The Achilles Heel of India's power sector is distribution, in particular the under-recovery of cost of service. The graphic below captures the problem.
For all the talk surrounding tariff increases as part of UDAY reforms, its political economy was always going to be a challenge. Given the difficulty of raising residential tariffs, discoms have preferred the easy way out and increased industrial tariffs. States have levied exorbitant cross-subsidy surcharge on their industrial consumers, thereby further exacerbating the already inverted tariff structure. The result, yet more erosion in the country's industrial competitiveness.
These distortions are secondary to the bigger challenge with distribution loss reduction, something this blog had pointed out as to possibly why UDAY may be no different. A good starting point for any serious attempt at power sector reforms is outlined here.
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