Can Power Reforms Replicate the GST Playbook?

When India introduced the Goods and Services Tax in 2017, it was hailed as the biggest tax reform since Independence. It replaced a labyrinth of levies with a single, transparent system, boosting compliance, and improving the ease of doing business. 
 
Eight years on, the government hopes to pull off a similar feat in the power sector, which is straining under the weight of financial losses, high subsidies and creaking infrastructure. The proposed Electricity (Amendment) Bill, 2025 aims to correct the system’s long-standing distortions by enforcing fiscal discipline, rationalising subsidies, and strengthening the integration of renewable energy into the grid. 
 
That ambition may be harder to achieve than it sounds. Power is a politically charged subject, and states are already wary of ceding control over tariffs and distribution. Kerala’s Electricity Minister, K. Krishnankutty, has criticised the draft bill, warning that “the proposals are harmful to public sector companies and would also hike the power tariffs in the state.” 

Why Reform, Why Now 

India’s power sector is among the largest and most complex in the world. As of June 2025, the country’s total installed capacity had reached 476 gigawatts, a figure set to rise rapidly as demand keeps pace with economic growth. According to the International Energy Agency, India’s energy demand is projected to grow faster than that of any other major economy. 
 
Yet the sector remains riddled with inefficiencies. Most state distribution companies, or DISCOMs, continue to lose money year after year. By 2023–24, their cumulative losses were estimated at about ₹6.9 lakh crore, with total outstanding debt of around ₹6.8 trillion. Much of the problem stems from high Aggregate Technical and Commercial losses, a mix of power leakage, theft and poor billing recovery. 

“DISCOMs need sufficient fund to ensure smooth operations, make capital investments, and adopt advanced technologies. If they don’t have money, the systems reliability suffers,” said Karn Pallav, Head–Regulatory Affairs, BSES Rajdhani Power Limited. 

For decades, successive governments have tried to fix this dysfunction. Several national reform programmes have come and gone, and still the system lurches from one bailout to the next. “Over the last two decades, at least four major reform programmes have been launched to fix this — every few years, we see bailout schemes to rescue discoms from mounting losses due to inefficiency and mismanagement. If these entities collapse, power supply will be at risk,” said Charith Konda, Energy Specialist at IEEFA. 

One of the biggest distortions is the cross-subsidy regime. Agricultural and residential consumers enjoy cheap electricity, while industrial and commercial users pay inflated tariffs to make up the difference. The arrangement keeps politicians happy but undermines competitiveness by making power more expensive for industry. 

“Power is a concurrent subject, where both the Centre and states have jurisdiction. States wanted to retain control over distribution because it allows them to influence subsidies and tariffs, which often carry political significance,” said Charith. 

The GST Analogy 

The comparison with GST is tempting. The tax reform revolutionised how revenue flows between the Centre and the states: the Centre collects most of it and then devolves a share back to the states. In the case of electricity, the Centre is now pushing for a similar framework — a single national system that could dilute state control, especially in distribution. “The Centre is pushing for greater integration, a single national framework that could take away some control from states, especially in distribution,” said Karn. 
 
A decade earlier, India achieved physical integration by linking all regional grids into a single national network. The synchronised grid was completed in 2013, when the Solapur–Raichur line connected the southern and western regions, realising the vision of “One Nation, One Grid, One Frequency.” Yet policy, pricing and regulation remain largely under state jurisdiction. 
 
The new amendment seeks to change that. It proposes a system that allows the free flow of power across states, uniform market rules and greater consumer choice of supplier. Subsidies would be transparent and targeted, no longer buried inside distorted tariffs. 
 
But political realities will not yield easily. “Currently, tariff-setting is opaque — Electricity Regulatory Commissions often work under political pressure and avoid raising tariffs to reflect real costs. Subsidies, too, are delayed or underfunded. So, while the reform aims to make the system cleaner and more accountable, it also challenges entrenched political and fiscal practices,” said Charith. 

What the Draft Bill Proposes 

The Electricity (Amendment) Bill, 2025, released on October 9, lays out an ambitious plan to reshape the sector. It proposes cost-reflective tariffs, competition among multiple distributors within the same service area, and the gradual removal of cross-subsidies. States would still be free to offer direct financial support to targeted consumers. 
 
“If these amendments are implemented, we’ll likely see a massive increase in commercial and industrial consumers procuring electricity through open access,” said Karn. “Right now, this process often gets stuck because of the requirement to route approvals through distribution companies.” 
 
A particularly contentious clause allows the Centre to remove members of state electricity commissions for misconduct. “The Centre now wants the authority to hold such commissions accountable, especially when they resist implementing nationally agreed priorities,” Karn added. The provision has fuelled fears of central overreach, though supporters say it will improve regulatory accountability. 
 
The draft also proposes a State Electricity Council that includes the Union Power Minister and power ministers of all states. The body is meant to serve as a platform for consensus, allowing the Centre and the states to frame policies that are both coherent and cooperative. 
 
Compliance is another area of focus. Until now, the Centre has set Renewable Purchase Obligation targets that many states have failed to meet. The amendment seeks to close that gap by providing market access so that states with little renewable capacity can buy green energy from others with a surplus. 

Just as GST unified India’s fragmented tax landscape, the new bill aims to create a more transparent and competitive power sector. It promises to break monopolies, rationalise tariffs and impose fiscal discipline. The proposed National Electricity Council may help build consensus, but convincing the states will be the real challenge. 
 
The government’s dilemma is evident. With climate change and the energy transition rising up the national agenda, the existing division of powers has become an obstacle. “If we want an integrated national grid, all its nodes must operate in coordination. You can’t have one state with modern infrastructure and another with outdated, overburdened systems and still call it one unified grid,” says Karn. 
 
Resistance will not come only from politicians. Power-sector unions in many states have long opposed privatisation, seeing it as a threat to their jobs and influence. Even if the intent is sound, implementation will be slow and contested. 
 
For consumers, especially those in residential and agricultural categories, “there might be an initial increase in tariffs, because the idea is to make tariffs cost-reflective and reduce cross-subsidies,” says Charith. Industrial and commercial users, who have long paid inflated rates to subsidise others, may finally see their burden ease. 
 
That does not mean poor or vulnerable households will lose support. “The new system proposes that subsidies be given directly by the state government, outside the tariff, through Direct Benefit Transfers (DBTs) or similar mechanisms. So, if a political party wants to subsidise farmers or low-income households, they can still do so but it will be transparent, targeted, and fiscally accountable,” he said. 
 
For the Centre, reforming electricity will be a delicate balancing act between national integration and cooperative federalism. Whether this becomes India’s next GST moment or another stalled ambition will depend on its ability to build trust and consensus. The outcome will shape not just the financial health of DISCOMs but also the pace at which India powers its economic and green future.