Power Sector of India - Target Defence Academy

Context

India’s power sector is grappling with both technical and administrative hurdles, as well as macroeconomic constraints that could shape the nation’s economic trajectory.

About the Power Sector of India

Installed Capacity and Energy Mix: As of mid-2025, India’s total installed power capacity has reached 476 GW, with non-fossil fuel sources contributing 49% of this mix. It includes: Thermal (Coal, Gas, Diesel): 240 GW;¬ 50.5 %. Solar: 110.9 GW; ~23.3%. Wind: 51.3GW; ~10.8%. Hydro: 46.9GW; ~9.8%. Nuclear: 8.8GW; ~1.8%

(i) Rise in Renewable Energy: Installed renewable capacity surged three times — from 76 GW to over 226 GW between 2014 and 2025.

(ii) Demand and Future Projection: India’s electricity demand is rising at an average of 8% every year, with the highest demand surging even faster.

Impacts on the Economy

(i) GDP Growth and Industrial Expansion: Reliable power supply is crucial for manufacturing, services, and emerging technologies like data centers, as well as EVs.

(ii) Employment and Investment: The sector supports millions of jobs across generation, transmission, distribution, as well as renewables.

(iii) Rural Development and Electrification: Electrification to every house has unearthed hidden demand in rural areas, ameliorating productivity, education, as well as healthcare results.

(iv) Energy Security and Trade: India exports $1.5 billion of electricity every year, with plans for undersea transmission links to the Middle East. Diversification into renewables increases energy independence and lowers import bills for coal and gas.

(v) Climate and Sustainability Goals: India’s goal of achieving five hundred GW of non-fossil fuel capacity by 2030 strengthens its commitment to lessen carbon intensity by forty-five percent. Shift towards clean energy lowers long-term environmental costs and ensures global climate finance opportunities.

Challenges in the Power Sector of India

(i) Electricity as a Hidden Tax on Manufacturing: Indian companies pay two times the efficient cost of power, making it a ‘hundred percent tax’ on production. 50% of this is due to distribution glitches, while the rest 50% is due to cross-subsidisation, where industries and commercial users subsidize households and agriculture.

(ii) Subsidies Shift from Agriculture to Households: Electricity subsidies consume an average of 1.25% GDP. Earlier, agriculture used to get the maximum benefits. But now households are also sharing the same share, and parity is approaching.

(iii) Global Stakes: China is becoming an ‘electro-state’, making its economy electrified with RE. All this is for making itself capable of dominating future industries like AI, EVs, as well as data centers. If India does not go in tandem with these developments, then it will be far behind in this race.

Other Challenges

(i) Distribution and Grid Challenges: Distribution Companies have incurred losses of more than ₹6.77 lakh crore by 2022–23.

(ii) High Aggregate Technical & Commercial Losses: National average AT&C losses are around twenty-five percent, in comparison to an average of 6.5% in developed countries. These losses are due to obsolete infrastructure, theft, and outdated metering.

(iii) Fuel Shortages and Supply Gaps: Coal still fulfills major energy demands, but domestic production mismatches with demand. As a result, underutilization of generation capacity and increased dependency on imports occur.

(iv) Tariff Distortions: Electricity tariffs are mostly politically influenced, with cross-subsidies putting more pressure on industrial users. Irregular tariff revisions and differential pricing structures stave off investment and efficiency.

Initiatives and Reforms

(i) Electricity Act, 2003: Introduced competition, open access, and consumer protection. Enabled license-free generation and distribution, power trading, and mandatory metering.

(ii) Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY): Main focus on rural electrification and feeder separation for agri and non-agri loads. Robust sub-transmission and distribution infrastructure in rural regions.

(iii) National Power Portal: Centralized data and analytics for generation, transmission, and consumption.

(iv) One Nation, One Grid: It ensured efficient power flow across regions. As a result, enhanced trust, efficiency, and market integration are there.

(v) Revamped Distribution Sector Scheme (RDSS): Aimed to upgrade discoms with smart meters, feeder automation, as well as loss reduction targets. Linked financial support to performance metrics.

Way Forward

(i) Breaking the Cycle of Inefficiency:

(a) Make the electricity tariffs as simple as they can be, based only on tech factors.

(b) Elimination of cross-subsidies, ensuring users pay only efficient costs.

(c) Targeted subsidies for genuinely poor households, so that benefits for the rich end.

(e) To increase the pressure of reforms, there is a need for orderly exits of discoms.

(d) There is a need to share the transition cost between the centre and the state governments. As it will finance the upcoming reforms.

Conclusion

The Power Sector of India distribution remains one of the last monopolistic bastions of the public sector. Telecommunications reform in the 1990s sparked the IT revolution; similar competitive reforms in electricity could unleash a new wave of productivity and growth.