OPINION | Electricity Amendment Bill 2025: A game changer for Indian manufacturing

The Electricity Amendment Bill 2025 marks a pivotal moment to finally break this cross-subsidy trap that has long stunted India’s industrial ambition.

Cross-subsidisation has long penalised India’s industrial sector, especially small and medium-sized manufacturing firms that lack the upfront capital, fuel supply security, and technical capacity to operate captive power plants.

Such firms are forced to buy power from state distribution companies (discoms), which inflate electricity prices for commercial and industrial users to subsidise household and agricultural consumers. This inflates their operating costs, making them price-uncompetitive in both domestic and export markets, as electricity is a major input for manufacturers.

The Electricity Amendment Bill 2025 aims to change this skewed reality of market distortion—by rationalising subsidies, promoting cost-reflective tariffs, and enabling direct procurement of power by industrial users. Thus, it seeks to dismantle longstanding barriers to India’s manufacturing competitiveness, making industrial power more affordable, reliable, and responsive to market demands.

The Cross-Subsidy Trap: A manufacturing tax in disguise

India's electricity pricing effectively functions as a hidden tax on manufacturing. The scale of this issue is evident internationally: while Vietnam prices industrial electricity about 10% below generation costs to attract investments, Indian companies face a 10-25% markup over actual supply costs.

This disparity causes a significant cost disadvantage for domestic manufacturers since electricity accounts for 10-15% of production costs in energy-intensive sectors, undermining India’s ambition to become a global manufacturing hub.

The Electricity Amendment Bill 2025 marks a pivotal moment to finally break this cross-subsidy trap that has long stunted India’s industrial ambition.

The Bill proposes phasing out cross-subsidies for manufacturing enterprises, railways, and metro systems within five years, and requires State Electricity Regulatory Commissions (SERCs) to set cost-reflective tariffs. Regulators can also revise rates suo motu to update tariffs from April 1 yearly—promoting greater predictability and fairness for industrial consumers. This represents a fundamental shift toward cost-reflective electricity pricing.

Moreover, by exempting new manufacturing units from cross-subsidy charges for five years, the reform bill provides immediate relief while establishing a transition pathway for existing industrial users.This will spur fresh investments in the country’s manufacturing sector and support the “Make in India” initiative.

Subsidise retail users through state budgets

For consumer categories needing subsidies, the amendment bill directs state governments to fund them through budgetary provisions rather than inflating tariffs for commercial and industrial consumers. This move will curb under-recoveries, make subsidies transparent, and make financial support explicit rather than hidden in electricity prices.

By enforcing cost-based tariffs and allowing regulators to revise them promptly, the bill aims to restore discom viability—whose accumulated losses exceed Rs 6.9 trillion as of mid-2025—and create conditions for better service standards, timely infrastructure upgrades, and more reliable power for Indian industries.

Enabling open access

Despite being legally mandated since 2003, open access in India’s electricity sector remains underutilised due to structural barriers making it uneconomic. The main hurdle is the cross-subsidy surcharge, which compensates discoms for losing high-paying industrial and commercial consumers who subsidise households and agricultural users.

Having long operated as monopolies, discoms resist open access fearing higher losses from the loss of these lucrative customers. Once cross-subsidy, wheeling, and transmission charges are added, open access often costs more than power purchased from discoms.

This problem is intensifying. BESCOM in Karnataka has sought approval to levy an additional Rs1.65 per unit surcharge, while Tamil Nadu is considering similar hikes—reflecting discoms’ revenue concerns. But that further undermines open access viability.

The Amendment Bill addresses these issues by standardising open access rules and curbing regulatory discretion that shields discom revenues.It allows large and new manufacturing consumers to buy power directly from generators, bypassing distribution monopolies.

This would let factories negotiate competitive prices, secure reliable supply contracts, and opt for green or captive sources. Exempting distribution licensees from the universal service obligation for consumers with loads above 1 MW pragmatically recognises the procurement flexibility large users deserve.

The Bill also mandates uninterrupted supply for manufacturing units, including a designated supplier of last resort if open access fails, guaranteeing continuity vital for sectors like electronics, pharmaceuticals, and heavy engineering.

Supply of power through shared networks

Currently, distribution licensees must maintain separate networks. That drives up costs and ends up imposing monopoly suppliers on consumers—resulting in poor service quality and higher prices. The Amendment Bill allows licensees to supply power through shared networks, reducing duplication and overheads. By optimising infrastructure use, this can reduce power costs, foster genuine competition, and expand consumer choice—ensuring genuine open access.

To conclude, the Electricity Amendment Bill 2025 is a landmark step toward unlocking India’s manufacturing potential by dismantling outdated cross-subsidy regimes, empowering consumers, and promoting efficient market competition.

Its success hinges on robust implementation and the political will to balance subsidy reforms with industrial growth imperatives. If effectively implemented this can transform India’s power sector into a catalyst for industrial competitiveness, economic growth, and global supply chain integration.

(Ritesh Kumar Singh is a business economist and CEO, Indonomics Consulting Private Limited. His X account @RiteshEconomist.)

Views are personal, and do not represent the stance of this publication.