India's Power Overhaul: Tariffs to Track Inflation

The power ministry is preparing to submit a revised National Electricity Policy to the cabinet for approval in August. This policy, the first since 2005, aims to substantially increase per capita electricity consumption, targeting 2,000 kWh by 2030 and over 4,000 kWh by 2047. A significant change involves linking electricity tariffs to an inflation index, ensuring automatic annual adjustments if regulators delay new orders. Fixed costs will be progressively recovered through demand charges, reducing cross-subsidies. The manufacturing sector, railways, and metro rail systems are proposed to be exempt from these surcharges to boost industrial competitiveness. To encourage broader competition, distribution licensees may be exempted from universal service obligations for consumers with contracted loads of 1 MW and above. The policy also backs the establishment of a distribution system operator to manage multiple distribution licensees. The Indian power sector anticipates a considerable financial requirement, estimated at ₹50 lakh crore by 2032 and ₹200 lakh crore by 2047 for generation, transmission, and distribution infrastructure.