India's Industrial Power Dilemma

In a recent Economic Survey, it was highlighted that the high markup on electricity supplied to industrial consumers is significantly reducing the global competitiveness of Indian industries. This issue brings tariff reforms back into the spotlight, as industrial users across states are paying a 10-25% markup over the cost of electricity supply.

Comparatively, other countries like Vietnam offer electricity at rates 10% lower than the cost of generation, making it a more attractive destination for manufacturing. This disparity in energy costs is discouraging growth and investment in Indian factories, posing a challenge to the government's vision of establishing India as a global manufacturing hub.

The Challenge of Rationalizing Industrial Tariffs

Rationalizing industrial tariffs is a complex issue, as distribution utilities (discoms) often subsidize household tariffs by charging industrial and commercial consumers more. This practice, while beneficial for domestic consumers, places a heavy burden on businesses and industries.

Given the poor fiscal health of discoms and the political risks associated with raising domestic tariffs, states may hesitate to implement necessary reforms. However, the Economic Survey also noted a positive trend in the increase of generation capacity, primarily through solar and wind energy, which has significantly reduced the demand-supply gap and improved the average power supply in urban areas.