Electricity Amendment Bill 2025: India's Third Generation Power Sector Reforms Explained

The Indian government has released the Draft Electricity (Amendment) Bill, 2025, proposing sweeping reforms aimed at transforming the country's power distribution sector. The legislation seeks to introduce competition in electricity distribution, eliminate cross-subsidies, and strengthen regulatory frameworks to improve efficiency and financial sustainability of India's electricity system.

Third Generation Power Sector Reform

According to a government official involved in drafting the Bill, this legislation could mark the beginning of third-generation reforms in India's power sector—following the 1990s unbundling initiatives and the landmark 2003 Electricity Act. The reforms aim to transform electricity from a public utility into a consumer-driven service, essential for achieving India's ambition of becoming a developed nation by 2047.

The Draft Electricity (Amendment) Bill, 2025 released in October is broader and more evolved than the previous 2022 version, incorporating lessons learned and feedback from states and stakeholders. The government had introduced a similar bill in August 2022, but it was referred to the Parliamentary Standing Committee on Energy and never passed.

Opening Power Distribution to Competition

The most significant proposed reform involves ending monopolies in electricity distribution. The Bill allows multiple distribution licensees (discoms) to operate in the same geographical area using shared infrastructure, creating a competitive retail electricity market.

Consumer Choice in Electricity Supply

Under this model, consumers will be able to choose their electricity supplier, similar to selecting a mobile network operator, based on service quality and pricing. This competition is designed to make distribution companies more efficient, as poor performers risk losing customers to better-performing competitors.

If implemented successfully, this represents a fundamental structural shift—transforming state-controlled discom monopolies into competitive service markets, a change that has been debated for years but never executed.

Addressing State Concerns

The move is likely to face opposition from several states concerned about reduced control over their power sectors. Since electricity falls under the Concurrent List of the Constitution, both the Central government and states can legislate on the subject.

However, the Union government has clarified that the reform will not eliminate state-owned distribution companies or enable cherry-picking by private entities. The Ministry of Power stated on October 30 that "government discoms will continue to operate alongside private licensees in a regulated, level-playing environment. Competition would reduce costs, improve efficiency and service quality."

Elimination of Cross-Subsidies

The Bill mandates the gradual elimination of cross-subsidies within five years, particularly for industrial consumers and transport sectors including railways and metro systems.

Current Cross-Subsidy System

Currently, industrial and commercial consumers pay higher electricity tariffs to subsidize residential users and farmers. This cross-subsidy system creates inefficiencies and impacts industrial competitiveness.

Proposed Direct Subsidy Mechanism

The Bill proposes that instead of charging industries elevated tariffs, state governments will provide direct subsidies to targeted consumer groups. This approach requires robust state fiscal capacity to fund subsidies transparently through budgetary allocations.

According to the Ministry of Power, "cross-subsidy elimination for manufacturing industries, railways, and metros will improve competitiveness and help in job creation. Hidden cross-subsidies will be replaced with transparent and budgeted subsidies, protecting vulnerable consumers like farmers and poor."

Empowering Regulators and Improving Accountability

The legislation introduces several measures to strengthen regulatory frameworks and reduce delays:

Time-Bound Tariff Revisions

State Electricity Regulatory Commissions (SERCs) will be bound by time limits to announce annual power tariff revisions. If utilities fail to file petitions on schedule, regulators can independently determine tariffs to prevent delays that have historically plagued the sector.

Expanded Appellate Tribunal

The Bill proposes expanding the Appellate Tribunal for Electricity (APTEL) membership from five to up to seven members to reduce case backlogs and accelerate dispute resolution.

Electricity Council Formation

A new high-level "Electricity Council" will be created, chaired by the Union Power Minister, to coordinate reforms and policy implementation between the Central government and state governments, ensuring better alignment and cooperation.

Recognition of Energy Storage Systems

In a significant development, the Bill formally recognizes energy storage systems as part of the electricity value chain for the first time. This recognition enables proper regulation, grid integration, and participation of battery storage and other energy storage technologies in India's power system.

With India's aggressive renewable energy expansion targets, energy storage systems are critical for managing intermittency from solar and wind power sources. The formal recognition provides a regulatory framework for developing this crucial infrastructure.

Promotion of Non-Fossil Energy and Market Mechanisms

The legislation includes progressive provisions to accelerate India's clean energy transition:

Non-Fossil Energy Mandates

State regulators will be required to mandate consumption from non-fossil sources, not just renewables. This broader categorization potentially includes nuclear energy and other low-carbon sources beyond traditional renewable energy.

Advanced Power Market Structures

The Bill directs regulators to promote sophisticated power market mechanisms including:

• Contracts for difference - Financial instruments that help manage price volatility
• Derivative products - Advanced financial tools for risk management
• Enhanced liquidity mechanisms - Improving price discovery and market efficiency

These market mechanisms align India's power sector with global best practices in electricity markets.

