INDIAN ECONOMIC REVIEW
The Indian economy continues to maintain its robust growth backed by momentum in private consumption, higher capital expenditure and a strong financial sector. As the worlds fastest-growing major economy, the countrys GDP grew 6.5% in FY25. Recently, the Indian economy surpassed the Japanese economy to become the worlds fourth largest economy in US dollar terms. In FY25, trade related global uncertainty remained heightened in the second half resulting in widespread volatility in international financial markets Going forward, global economic uncertainty is likely to remain elevated in the new financial year as well.
On the domestic front, the Indian Metrological Department (IMD) has forecasted an above normal monsoon at 106% of the long-term average for FY26, potentially helping the agricultural sector and in sustaining economic momentum. According to estimates of the World Bank and the International Monetary Fund (IMF), Indias GDP growth for FY26 is likely to be 6.3% and 6.2%, respectively. In comparison, the Reserve Bank of India estimates a higher growth trajectory of 6.5% for FY26.
Expected GDP Growth
Quarter & Financial Year 2026 |
Estimated Growth (%) |
Q1 | 6.5 |
Q2 | 6.7 |
Q3 | 6.6 |
Q4 | 6.3 |
FY26 | 6.5 |
Source: RBI
INDIAS POWER SECTOR
Electricity demand in FY25 was robust at 1,694 BUs, a 4.4% increase in consumption over the previous fiscal, driven by economic and industrial recovery. Indias increased power demand over the last few years has been propelled by several factors such as increasing income levels, swift urbanisation, and government initiatives that focus on improving rural addition, growth electrification in manufacturing and service sectors is set to further amplify the nations power needs. Rising temperatures and unpredictable weather patterns have also increased the need for cooling systems, particularly air conditioning, which has seen a strong increase in sales over the last few years. According to the IEA, consumption of air conditioners in the country is expected to grow 9X by 2050. The push for reduction in carbon emissions and subsequent promotion of electric vehicles (EVs) has also contributed to fueling power demand.
Thepowersectorhasalsobeenundergoingrapidtransformation with increasing capacity addition and policy reforms. With an installed generation capacity of 475 GW, the sector is transitioning towards sustainable energy sources, aided by ambitious government initiatives such as the National Solar Mission and the Green Hydrogen Policy. Renewable energy now contributes significantly to the countrys energy mix, with solar and wind power expanding swiftly alongside continued investment in grid modernisation and energy storage solutions. The governments push for power generation and distribution is expected to further enhance energy security, sustainability and efficiency.
In FY25, India had a renewable installed capacity of 220 GW (including Hydro), an increase of 25 GW over FY24. This impressive figure comprises and 48 GW from hydroelectric sources. India has voluntarily set an ambitious target of achieving 500 GW of non-fossil-based capacity by 2030. Also, it aims to have 50% of installed capacity from non-fossil-based sources by 2030.
However, the intermittent nature of renewable sources necessitates innovative solutions. Consequently, both the government and private sector are actively exploring diverse storage options, including pumped storage, battery technology and hydrogen. These advancements promise to enhance grid stability, optimise energy utilisation and propel India towards a greener future.
India has been taking steps to promote clean energy through the introduction of policies such as the National Solar Mission and the Green Energy Corridor Project. The nation has also committed to curtail emissions intensity of its GDP by 45% by the year 2030, relative to levels in 2005, in a bid to restrict global warming to 1.5 degrees Celsius. Initiatives such as the
PM Surya Ghar Yojana are also likely to play a significant in achieving this goal.
The countrys Long-Term Low Emissions Growth Strategy outlines low carbon transition routes across major economic sectors. Several comprehensive initiatives have been undertaken in areas such as renewable energy, e-mobility, ethanol blended fuels and green hydrogen as alternative energy sources. In line with the low carbon transition pathway, the National Green Hydrogen Mission holds critical importance, with its goal to make India energy independent by 2047. As part of this, by 2030, India aims to establish a Green Hydrogen production capacity of at least 5 million metric tonnes annually.
The government has made notable strides in improving electricity accessibility for all households, thanks to initiatives such as Saubhagya and associated schemes. To cater to the increasing power demand, Indias power sector needs to transform, taking into account the intricate aspects of the Energy Trilemma: Energy Security, Energy Sustainability and Energy Affordability.
ELECTRICITY VALUE CHAIN
Indias increasing electricity demand calls for continuous advancements across generation, transmission and distribution to ensure reliable supply. The electricity value chain starts with electricity generation, using sources such as fossil fuels, renewables or nuclear energy. The generated power is then transmitted via high-voltage networks over long distances to substations and distributed to homes, businesses and industries through low-voltage networks. These components work together to ensure reliable and efficient energy delivery.
Electricity consumption is a reflection of a nations development and economic growth. In India, rising power demand driven by population growth, evolving lifestyles and changing consumption patterns requires continuous investment in generation, transmission and distribution to ensure reliable and quality power supply.
