Economic Survey 2025-26 recommends elimination of power cross-subsidies for railways, manufacturing within 5 years

NEW DELHI: High railway freight rates arising from cross-subsidisation are distorting competition with road transport, pushing up commodity prices, consumer inflation, and overall logistics costs, the Economic Survey 2025–26 highlighted.

Reiterating the proposal in the Electricity Amendment Bill, 2026, the Survey recommended the complete elimination of cross-subsidies for railways and the manufacturing sector within the next five years. It noted that rationalising freight rates could improve revenue buoyancy and encourage a shift of freight movement from roads to rail.




At present, lower electricity tariffs for domestic and agricultural consumers are subsidised through higher charges on industrial and commercial users, including railways. Despite the Electricity Act, 2003 mandating state electricity regulatory commissions to progressively reduce such cross-subsidies, the survey pointed out that the average billing rate for manufacturing enterprises and railways continues to exceed the average cost of power supply.

The Survey said the Electricity Amendment Bill, expected to be tabled in Parliament during the Budget session, aims to introduce much-needed reforms by promoting cost-reflective tariffs and rationalising cross-subsidies. “Going forward, a balanced approach could include phased tariff increases and quotas for subsidised categories, along with voluntary and category-based exclusions,” it said.

The Survey also highlighted several govt measures to strengthen the financial health of power distribution companies, leading to a cumulative profit after tax of Rs 2,701 crore—the first since their corporatisation. This came alongside a reduction in overall losses, from Rs 6.9 lakh crore in 2023–24 to Rs 6.5 lakh crore in FY25.

Key reforms included stricter payment discipline through revised late payment surcharge rules, formula-based monthly tariff adjustments to avoid cash-flow gaps, pass-through of prudent power procurement and network costs, timely release of state subsidies, and a reduction in aggregate technical and commercial losses. Power quality and reliability also improved following fund releases under the revamped distribution sector scheme.

The Survey further said state regulatory commissions should allow a reasonable return on equity to boost investor confidence, ensure cost-reflective tariffs aligned with approved revenue requirements, and facilitate liquidation of accumulated revenue gaps.