Delhi’s cheap electricity was never truly cheap. It was deferred. For years, power tariffs remained largely unchanged even as the real cost of generating, transmitting, and distributing electricity steadily increased. That gap didn’t disappear, it was pushed into the future. Now, with over Rs 38,000 crore in regulatory assets set to be recovered, that future has arrived.
What is being presented today as a tariff adjustment is, in reality, the cost of years of ineffective price management coming due, with interest. This is not a sudden shock. It is the result of a long-running policy choice: keeping prices artificially low while allowing underlying costs to build up in the background. Regulatory assets, in principle, are approved expenses meant to be recovered later through tariffs. In practice, they have become a way to defer difficult pricing decisions. The longer the delay, the larger the eventual correction. The current plan is to recover these dues through surcharges spread over several years, even as the government considers subsidies to buffer the immediate impact.
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On paper, this may appear balanced. In reality, it shifts costs rather than reduces them. Whether through higher tariffs, surcharges, or taxpayer-funded subsidies, consumers pay either way. This is the central problem with politically managed pricing. It prioritizes short-term affordability over long-term sustainability. Electricity was never truly cheap. The cost was simply deferred. The consequences of that approach are now visible. Because tariffs were not adjusted to reflect costs, regulatory assets grew steadily. Interest accumulated on delayed recovery, further inflating the burden. What could have been gradual and predictable adjustments has turned into a concentrated financial correction. Subsidies are often presented as a solution in such moments.
They do not eliminate costs; they redistribute them. When tariff hikes are held off, the burden shifts from electricity bills to taxpayers who ultimately pay the difference, often without the same level of transparency. What looks like relief in one place re-emerges as pressure elsewhere in the system. This pattern is not unique to electricity. Similar dynamics have played out across sectors where prices are held below cost for extended periods. In fuel pricing, delayed adjustments have historically led to abrupt changes later. In
public transport, lower fares often result in poor service quality and mounting fiscal pressure. The lesson is clear: when prices do not reflect costs, distortions accumulate. The trend is not unique to India either. Argentina illustrates how low tariffs for prolonged periods, along with heavy subsidies, can strain public finances and discourage investment in the power sector. When adjustments finally came, they were abrupt and economically disruptive. Similarly, in the United Kingdom, price caps delayed the impact of rising wholesale costs, but once those caps proved unsustainable, consumers paid the price. Electricity is very prone to this, given its central role in both daily consumption and economic activity.
Keeping tariffs below cost can delay infrastructure investment, weaken efficiency incentives, and strain distribution companies’ finances. When cost recovery is consistently deferred, the system moves away from performance and becomes increasingly dependent on financial support. There is also a question of transparency. Consumers are more likely to accept a price rise when they are predictable, phased in, and clearly reflects actual costs rather than abrupt adjustments. Deferring price changes does the opposite. It hides the real cost of consumption, creates a false sense of affordability, and allows liabilities to build until they must be recovered all at once.
Electricity is essential, and affordability matters. But keeping prices artificially low for everyone is a blunt and often counterproductive approach. A more sustainable model is to keep tariffs closely linked to real costs through periodic revisions, while supporting vulnerable households. This keeps the system stable and prevents costs from accumulating into more drastic amendments later. Systems that combine cost reflective pricing with targeted assistance to manage transitions smoothly. In Germany, electricity prices broadly reflect market conditions, while assistance is focused on vulnerable consumers rather than applied universally.
Delhi’s situation offers a clear lesson for energy policy. As these deferred costs come due, the focus should be on breaking the cycle rather than simply managing the immediate impact. Energy pricing is most sustainable when it reflects real costs upfront. When changes are transparent and timely, consumers can plan better, markets respond efficiently, and the system remains stable. It shows the limits of postponing reality. Deferring costs may create the illusion of affordability. It only ensures that when they return, they do so with greater force, less flexibility, and far fewer good options.
(The writer is Indian Policy Associate, Consumer Choice Center.)