Protection for Subsidized Consumer Categories

Despite the elimination of cross-subsidies, the Bill explicitly protects subsidized tariffs for farmers and other eligible consumer categories. State governments may continue providing these subsidies under Section 65 of the Act, ensuring vulnerable populations are not adversely affected by reforms.

The Ministry of Power emphasized that "the Electricity (Amendment) Bill, 2025 lays the foundation for a future-ready power sector aligned with the vision of Viksit Bharat @ 2047. At the same time, it fully protects subsidised tariffs for farmers and other eligible consumers."

Addressing Discom Financial Stress

The proposed amendments attempt to address the persistent financial stress faced by power distribution companies, which have accumulated losses running into hundreds of thousands of crores over decades. Competition, transparent subsidies, and improved regulatory accountability are expected to improve discom financial health over time.

Legislative Process Ahead

Following the public consultation phase currently underway, the Bill will be submitted to the Union Cabinet for approval. Subsequently, it must be passed by both houses of the Indian Parliament—the Lok Sabha and Rajya Sabha.

Given that electricity is a Concurrent List subject, successful implementation will require cooperation and consensus-building with state governments, many of which may have reservations about certain provisions.

Alignment with Renewable Integration

The Bill's provisions align with changing realities in India's power sector, including:

• Renewable energy integration - Managing variable solar and wind generation
• Energy storage deployment - Supporting grid stability with battery systems
• Distributed generation - Accommodating rooftop solar and other decentralized sources
• Electric vehicle charging - Planning for growing electricity demand from transportation

Potential Impact on Different Stakeholders

For Consumers

Residential and agricultural consumers should continue receiving subsidized electricity through transparent government support. Industrial and commercial consumers may benefit from reduced cross-subsidy charges, improving competitiveness.

For Distribution Companies

Existing state-owned discoms will face competition but also have opportunities to improve efficiency and service quality. Private sector participation could bring innovation and investment to the distribution sector.

For State Governments

States will need to transition from hidden cross-subsidies to transparent budgetary allocations for power subsidies, requiring fiscal planning and political will.

For Industrial Sector

Manufacturing, railways, and metro systems stand to benefit significantly from elimination of cross-subsidies, potentially reducing operating costs and improving competitiveness.

Challenges in Implementation

Despite the ambitious vision, several implementation challenges exist:

• Political resistance from states reluctant to cede control over power distribution
• Fiscal capacity constraints in providing direct subsidies transparently
• Infrastructure sharing mechanisms for multiple distribution licensees
• Consumer awareness and ability to make informed supplier choices
• Regulatory capacity building to manage competitive distribution markets

Conclusion

The Electricity (Amendment) Bill, 2025 represents India's most ambitious attempt yet to reform its power sector comprehensively. By introducing competition in distribution, eliminating cross-subsidies, recognizing energy storage, and strengthening regulatory frameworks, the legislation aims to create a future-ready power sector aligned with India's development goals by 2047.

Success will depend on effective implementation, state government cooperation, and careful management of the transition to ensure vulnerable consumers remain protected while improving overall sector efficiency and sustainability. The coming months of public consultation and parliamentary debate will shape the final form of this potentially transformative legislation.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.

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Hindustan Unilever Receives Rs 1,986 Crore Income Tax Assessment Order for FY21

Hindustan Unilever Limited (HUL), India's leading FMCG company, disclosed on Friday, October 31, that it has received an income tax assessment order along with a demand notice of Rs 1,986.25 crore under Section 156 of the Income Tax Act. The communication, dated October 30, 2025, was issued by the Assistant Commissioner of Income Tax, Central Circle 5(2), Mumbai.

Details of the Assessment Order

The assessment order pertains to financial year 2020-21 (Assessment Year 2021-22) and involves several key areas of dispute between the tax authorities and the FMCG major:

Transfer Pricing Adjustments

A significant portion of the tax demand stems from transfer pricing adjustments. These adjustments include disallowance of payments made to related parties, a common area of scrutiny in multinational corporations. Transfer pricing regulations require companies to demonstrate that transactions with related entities are conducted at arm's length prices comparable to what would be charged in dealings with independent third parties.

Corporate Tax Depreciation Claims

The assessment order also challenges HUL's corporate tax depreciation claims. Depreciation claims allow companies to deduct the declining value of assets from taxable income, and disagreements over depreciation methods or rates can lead to substantial tax adjustments.

HUL's Response and Material Impact Assessment

Despite the substantial demand amount of nearly Rs 2,000 crore, HUL has clarified that the order is not expected to have any material impact on the company's financials, operations, or other activities. This assessment suggests that management believes it has strong grounds to contest the demand.

The company stated its intention to file the necessary appeal with the appellate authority within the permissible timeline. This is standard procedure when companies disagree with tax assessment orders, and given HUL's resources and legal expertise, a protracted appeals process is likely.

Stock Market Reaction

Shares of Hindustan Unilever Ltd ended trading on Friday at Rs 2,466.65, down by Rs 2.95, representing a modest decline of 0.12% on the BSE. The minimal market reaction suggests investors are taking HUL's assessment about limited material impact at face value, reflecting confidence in the company's ability to successfully contest the demand through appeals.

