Punjab has been providing free electricity to farmers for decades. When the Aam Aadmi Party (AAP) came to power, it started offering free electricity to households as well. Since the scheme began, every household has been receiving 300 units of electricity free every month, making it virtually free for the majority of them. However, it has put an immense financial burden on the state. Following Punjab’s footsteps, several other states started similar schemes to lure voters, leading to delays or defaults in electricity subsidy payments. To control the increasing financial strain, the Centre has proposed a stringent three-option policy aimed at tightening control over states that delay such payments.
For now, the proposal, which is being seen as a push for privatisation, has been shared with seven states, including Uttar Pradesh, Maharashtra, Madhya Pradesh, Rajasthan, Haryana, Andhra Pradesh, and Tamil Nadu, at the minister-level meeting. Punjab was not part of the consultation. In case the states do not implement one of the options, the Centre may suspend grants and financial support for the state.
Notably, Punjab’s annual subsidy alone has grown from Rs 604.57 crore in 1997-98 to around Rs 10,000 crore in 2025-26. If all subsidies across categories are included, the estimated annual burden on Punjab is around Rs 20,500 crore. In 2022, it was reported that fiscal year’s subsidy bill was around 23,000 crore.
The three-option formula
The Centre has reportedly provided three choices for the states. In the first option, the states can sell a 51% stake in electricity distribution corporations under a public-private partnership model. In the second option, the states can choose to sell a 26% stake with management control to private entities. As the last option, the states will have to register state distribution companies with SEBI and the stock exchange.
For now, the proposal has been shared with seven states, including Uttar Pradesh, Maharashtra, Madhya Pradesh, Rajasthan, Haryana, Andhra Pradesh, and Tamil Nadu. So far, Punjab has not been part of the consultation.
Opposition from farmers and unions
The proposal has been strongly opposed by the farmer unions in Punjab, as it will lead to privatisation of the power sector in the state. They have argued that it would directly impact free power for agriculture and raise costs for consumers. They have also resisted the Electricity Amendment Bill 2025, which seeks to revise tariffs and allow private participation in power distribution. Experts, including All India Power Engineers Federation spokesperson V K Gupta, have questioned why other states were not included in the meeting.
Electricity is on the concurrent list of the Constitution, which means that both the Centre and states share authority over power policy. It provides a stage for a potential confrontation over control and the future of the electricity models in the state. If the proposal is extended across India, it will have a direct impact on future Assembly elections in Punjab, as ‘free electricity for all’ is the only visibly fruitful scheme for the current Bhagwant Mann-led state government.
