India’s power sector is ready for its next big reform — from solving shortages to improving choice

For decades, India’s electricity story was defined by scarcity. Power cuts were routine, industries planned production around outages, and households learned to live with uncertainty. The central question facing policymakers was whether the country could generate enough electricity to support economic growth and meet the aspirations of a rapidly developing nation.

That question has largely been answered.

India today possesses one of the largest power systems in the world. Installed generation capacity has crossed 520 GW, while non fossil fuel sources account for more than half of that capacity. Peak power demand has reached record levels and, more importantly, has been met without major shortages. Massive investments in generation, transmission, and renewable energy have transformed a sector that was once considered a chronic bottleneck for growth.

Yet success has created a new challenge. The debate is no longer about producing electricity. It is about delivering it better. As India enters a new phase of economic development, the focus must shift from supply to service, from availability to quality, and from monopoly to consumer choice.

The missing piece in power sector reform

Over the past two decades, India has introduced significant reforms across multiple sectors. Telecommunications, aviation, financial services, and digital payments have all benefited from competition. Consumers have gained better services, more innovation, and greater value.

Electricity distribution remains one of the few major sectors where consumers continue to have little or no choice. In most parts of the country, a single distributor serves a particular area. Consumers cannot switch providers even if service quality is poor or if they seek more specialised solutions.The concept of parallel licensing seeks to change that.

The idea is not new. The Electricity Act already permits more than one distribution licensee to operate in the same area. However, this provision has rarely been utilised. For years, the focus remained on expanding access and strengthening infrastructure. Those priorities were necessary at the time. Today, however, the circumstances are different.

India now has a mature power system capable of supporting a more competitive distribution market. The question is no longer whether competition is possible. It is whether the country is ready to unlock its benefits.

A stronger distribution sector creates the right conditions

Critics often argue that distribution reforms should wait until utilities become financially stronger. Ironically, that moment may have already arrived.

The distribution segment has historically been viewed as the weakest link in the power value chain. High technical losses, poor billing efficiency, and financial stress affected the ability of utilities to invest and improve service. Over the past few years, however, important progress has been made.

Government initiatives such as smart metering, improved billing systems, and the Revamped Distribution Sector Scheme have produced measurable gains. Aggregate technical and commercial losses have fallen significantly compared with a decade ago. Financial performance has improved, and the gap between the cost of supplying power and the revenue collected has narrowed sharply.

These improvements matter because successful reforms are easier to implement from a position of strength than from a position of weakness. A healthier distribution sector is better equipped to manage competition, attract investment, and respond to changing consumer expectations.

Rather than viewing reform as a risk, policymakers can now see it as an opportunity to build on the progress already achieved.

Why reliable power has become an economic necessity

The timing of this debate is particularly important because India’s future growth will depend heavily on the quality of its electricity infrastructure.

The industries expected to drive the next wave of economic expansion have demanding energy requirements. Data centres, semiconductor manufacturing facilities, battery factories, green hydrogen projects, and advanced manufacturing parks require uninterrupted power around the clock. Even brief disruptions can result in significant financial losses.

Artificial intelligence is adding another layer of demand. The computing infrastructure needed to support AI applications consumes enormous amounts of electricity. A single large data centre can use as much power as an entire town. As digital services expand and electric mobility becomes mainstream, pressure on the distribution network will only increase.

Meeting these expectations will require more than adequate generation capacity. It will require distributors that are responsive, innovative, and focused on customer needs.

Competition has the potential to encourage precisely those behaviours. When consumers have options, service providers have stronger incentives to improve reliability, invest in technology, and offer better customer support.

The experience of other sectors demonstrates that competition often delivers benefits that extend far beyond lower prices. It can transform the culture of service itself.

Putting the consumer at the centre

Perhaps the strongest argument for parallel licensing is that it places the consumer at the heart of the electricity system.

For too long, consumers have had limited influence over the quality of service they receive. Complaints about outages, billing disputes, and delays often leave customers with few alternatives. Introducing competition changes that dynamic.

Mumbai provides an example of how multiple distributors can coexist within the same market. While the model is not perfect, it demonstrates that consumer choice in electricity distribution is both practical and manageable. Importantly, it shows that competition can operate alongside public sector participation and regulatory oversight.

Fears that parallel licensing would undermine subsidies or weaken public service obligations are largely misplaced. Governments would continue to determine subsidy policies. Rural electrification would remain a public priority. Regulatory authorities would continue to oversee network access and consumer protection.

The difference is that distributors would need to earn customers rather than simply inherit them.

India’s power sector has travelled a remarkable distance over the past two decades. The country has overcome shortages, expanded access, strengthened infrastructure, and built a foundation capable of supporting one of the world’s fastest growing economies.

The next chapter should focus on empowering consumers. Reliable electricity is no longer merely a public utility. It is a strategic asset that will influence India’s competitiveness in manufacturing, technology, and investment.

The challenge of the past was generating enough power. The challenge of the future is ensuring that power reaches consumers with the quality, reliability, and service standards that a modern economy demands.

India has mastered the art of producing electricity. It is now time to rethink how that electricity is delivered.

(The author is veteran investment strategist) 

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.