Rewiring Reform: How India Can Fix the Weakest Link in Its Power Chain
Fixing the weakest link in India’s power chain will depend less on new wires and more on new rules – of transparency, performance, and trust
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Sufia: Department of Management Sciences, IIT Kanpur
Anoop Singh: Centre for Energy Regulation (CER), IIT Kanpur; Energy Analytics Lab (EAL), IIT Kanpur
Shambhavi Mishra: Department of Management Sciences, IIT Kanpur
SDG 7: Affordable and Clean Energy | SDG 9: Industry, Innovation and Infrastructure
Institutions: Ministry of Power | Ministry of New and Renewable Energy
Every few years, India tries to rescue its power distributors with new schemes, new funds and new hopes. Yet after decades of reform, the country’s electricity distribution system remains the weakest link in its power chain, but also its most promising frontier for change.
The wires that carry India’s growth ambitions are still tangled in subsidies, debts and delays. At stake is not just reliable electricity but the credibility of India’s power governance model. For all the talk of smart grids and renewable energy, the real test lies in whether distribution companies (DISCOMs) – the last-mile providers of electricity – can become efficient, consumer-centred and financially independent.
The Cost of Compromise
India’s power distributors are caught in a familiar cycle: cheap tariffs, rising debts, and delayed subsidies. Each bailout buys time, not transformation. Flagship programmes such as the Ujwal DISCOM Assurance Yojana and the Revamped Distribution Sector Scheme have injected billions into the sector, but the results remain modest. Much of a utility’s efficiency depends on cutting Aggregate Technical and Commercial (AT&C) losses – the difference between electricity purchased and the revenue actually collected. Those losses have fallen by barely 3 percentage points between 2017–18 and 2019–20, far short of what decades of reform were meant to achieve.
The weakness lies not in engineering but in the economics of decision-making. To keep electricity affordable, many state governments set tariffs well below the actual cost of supply – about ₹6 a unit on average, against recovery of barely ₹4 in some states. Subsidy payments meant to bridge this gap often arrive months late, leaving DISCOMs with unpaid bills, rising debt and little money to maintain the network or upgrade equipment.
Cheap electricity was meant to help the poor; instead, it has drained the system. The intent of inclusion remains valid; the financing of it does not. Transparent subsidies, timely reimbursements and clear disclosure of the cost of supply can stabilise finances and rebuild consumer trust – the real currency of reform.
Accountability, Not Ownership
Delhi’s experience shows what autonomy and enforcement can achieve. After privatisation, BSES Rajdhani and BSES Yamuna Power Limited maintained full efficiency scores and cut losses significantly. Gujarat’s four state-run utilities – Dakshin, Uttar, Paschim and Madhya Gujarat Vij Companies – performed nearly as well, sustaining efficiency levels above 95 percent and showing steady technological progress. Odisha’s four distributors – Central, Northern, Southern and Western Electricity Supply Companies – moved in the opposite direction, with efficiency slipping below 90 percent and productivity stagnating.
What Delhi achieved was consistency: timely tariff revisions by regulators, stable contracts, and clarity on rules and returns. Odisha faced the opposite: delayed tariff adjustments, shifting ownership, and exclusion from national debt relief – all of which stifled investment and progress. Gujarat offers a third lesson: publicly owned DISCOMs can also succeed when professional management and steady investment align.
The takeaway is clear: accountability, not ownership, drives performance. Whether public or private, governed well is what matters.
Putting Consumers at the Centre
Efficiency means little if consumers live with blackouts. When measures of reliability metrics – specifically, the System Average Interruption Frequency Index, which tracks how often outages occur, and the System Average Interruption Duration Index, which measures how long they last – were included in assessing DISCOM performance, average efficiency rose significantly. Reliable supply and sound operations reinforce each other.
Publishing such reliability data can make consumers allies in the reform process. As dashboards expand and grievance systems go digital, citizens can hold their power distributors to account in real time. In India’s energy transition, public participation could become as important as public investment.
Governance is the Real Infrastructure
India has invested in smart meters, automated billing and digital dashboards. But technology also reveals gaps for governance to close. Many DISCOMs now capture better operational data, yet losses remain high and maintenance remains reactive rather than planned. The constraint lies not in wires or software, but in the clarity and consistency of decision-making.
This is where regulatory autonomy matters. State Electricity Regulatory Commissions exist to keep political cycles from distorting tariff economics. When cost-reflective tariffs are delayed for electoral reasons, the gap turns into regulatory assets – paper promises of future recovery that strain today’s finances. A regulator equipped to enforce tariffs on time can prevent that cycle rather than merely record it.
India’s power law already supports this direction. The Electricity Act of 2003 opened space for consumer choice and mandated independent regulation. The challenge now is enforcement: regulators must be empowered to act on evidence, not discretion. When rules are predictable, investment follows, and ownership models matter far less than governance discipline.
Good regulation turns technology into capability. Governance that delivers accountability – not just infrastructure – is the reform lever India needs.
Pricing That Rewards Performance
Today’s cost-plus regime compensates utilities for inputs, not outcomes. A performance-based pricing approach would do the opposite – rewarding reliable supply, timely repairs and lower losses. One model, known as RPI-X (Retail Price Index minus Efficiency Factor), ties allowed revenue to inflation minus an efficiency factor, ensuring that gains from better performance are shared with consumers.
Performance must be measured where it is felt: by how often the power goes out, how long it takes to return, how accurate bills are, and how quickly complaints are resolved. Linking funding to these outcomes builds the right incentives into the system. In such a model, better performance, not louder demands, drives returns.
India’s power transition depends on whether the system equips DISCOMs to improve continuously. Pricing reform can make that evolution structural, rather than sporadic, and shift the sector from rescue to renewal.
A Legacy Ready for Renewal
Electricity reform mirrors India’s journey of state-building. From post-independence expansion of public ownership to today’s hybrid model, each phase has reflected evolving priorities: growth, inclusion and sustainability. Subsidies served welfare goals, while tariffs offered reassurance.
That legacy can now evolve into a new social contract – affordable power must be matched by accountability. People are willing to pay when supply is reliable and governance transparent. Reforming how citizens experience electricity could, in turn, strengthen how they experience the state itself.
India’s diversity – dense cities, remote villages, varied ownership structures – means reform will unfold differently across regions. But that diversity is also a strength: each DISCOM can become a laboratory for learning.
The next phase of reform must move from rescue to renewal. Regulators can act with greater autonomy, DISCOMs can be rewarded for transparency, and consumers can shape the grid through data and feedback. Technology can support the change – but governance must drive it.
If the past was about connecting households, the future must be about empowering them. India’s next surge of growth will be powered not just by new wires but by new ways of governing them.
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Authors:
The discussion in this article is based on the authors’ research published in the Utility Policy (Volume 96). Views are personal.