The draft electricity amendment bill proposes cost-reflective tariffs and eliminates cross subsidies for select categories within five years Complete cross-subsidy removal may require key states raising domestic and agriculture tariffs alongside a material increase in state subsidy outgo Significant reduction in AT&C losses across most state discoms could support elimination of cross-subsidy across all consumer categories

• The draft Electricity (Amendment) Bill, 2025 proposes reforms for distribution companies aimed at restoring financial viability, enhancing competition, and supporting clean energy transition. Key measures include mandatory and timely cost reflective tariff determination, suo-motu tariff setting by regulators, and flexibility for states to provide advance subsidies to targeted consumer categories. The draft envisages complete elimination of cross subsidies for select consumer categories within five years, introduction of multiple distribution licensees operating in the same area through shared networks, rationalisation of universal service obligations for large consumers, uniform service quality benchmarks, strengthened regulatory accountability, and stricter compliance mechanisms to accelerate non fossil energy adoption.
• As per ICRA’s assessment for key states namely, Bihar, Himachal Pradesh, Jharkhand, Karnataka, Madhya Pradesh, Punjab, Rajasthan, Telangana, Uttar Pradesh, Andhra Pradesh and Tamil Nadu, a complete elimination of cross subsidy across four major consumer categories — domestic, agricultural, industrial, and commercial — could necessitate significant tariff change along with higher subsidy outgo. As per ICRA’s analysis, cross subsidy elimination can be met through a combination of tariff adjustments across various categories and increase in state subsidies.

Exhibit: Weighted average billing rate as a % of ACoS and category-wise cross-subsidy amount for FY2026

Source: ICRA Research, Tariff orders for respective distribution utilities; ACoS: Average cost of supply; Note: Cross-subsidy amount has been specified only for categories where the average tariff rate is less than ACoS; For above calculation, blended ACoS has been considered for respective state discoms