This is one of the most ambitious financial reform initiatives in the power sector in recent history; the annual debt repayment burden of these utilities is around ₹75,000 crore and rising.

While the offer is compelling, it is also daunting for state governments. A lighter book would make room for meaningful welfare and development work, efforts that can help win elections. Also, private-sector efficiency holds the promise of better quality and reliability of power supply at competitive rates.

However, before that can happen, we may need to overcome public perceptions of privatization being ‘anti-people.’

Such fears are not entirely unjustified. Consumer tariffs do not reflect the cost of supply, even adjusted for government subsidies, since the base data available on supply losses—both technical and commercial—is questionable. Losses are often masked as supplies to the unmetered farm sector, which lets utilities claim higher subsidies. The actual math would lead to a tariff bump-up for other sectors, unless further subsidies are doled out.

On the other hand, the benefits of privatization will flow only if there is proper regulatory oversight. Unlike other consumer-service sectors like telecom, where competition keeps prices in check, the power sector mostly has monopoly retailers.

The Centre plans to ease entry barriers by letting new players use the incumbent’s existing network. However, that alone will not help, since the record of regulation so far has been a let-down. A barometer of this is the staggering volume of regulatory assets and dues owed to utilities that have piled up, traceable to regulatory restraints on retail recovery that serve a populist agenda to keep consumer tariffs low.

No doubt, proposed legislative measures seek to curb that problem by making state regulators accountable for their actions, but how well it works depends on implementation. Regulators would need to judiciously balance costs and efficiency while approving individual tariffs or even setting a floor price where rivalry exists; this is crucial, since the proposed legislation may hasten the latter.

It is clear that regulatory capacity will have to step up, especially since the government plans to support its privatization package by offering long interest-free loans to states opting for it, which could help tackle taken-over debt and minimize any tariff shock. Fresh investments would be made too, auditing which will also be critical to keep tariffs moderate.

Finally, it is for state governments to decide whether to exit the distribution business or merely invite competition. Doing nothing won’t work, as the debt pile-up of utilities—the total runs into trillions of rupees—will make lenders scarce. Not just that, the average collection efficiency of electricity bills from consumers across India dipped in 2024-25.

At the end, curbing regulatory overreach is a matter of political will. The role of the Centre in developing a consensus across political parties to resist competitive populism could help the cause.

All taken into account, while privatized power supply across India holds considerable promise, reforms aimed at regulatory autonomy must take precedence over privatization. Else, this bold effort to brighten our prospects could come to naught.