Recent Financial Performance - Q2 Results

The tax assessment news comes shortly after HUL announced its second quarter results, which showed mixed performance across various metrics:

Net Profit Beats Expectations

The company reported a net profit of Rs 2,694 crore for Q2, exceeding analyst expectations of Rs 2,480 crore. However, this performance was significantly aided by a one-time gain of Rs 273 crore resulting from the resolution of tax matters between UK and Indian authorities. There was no comparable one-time gain in the base quarter.

Revenue Growth Remains Subdued

Revenue for the quarter stood at Rs 15,585 crore on a standalone basis, slightly below analyst expectations of Rs 15,850 crore. On a year-on-year basis, the topline grew a modest 0.5%, reflecting the challenging demand environment in India's FMCG sector.

EBITDA Performance

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for the quarter declined 2.3% year-on-year to Rs 3,563 crore, exactly in line with analyst expectations of Rs 3,560 crore. The EBITDA margin stood at 22.9%, which is 60 basis points lower than the previous year but slightly better than analyst estimates of 22.5%.

Management Guidance and Outlook

Despite near-term challenges, HUL's management provided guidance on several fronts:

Margin Expectations

Management expects margins to remain in the range of 23% to 24%, suggesting confidence in maintaining profitability despite competitive pressures and input cost challenges.

Ice Cream Business Demerger Benefits

The company anticipates a margin benefit of 50 to 60 basis points following the demerger of its ice cream business. This strategic move is expected to allow HUL to focus on its core categories while unlocking value in the ice cream segment through a separate entity.

Transfer Pricing Disputes - Industry Context

Transfer pricing disputes are increasingly common for multinational corporations operating in India. Tax authorities have intensified scrutiny of cross-border transactions between related entities, particularly regarding:

• Royalty payments - For use of intellectual property, brands, and technology
• Management fees - Charges for centralized services provided by parent companies
• Pricing of goods and services - Ensuring transactions reflect market rates
• Cost allocation - Distribution of shared expenses across group entities

For HUL, which operates as part of the global Unilever group, transfer pricing arrangements with related entities overseas are subject to detailed examination by Indian tax authorities seeking to ensure appropriate tax revenue capture domestically.

Appeals Process and Timeline

HUL's decision to appeal the assessment order initiates what could be a multi-year legal process:

First Appellate Level

The company will first approach the Commissioner of Income Tax (Appeals), who reviews the assessment order and can uphold, modify, or overturn the demand. This process typically takes several months to over a year.

Higher Appellate Forums

If the outcome at the first appellate level is unsatisfactory, HUL can escalate to the Income Tax Appellate Tribunal (ITAT), and subsequently to High Courts and the Supreme Court if necessary. Large corporate tax disputes often take five to ten years for final resolution.

Financial Provisioning

During the appeals process, companies typically make appropriate provisions in their financial statements without necessarily paying the full demand upfront. HUL's statement that the order will not have material impact suggests adequate provisions may already exist or that management has high confidence in successful appeal outcomes.

Broader Implications for HUL

While HUL maintains the tax demand will not materially impact operations, several considerations merit attention:

Cash Flow Management

If ultimately required to pay some portion of the demand, HUL's strong cash generation capabilities should enable it to manage the payment without operational disruption. The company has historically maintained robust cash flows from its diversified FMCG portfolio.

Future Tax Planning

The assessment order may prompt HUL to review and potentially modify its transfer pricing policies and depreciation practices for subsequent years, even while appealing the current demand. Proactive adjustments can reduce future tax disputes.

Regulatory Relations

Successfully contesting the demand through appeals while maintaining constructive relationships with tax authorities represents an important balancing act for HUL's management and legal teams.

Investor Considerations

For investors evaluating HUL shares, the tax assessment order presents several considerations:

• Limited near-term impact - Management's assessment and minimal stock price reaction suggest contained immediate effects
• Long-term uncertainty - Appeals process may create contingent liability that takes years to resolve
• Core business strength - Tax dispute separate from underlying business performance and market position
• Management credibility - Track record of successfully managing regulatory and tax matters

Conclusion

The Rs 1,986 crore tax demand represents a significant regulatory development for Hindustan Unilever, though management's confidence about limited material impact and the market's muted reaction suggest this is viewed as a technical dispute likely to be substantially resolved through appeals.

HUL's strong financial position, experienced legal team, and history of managing complex regulatory matters position it well to contest the demand while maintaining operational focus on navigating the challenging FMCG market environment. Investors will want to monitor developments in the appeals process while focusing primarily on HUL's underlying business performance and strategic initiatives like the ice cream business demerger.

The coming quarters will reveal whether HUL can improve its modest revenue growth trajectory and maintain margins as guided by management, factors likely more consequential for shareholder value than the outcome of this historical tax assessment dispute.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.

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