To cater to this consumption growth, under its Power for All initiative, the Government of India aims to deliver reliable 24x7 electricity supply at competitive rates to all consumers.
GENERATION
India is now a countrywith significantpower demand that hit a peak power demand of 250 GW in FY25 vis-a-vis an installed capacity of 475 GW as on 31st March 2025. As part of the governments commitment to the Paris Climate Agreement, there are ambitious plans to enhance the share of green energy within the overall energy mix. As a result, the share of coal-based capacity is declining in the installed capacity mix and it now stands at 45% of total installed capacity.
According to the Central Electricity Authority (CEA) Indias total generation was 1,829 BUs in FY25, out of which 75% was generated from thermal, 8% from hydro, 14% from renewables and 3% from nuclear. The overall generation in the country increased by nearly 5.2% over the previous financial year with conventional power generation having increased 3% year on year and renewable power generation having increased 13% year over year.
TRANSMISSION
The nations regional grids are seamlessly interconnected, ensuring synchronised power flow under the One Nation One Grid One Frequency framework. This integrated system enables efficient electricity distribution across various regions, strengthening the reliability and resilience of the entire power network.
At the end of March 31, 2025, the interregional transmission capacity of the National Grid stands at more than 119 GW with 4,94,374 ckm of transmission lines and 13,37,513 MVA of transformation capacity. Furthermore, the stressed utilities.country has seen a 2014.significant
DISTRIBUTION
In FY23, the Ministry of Power introduced the Electricity (Late Payment Surcharge and Related Matters) Rules to bolster the financial viability of the power sector.
In FY24, these rules underwent amendments to address the issue of un-requisitioned surplus power power generated within the declared capacity but not re-quisitioned by distribution companies. To optimise power utilisation, generators are now required to offer this surplus power for sale in the market at a price below 120% of the energy charge plus applicable transmission cost. Failure to do so renders them ineligible to claim fixed charges corresponding to the surplus quantum. Additionally, provisions have been made to regulate power supply and address non-maintenance of Payment Security Mechanism (PSM) or continued default in outstanding payment.
In FY25 NLDC revised the procedure for implementation of LPSC Rules 2022 to include State-owned generating stations as well and as per a CEA Office Memorandum, the mock run for implementation of Section F of the LPSC Procedure (Penalties on generators) was to begin with effect from July 2025.
Over the past few years, the government has introduced key measures to strengthen power distribution:
Revamped Distribution Sector Scheme (RDSS): The implementation of RDSS has incentivised utilities to comply with improvement trajectories to avail grants under the INR 3 lakh crore scheme. The scheme aims to reduce pan-
India AT&C losses to 12-15% and the ACS-ARR gap to zero.
As per the 13th Annual Integrated Rating and Ranking Report, out of 63 power distribution utilities, AT&C Losses have reduced for 40 utilities in FY24, as compared to the previous financial year. Further, for FY24 AT&C Losses are lower than
15% for 32 power distribution utilities.
Additional Borrowing Scheme: State Governments can access additional borrowings amounting to 0.5% of GSDP, provided they undertake and sustain power sector reforms.
This encourages States to ensure financial viability of their
Discoms.
Prudential Lending Norms: Additional norms were introduced targeting financially failing to meet defined improvement trajectories are ineligible for borrowings from PFC and REC.
Automatic Fuel Cost Pass Through: Several States have adopted mechanisms since FY23 to automatically adjust variations in fuel and power purchase costs, ensuring financial sustainability of Discoms.
Late Payment Surcharge Rules: The Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (LPS
Rules 2022), were implemented along with amendments to promote financial discipline in the power
Integrated Discom Ratings: The 13th Annual Integrated Rating and Ranking Report for 63 Discoms was released, evaluating their financial health, performance excellence and responsiveness to external factors.
Rating/ Grade |
DISCOMS |
States |
A+ |
AEML, DGVCL, NPCL, MGVCL, UGVCL, UHBVNL, TPCODL,TPWODL, TPNODL, PGVCL, DHBVNL |
Maharashtra, Uttar Pradesh, Gujarat, Haryana, Odisha |
A |
PSPCL, IPCL, APDCL, MPPaKVVCL, CHESCOM |
Punjab, West Bengal, Assam, Madhya Pradesh, Karnataka |
B |
UPCL, APEPDCL, KSEBL, PVVNL, GESCOM, WBSEDCL, CSPDCL, NBPDCL |
Uttarakhand, Andhra Pradesh, Kerala, Uttar Pradesh, Karnataka, West Bengal, Chhatirsgarh, Bihar |
B- |
TPDDL, BRPL, BYPL, AVVNL, TPSODL, JVVNL, MSPDCL, JDVVNL, HPSEBL, BESCOM, SBPDCL, MPMKVVCL, KESCO |
Delhi, Rajasthan, Odisha, Manipur, Himachal Pradesh, Karnataka, Bihar, Madhya Pradesh, Uttar Pradesh |
C |
MPPoKVVCL, MESCOM, APCPDCL, TSECL, MePDCL, APSPDCL,HESCOM, |
Madhya Pradesh, Karnataka, Andhra Pradesh, Tripura, Meghalaya |
C- |
PuVVNL, TGNPDCL, MVVNL, TNPDCL, TGSPDCL, DVVNL, JBVNL, MSEDCL |
Uttar Pradesh, Telangana, Tamil Nadu, Jharkhand, Maharashtra |
Source: 13th Annual Integrated Rating and Ranking Report, PFC
These initiatives were collectively aimed to enhance the efficiency, financial health and operational effectiveness power distribution in India.
