Is the electricity cross-subsidization policy in India caught between a rock and a hard place? An empirical investigation

Functioning of the Indian electricity sector is often found to be characterized by policy-level inconsistencies and meddled with political interference at all levels of governance. The objective of this study is to analyse the effect of reform-based policies and regulations and political environment on the cross-subsidization process in India. A panel data econometric technique is used as an empirical strategy to establish such a linkage, covering 18 Indian states over 10 years. Findings reveal that a favourable open access environment has become a game-changer for industrial and commercial consumers to migrate from the state grid to other sources -preferably to renewables -leading to greater renewable energy penetration. This has implications for cross-subsidies. In addition, it emerges from the analysis that it is crucial for distribution utilities and state regulatory commissions to be independent in their functioning. Greater reliance on the state exchequer by the distribution utilities could endanger their au-tonomy; whereas the lack of financial independence of SERCs could negatively impact their abilities to operate independently. Finally, it is found that the process of cross-subsidization is not always based on the hard logic of expanding welfare, rather it is motivated by the entrenched political goals and ambitions. This is in tune with findings from earlier studies.