India is preparing for the first major overhaul of the National Electricity Policy (NEP) in nearly two decades, with the Ministry of Power expected to seek Cabinet approval for the draft policy in August. If approved, the new policy will replace the existing 2005 framework and lay out a roadmap for expanding electricity access, strengthening grid infrastructure, promoting competition and supporting the country's clean energy transition.

The new policy comes at a time when the electricity consumption in India is set to increase substantially due to increased urbanisation and industrialisation, rising trend of electric vehicles and digitisation. This policy also falls under the objective of India to become a developed nation by 2047.

Among the major goals set out in the draft policy document is to ensure that electricity consumption per capita in India grows to about 2,000 kWh by 2030 and 4,000 kWh by 2047. As expected by the Indian government, the increase in electricity consumption would help in driving economic development and making electricity available to more people in the nation.

There are a number of policy reforms proposed in the draft to help make the power sector financially healthier and efficient. One such reform includes the linking of the electricity tariff with inflation such that the tariffs can be increased annually using an appropriate inflation index in case the state electricity regulatory commission fails to release new tariff orders.

In addition to this, the policy also emphasizes the recovery of fixed costs through demand charges while cutting cross subsidies between different consumer groups. The manufacturing industry and railway sector including metro railway systems were suggested to be exempted from the cross-subsidy charge to increase their competitiveness.

Another major focus of the draft policy is increasing competition in electricity distribution. It proposes allowing state regulators, in consultation with state governments, to exempt distribution licensees from the universal service obligation for consumers with a contracted load of 1 MW and above. The draft also supports the development of shared distribution infrastructure and the creation of Distribution System Operators (DSOs), enabling multiple electricity suppliers to operate over a common network.

These proposals are expected to improve consumer choice and operational efficiency. However, similar reforms have previously faced resistance from several state governments over concerns regarding parallel distribution licensing and its impact on existing state-owned distribution companies.

As renewable energy capacity continues to grow, the draft policy also places significant emphasis on grid modernisation and system reliability. It recommends improving coordination between power generation and transmission infrastructure by introducing risk-sharing and compensation mechanisms to address project commissioning delays. The policy further proposes unbundling state transmission utilities to strengthen grid planning and operational efficiency.

Under the new policy framework, it is acknowledged that the inclusion of more renewables in the country’s grid network will need substantial spending on the network itself, along with its flexibility and storage facilities. It would help in achieving the objective of India to increase its renewable energy capacity.

According to the policy, the energy sector in India would need investments of about ₹50 lakh crore by 2032 and almost ₹200 lakh crore by 2047. This would be achieved through investments in the generation, transmission, and distribution infrastructure. In order to meet the investments, the policy envisages creating special funds through organizations like the National Bank for Financing Infrastructure and Development (NaBFID) and NIIF.

The proposed National Electricity Policy 2026 takes into account the evolution of India’s electricity sector since the present policy was formulated in 2005. Over the last decades, India has made tremendous progress in the electricity sector in terms of electrification of all households and development of renewable energy resources to meet the target of net zero by 2070.

If approved, the policy is expected to provide the long-term framework for improving electricity access, modernising power infrastructure, supporting renewable energy integration and strengthening the resilience of India's power sector as electricity demand continues to grow.