POWER SECTOR IN INDIA
Economics
INTRODUCTION
Power is a core infrastructure sector that directly influences economic growth, industrial productivity, agricultural output and overall quality of life. Over the last two decades, India’s power generation capacity has expanded significantly, mainly due to the delicensing of power generation under the Electricity Act, 2003, which enabled large-scale private sector participation.
India is currently the third-largest producer and the second-largest consumer of electricity in the world. As of January 2022, India’s installed power generation capacity stands at about 395 GW.
SIGNIFICANCE OF POWER SECTOR IN INDIA
Role in national development
• Critical for achieving economic growth, welfare and industrial expansion
• Essential for meeting international climate commitments and clean energy targets
Indicator of development
• Electricity consumption is an important indicator of socio-economic development
• Improves quality of life through better health, education and connectivity
Rising demand
• Rapid urbanisation, industrialisation and digitalisation require massive capacity addition
• Demand expected to rise with growth of manufacturing and services
Backbone of industry and agriculture
• Reliable power is essential for industrial competitiveness and agricultural productivity
• Enables mechanisation, irrigation and food processing
Private sector participation
• Private utilities contribute nearly 46 percent of total power generation
• State utilities contribute around 30 percent and central utilities about 24 percent
Diverse energy mix
• India has one of the most diversified power generation portfolios globally
• Includes thermal, hydro, nuclear and renewable energy
Energy efficiency benefits
• Reduces greenhouse gas emissions
• Lowers import dependence
• Reduces cost burden on households and economy
Rural development
• Affordable and reliable electricity is essential for rural livelihoods
• Supports irrigation, MSMEs, storage and rural enterprises
CHALLENGES IN THE POWER SECTOR
Administrative challenges
• Policy paralysis in fuel cost pass-through mechanisms
• Competitive bidding guidelines not aligned with Electricity Act and National Electricity Policy
• Differential tariff structure leading to inadequate revenue recovery
Infrastructural challenges
• High transmission and distribution losses
• AT&C losses average around 32 percent compared to 6–11 percent in developed countries
• Declining Plant Load Factor of thermal plants
• Ageing and inefficient generation and transmission infrastructure
• Poor quality and limited hours of electricity supply in rural areas
Economic challenges
• High cost of finance and project cost overruns
• Weak financial health of state DISCOMs
• Accumulation of large outstanding debts due to populist tariffs and inefficiencies
Systemic challenges
• Coal supply constraints and fuel shortages
• Interstate river water disputes affecting hydro power
• Uneven renewable energy distribution across states
• Demand-supply mismatch despite overall surplus
• Low per capita electricity consumption
• Heavy dependence on fossil fuels, especially coal
GOVERNMENT INITIATIVES
Policy initiatives
General Network Access Regulations, 2022
• Non-discriminatory access to inter-state transmission system
• Supports “One Nation, One Grid” concept
• Reduces contractual complexities and encourages investment
Draft National Electricity Policy, 2021
• Universal household electricity access
• Focus on grid operation, power markets, energy efficiency and optimal generation mix
Government schemes
Ujwal DISCOM Assurance Yojana (UDAY)
• State governments take over majority of DISCOM debt
• Improve operational efficiency and financial discipline
Deendayal Upadhyaya Gram Jyoti Yojana
• Rural electrification and feeder separation
• Strengthening distribution infrastructure
Saubhagya Scheme
• Universal household electrification
• Infrastructure creation for last-mile connectivity
One Nation One Grid
• Integration of regional grids into a national grid
SAMADHAN Scheme
• Revival of stressed power projects
Ultra Mega Power Projects
• Large coal-based projects with 4000 MW capacity
UJALA Scheme
• Large-scale LED distribution to improve energy efficiency
24x7 Power for All
• Continuous power supply to households, industry and agriculture
Integrated Power Development Scheme
• Urban distribution strengthening and metering
National Smart Grid Mission
• Adoption of advanced automation, communication and IT systems
Green Energy Corridors
• Transmission infrastructure for renewable energy
City Gas Distribution Network
• Expansion of piped natural gas and CNG infrastructure
Funding mechanisms
Power System Development Fund
• Modernisation of transmission and distribution
Budgetary support
• Increased allocations for renewable and power sector
PLI Scheme for solar modules
• Boost domestic manufacturing of high-efficiency solar panels
Legislative measures
Electricity Act, 2003
• Open access and competition in power sector
Coal Mines (Special Provisions) Act, 2015
• Ensures fuel availability for power generation
Electricity (Rights of Consumers) Rules, 2020
• Minimum service standards and automatic compensation
Institutional framework
Power Grid Corporation of India
• Interstate transmission and grid operations
Energy Efficiency Services Limited
• Market transformation for energy-efficient technologies
Bureau of Energy Efficiency
• Promotion of energy efficiency through regulatory instruments
FUTURE PROSPECTS AND WAY FORWARD
Policy reforms
• Outcome-oriented investments
• Gradual elimination of cross-subsidies
• Promotion of renewable energy with grid parity
Administrative reforms
• Direct subsidy through DBT for agriculture
• Performance-based tariff structures
• Strengthening regulatory institutions
Technological reforms
• Smart meters and advanced metering infrastructure
• Demand-side management and storage solutions
• Development of domestic solar and battery manufacturing
Strategic measures
• Ensure 24x7 reliable power supply
• Improve quality of service by DISCOMs
• Promote cross-border electricity trade
CASE STUDY MODELS
United Kingdom
• Privatisation of distribution utilities improved efficiency
Odisha
• Rural distribution through franchisee model
Maharashtra
• Village-level coordinators for local issue resolution
CONCLUSION
The power sector remains central to India’s growth aspirations. Balancing rising demand with sustainability, improving DISCOM finances, enhancing efficiency and accelerating renewable energy adoption are essential for ensuring reliable, affordable and clean power for India’s future.
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Subject: Economics
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