

To be sure, electricity is a concurrent subject, with tariffs determined by SERCs, but irregular revisions have contributed to financial stress at distribution companies. According to data from the power ministry, 15.04% of electricity supply turned into losses—technically called aggregate technical and commercial (ATC) losses—in FY25.

Noting that recovery of cost of service is essential for sustainability of the sector, the draft policy said, “From FY 2026-27, state commissions must ensure that tariffs fully reflect costs without creating regulatory assets. Tariffs must be linked to a suitable index for automatic annual revision, which operates if no tariff order is passed by the state commission.”

A regulatory asset is created when the regulator accepts certain expenditures but does not factor them in while determining present tariff. These expenditures are to be adjusted in future tariff. The so-called regulatory assets now amount to around ₹3 trillion, additionally burdening the sector.

The cost-price math

Currently, average cost of electricity supply is around ₹6.82 per unit, per data from tariffs orders. Industrial customers pay around ₹10 per unit (national average tariff).

In comparison, on average, households (residential category) pay ₹6.47 per unit, commercial (₹10.49 per unit), and public services and electric vehicle charging (₹10.49 per unit). Tariffs, however, differ from state to state, discom to discom, and also range across varying slabs across states.

Further, the Indian industry pays significantly higher tariffs than its global peers, in effect cross-subsidising the agricultural and household consumers.