ECONOMIC EXPANSION AND POWER MARKETS
Industrial Growth and Urbanisation
Industrial growth and urbanisation are important elements in Indias economic development and ongoing power sector transformation. Indias economic development has consequently resulted in improved living standards for many of its citizens. Going forward, to sustain this strong economic expansion will require progressive rise in the contribution of the manufacturing sector. The governments thrust on Atmanirbhar Bharat and policy measures to position India as the cornerstone of the China Plus One strategy for global businesses is expected to augment exports and domestic productive capacities over the medium to long term. These policy measures in turn would drive increased demand for electricity.
India has achieved notable strides in urbanisation. It is projected that by 2030, over 40% of Indias population would be living in cities. Although these cities only occupy about 3% of the countrys total land area, they remarkably generate 60% of Indias GDP. Indias rapid urbanisation is projected to significantly increase its energy consumption by 2040.
According to the CEA, power consumption by 2042 is likely to touch 3,776 BU. As more people migrate to cities, the demand for residential and commercial energy especially electricity, is expected to surge.
Demand and Supply
According to the Central Electricity Authority (CEA), All India peak demand rose to 250 GW during FY25, marking a 4% year-on-year increase from 240 GW in FY24.
Furthermore, the total energy consumption across India reached 1,694 Billion Units (BU) in FY25, demonstrating a 4.4% year-on-year growth.
The growth in electricity demand was spearheaded by the Northern Region, which recorded a 9% year-on-year increase. This was followed by the Eastern Region, Western Region, Southern Region and North-Eastern Region which experienced growth rates of 4.8%, 4.3%, 2.1% and 1.1% respectively.
Key states such as Punjab (11.4%), Uttar Pradesh (11.1%), Haryana (10%), Jharkhand (9.1%) and Bihar (8.3%) exhibited significant growth in power demand in FY25.
Energy Met Comparison of Top 10 States
State |
FY 24 | FY 25 | % Change |
Maharashtra | 206.9 | 202.8 | -2.0% |
Uttar Pradesh | 148.3 | 164.7 | 11.1% |
Gujarat | 145.7 | 152.2 | 4.5% |
Tamil Nadu | 126.2 | 130.2 | 3.2% |
Rajasthan | 106.8 | 113.5 | 6.3% |
Madhya Pradesh | 99.2 | 104.3 | 5.2% |
Karnataka | 93.9 | 92.5 | -1.5% |
Telangana | 84.6 | 88.4 | 4.5% |
Andhra Pradesh | 80.2 | 79.0 | -1.4% |
Punjab | 69.5 | 77.5 | 11.4% |
West Bengal | 67.5 | 71.1 | 5.3% |
All India |
1622.0 | 1693.6 | 4.4% |
Source: CEA
Short-Term Electricity Market
According to the Central Electricity Regulatory Commission
(CERC), Indias short-term power market witnessed significant growth, expanding to 238 BU in FY25 from 218 BU in FY24. Short-term transactions accounted for 13% of the overall power generation of 1,829 BU.
Within the short-term market, power exchanges remained the dominant segment, facilitating 60% of short-term transactions, while bilateral transactions, including trades through energy traders and direct agreements between distribution companies contributed 26% to the market share. The Deviation Settlement Mechanism (DSM) accounted for 13%.
This steady expansion of the short-term electricity market underscores the growing reliance on dynamic and competitive electricity procurement methods to meet rising energy demands and enhance market efficiency.
OUTLOOK
Over the past two years, geopolitical tensions and extreme weather events have significantly disrupted global economies.
Despite these challenges, Indias ability to navigate global disruptions effectively while maintaining steady power sector growth is a testament to its resilience. Targeted policy interventions by the Government of India, particularly in boosting domestic fuel production and alleviating supply constraints have been instrumental in navigating short-term crisis. With strong macroeconomic fundamentals, the nations growth prospects remain robust, fueling healthy power demand. As India continues on its trajectory to be the worlds fastest-growing economy, the power market is poised to capitalise on this opportunity to meet an annual incremental demand of approximately 100 BUs, projected to persist until 2030.
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