Powering Progress: Resolving Electricity Challenges Faced by India’s Manufacturers

Abstract: A reliable and affordable electricity supply is crucial for achieving India’s manufacturing goals. However, manufacturers face interruptions in the power supply because state-owned distribution companies are financially distressed. Furthermore, political incentives have led state governments to charge manufacturers higher tariffs than farmers and households to subsidize the latter groups. High tariffs and unreliable electricity incentivize manufacturers to shift to alternative sources such as open access and captive generation. However, states have resisted this shift by imposing regulatory barriers and various charges to protect the revenues of the distribution companies. This paper examines the resulting challenges for manufacturers. It recommends removing cross-subsidies and transitioning to direct-benefit transfers, easing regulations on alternative power sources, and reorganizing the electricity sector to improve supply reliability and support industrial growth.

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