Nitish Kumar demands ‘One Nation, One Tariff’ to power Bihar. Can Modi 3.0 do it?

Power

With the National Democratic Alliance (NDA) set to form the new government in India on June 8, Bihar chief minister Nitish Kumar’s big demand of ‘One Nation One Tariff’ for the power sector may be in the focus.

Kumar raised the issue of expensive power in Bihar last year too, but following the change in power dynamics due to the coalition government that will be formed, he may put this high on the agenda.

But what is this demand and what will be the challenges? Moneycontrol explains.

What’s the chatter around One Nation, One Tariff?

In India, the power or electricity tariff differs across states. The power generation companies (gencos) sell electricity to state power distribution companies (discoms) at a rate approved by the state power regulator.

Kumar has been asking the central government to consider ‘One Nation, One Tariff’ or uniform tariff across the country, citing that the state has to buy expensive power from the central utilities and offer it to consumers at a lower rate, which burdens the state’s exchequer.

With the National Democratic Alliance (NDA) likely to form a coalition government, where Kumar’s support will be crucial, his old request may turn into a key demand. He has argued that the parity of power tariff across different states of India works in the favour of an inclusive growth of the country. The politician had also put forward the demand for special category status for Bihar citing the focus required for the development of backward states, which will make the state eligible for higher spending allocation by the Centre.

With Bihar headed for state elections in late 2025, Kumar may push his demand as providing electricity at subsidised rates can be a populist move.

Can the central government implement one power tariff for the country?

Simply put, no, at least not within the existing legal framework. Electricity is a concurrent subject according to the Constitution of India, which means that both central and state governments have jurisdiction. The central government cannot make tariffs uniform or even change them unilaterally. Significant amendments will have to be made to the Centre and state laws to take it forward.

To make any change, the central government will have to get every state to agree to this. Historically, achieving consensus across states, with each of them having different priorities and challenges, is a Herculean task.

If a uniform tariff will benefit Bihar, wouldn’t other states benefit too?

Each state has a different energy mix and consumption patterns, what may work in one state may not work in another. The cost of electricity generation and distribution varies across states as they differ in terms of resources available, power infrastructure and even efficiency.

States where the cost of power generation is low may resist this, as an average uniform tariff may translate into higher prices for their consumers.

Moreover, states provide different levels of subsidies to different consumer categories, which will make implementing a uniform tariff more complicated.

Can the government address different costs of production?

The cost of power production is a function of raw material procurement cost and is different in all states. Some states are dependent on renewable sources such as hydropower and, in turn, would have lower cost of production and lower tariffs. On the other hand, states dependent on imported coal and other fossil-based power have higher tariffs.

If end users were to pay a uniform price for electricity, some states which currently get expensive power would need to find ways to make up for the deficit resulting from the lower uniform price. This may burden the state exchequer more. State discoms have varying financial health and this could burden them more.

What has been the Indian government’s stance so far?

The central government considered ‘One Nation, One Tariff’ policy but kept the scope limited to the power sold on a merchant basis by gencos in the short-term market. To implement uniform prices across multiple power exchanges, the government approved market coupling in the electricity sector in June 2023, with the aim of keeping power tariffs affordable in the country.

Under market coupling, buy and sell bids from all power exchanges in the country will be aggregated and matched to discover a uniform market clearing price (MCP). The three power exchanges in India —Indian Energy Exchange (IEX), Power Exchange India Ltd (PXIL) and Hindustan Power Exchange Ltd (HPX)—currently have different MCPs.

But power exchanges account only for about 7 percent of India's total electricity generation, while close to 90 percent of power is contracted through long-term power purchase agreements. For the latter, the Centre cannot frame and execute policies on its own.