Why one-size-fits-all power policy no longer works for India’s States

India’s power sector is often showcased as a national success story. Installed capacity has crossed the 500 GW mark, renewable energy is expanding at scale, and the transmission network has evolved into one of the world’s largest synchronised grids. These achievements are real and significant. Yet beneath this progress lies a persistent and often underplayed weakness: electricity distribution, which remains overwhelmingly a State-level responsibility.

Electricity is a Concurrent Subject under the Constitution. While the Centre frames policies, market rules, and national programmes, the actual delivery of electricity, ie, metering, billing, collection, and consumer service, is handled by state-owned distribution companies (DISCOMs).

This federal structure demands flexibility and differentiation. However, power sector reforms over the past decade have increasingly followed a uniform national template, implicitly assuming that all states face similar challenges. Evidence from the ground suggests the opposite.

Across states and Union Territories, Aggregate Technical and Commercial (AT&C) losses range from as low as 4-6 percent in the best-performing utilities to nearly 55-60 percent in structurally stressed ones, as per official performance reports. Such a wide dispersion reflects big differences in governance capacity, consumer mix, political economy, and financial discipline. Expecting the same reform instruments to deliver similar outcomes across this spectrum is unrealistic.

What is often missed in national debates is that more than 80 percent of total inefficiencies in India’s power value chain originate in distribution. Losses in generation and transmission are typically below 4 per cent. Distribution, not capacity addition or grid infrastructure is therefore the principal bottleneck. Yet policy attention continues to gravitate towards centrally driven capacity expansion, wholesale market reforms, and transmission investments, while the State-level delivery system receives fragmented and often compliance-oriented interventions.

The financial health of DISCOMs underscores this problem. Despite multiple reform and liquidity schemes over the years, cumulative losses and outstanding liabilities of state utilities have crossed INR 5 lakh crore.

Payment delays to generators and transmission utilities remain recurrent, disrupting cash flows across the sector. While all-India AT&C losses have declined modestly, from about 22 per cent in 2018-19 to roughly 16-17 per cent in recent years, these gains are concentrated in a handful of States like Gujrat, Maharashtra and southern states. In several others, like Jharkhand, J&K, North Eastern states losses remain stubbornly high, masked by national averages that hide structural divergence. Subsidy dependence adds another layer of complexity. In some states, subsidies constitute less than 10 per cent of the cost of supply, allowing utilities to operate with reasonable financial autonomy. In others, subsidies exceed 30-40 percent, and delays in subsidy reimbursements have become a chronic source of

liquidity stress. Uniform mandates on tariffs, renewable procurement, or market exposure place disproportionate pressure on such utilities, often resulting in box-ticking compliance rather than genuine reform.

This is where the one-size-fits-all approach begins to fail. Uniform national mandates-whether related to renewable purchase obligations, payment security mechanisms, or market-based procurement do not sufficiently account for State-level readiness. For weaker DISCOMs, these measures can intensify short-term stress without addressing foundational issues such as incomplete metering, power theft, or billing inefficiencies. For better-performing States, the same mandates can appear restrictive, limiting their ability to move faster towards advanced market mechanisms and consumer-centric innovations.

Uniformity, of course, has its place. Grid codes, system operation, inter-state transmission, power exchanges, and cross-border electricity trade must remain harmonised to ensure reliability and efficiency. But distribution is fundamentally local. It is shaped by state politics, administrative capacity, and consumer composition. Treating it as a uniform national problem has diluted accountability and weakened reform ownership at the State level.

What India needs now is a differentiated, federal approach to power sector reform. States should be encouraged to progress along tiered reform pathways, based on objective and transparent indicators such as AT&C losses, cost recovery, subsidy discipline, and metering coverage. High-performing States with near-universal metering and billing efficiencies above 95

per cent should be enabled to pilot time-of-day tariffs, retail competition, demand response, and the integration of large-scale energy storage.Transitional states should focus on steady loss reduction of 1.5-2 per cent annually, improved subsidy accounting, and calibrated exposure to power markets. Structurally stressed States, where metering coverage may still be below 80 per cent, must prioritise basic governance reforms before being pushed into complex market structures.

Institutions such as NITI Aayog are well placed to anchor this shift. A transparent, outcome-based State Power Sector Reform Index, combined with incentive-linked central support, can strengthen cooperative federalism while preserving national objectives. Linking central funds to measurable outcomes such as sustained loss reduction, timely subsidy payments, and payment discipline would reward genuine reform rather than procedural compliance.

As India accelerates its energy transition, the urgency of fixing distribution cannot be overstated. Solar-heavy systems, time-variable pricing, electric mobility, and storage integration all require financially stable and operationally capable DISCOMs. Without differentiated reforms, national ambitions will continue to be constrained by State-level weaknesses.

When AT&C losses vary by more than 50 percentage points and financial capacity differs so sharply, expecting a single policy template to deliver uniform outcomes is neither fair nor effective. India’s power sector diversity is not a problem to be eliminated; it is a reality to be managed intelligently. Uniform policies delivered scale in the past. The future, however, demands flexibility. Power sector reform must therefore evolve from uniform compliance to differentiated performance. Only then

can India build a reliable, financially sustainable, and consumer-centric electricity system that truly supports its long-term development ambitions.