Crisis in India's Electricity Distribution Sector: Time to Reboot for a Viable Future

In many developing countries including India, energy pricing is a subject that involves political economy and engages the interests of different stakeholders. The governments in these countries often exert their discretions to regulate energy commodity prices and provide direct subsidies to realize certain social and economic objectives. This can bring distortion in the market and incur revenue losses without realizing much the desired outcome as can be seen in case of the power sector in India. Access to affordable electricity for all households in the country with per capita availability at over 1,000 units has been stated as one of the objectives of National Electricity Policy (the Ministry of Power, Government of India, 2005). However, the stated objectives are yet to be fully realized. The per capita electricity consumption in the country is reportedly about 883 kWh (Central Electricity Authority, 2013) in 2012, which is far below the world average consumption level (i.e., around 2,892 kWh/ capita)1 (Central Electricity Authority, 2013). Against this backdrop, in order to realize their social objectives, the governments at State level show keen interest in providing electricity for irrigation and domestic purposes at a considerably subsidized rate (electricity tariff-setting is a State subject in India). The power tariff is fixed lower than the cost of service for selected consumer categories such as agriculture and low-income domestic consumers.