Small industries struggle as power prices continue to climb across India

Despite lower fuel costs, electricity prices for small industries have surged across major Indian states, threatening their viability and hampering their capacity to generate employment

Electricity prices for industries have risen across every major state in India, rather than coming down. Since electricity is essential to practically all manufacturing processes, this rise represents a sustained additional cost for them.

Data from each state shows the same trend: industries are being overcharged, and what is worse, the benefits of lower fuel costs are not being passed on to them.

Whichever way one slices the data, the extent of overcharging stands out. In addition to the high costs of land and labour, industrial units grapple with consistently high and rising power costs in India. This trend is not limited to large industrial units; the damage is quite visible in the small-scale sector too.

For instance, in Haryana, a small-scale industrial unit pays Rs 7.15 per unit as of April 2024. The median electricity consumption for these units is 1,460 units per month. In terms of consumption, this is not far from what a domestic consumer pays, Rs 5.34 per unit, for consuming 500 units a month. The rates for small-scale industrial units were the same in April 2020 too.

While the rates have remained unchanged in Haryana, they have mostly risen since 2020 in other states. One of the highest is Bihar, where the rates for power supply to small-scale units have risen by 35.6 per cent in the four-year period since 2020. Other states are not far behind.

In Maharashtra, the rates at which these industrial units purchase electricity have risen to Rs 8.41 per unit, a 15 per cent rise over Rs 7.30 per unit in 2020. The story is similar for Punjab, with an over 6 per cent rise  in the same period. Small-scale units in West Bengal have seen a 22 per cent rise in their power tariffs. A rare state to have bucked the trend is Uttar Pradesh as the table shows. 

Small-scale units are among the largest employment generators in India. However, the rise in their costs bodes badly for their capacity to provide employment, as rising electricity costs eat into their viability. All data is sourced from the Key Regulatory Parameters of Power Utilities, the annual publication of power sector statistics issued by central power utility REC.

The rising costs are also surprising, as the benefits of lower solar power costs or the rising efficiency of the distribution system have not accrued to these user units.

Former power secretary Alok Kumar acknowledges the problem. "The benefits of lower costs due to the setting up of the national grid have not percolated to the industrial consumers of discoms."

The charges remain high because states continue with crippling fixed charges and electricity duties on even the small-scale units. Small-scale units are defined pan-India as those with 10-kilowatt connections. In Bihar, they have to pay a Rs 2.37 fixed charge per unit, along with an electricity tax of 4.5 per cent. The aggregate cost for them comes to Rs 10.62 per unit, the highest in the country.

The rise in the cost of purchasing electricity for small-scale industrial units is even more surprising, as data shows that in the same period, the average cost of supply for these discoms has not risen. In Bihar, these costs have even come down. This means the discoms are earning more from their business, but much of this revenue is siphoned off to provide free or partially free power supply to domestic and agricultural consumers at the prodding of state governments.

While Karnataka and Kerala have managed to bring down rates, Tamil Nadu has followed the northern Indian states. Power rates for small industries have risen in Tamil Nadu, leading to strong political demands for cheaper power supply in the state.

Along with the cost of unskilled labour, power remains one of the key reasons for the uncompetitiveness of Indian producers. In recent years, the central government has tried several measures to cut these costs, such as the installation of smart meters. As the data shows, the results for small units are not impressive.

As a result, discoms and state-level electricity regulatory commissions are not in a hurry to finalise tariff orders. Only 19 discoms—just about half of the total pan-India—have compiled the data for filing petitions for FY25, according to the timelines of relevant state electricity regulations.