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Industry Bodies Criticize Karnataka’s C&I Power Tariff Hike to Fund Farm Electricity Subsidies

Industry associations have strongly opposed the decision by the Karnataka Electricity Regulatory Commission (KERC) to increase electricity tariffs for commercial and industrial (C&I) consumers for FY 2025–26, arguing that businesses should not bear the burden of financing electricity subsidies for farmers.

The tariff revision follows a review petition filed by the state’s electricity distribution companies (ESCOMs), which highlighted a mismatch between the subsidy allocated by the state government and the actual cost of supplying electricity to agricultural consumers. Under the state’s policy, farmers in the LT-4a category receive free electricity, making it difficult for utilities to recover costs directly from this segment.

In the state budget for FY 2025–26, the Karnataka government allocated Rs 160.21 billion to subsidize electricity for agricultural pump sets. However, the total subsidy requirement under the tariff order was estimated at Rs 206.40 billion, leaving a funding gap of about Rs 46.20 billion for utilities.

To address this shortfall, the regulator approved a revised financing framework. Under the plan, the state government will provide an additional subsidy of Rs 23.62 billion, while distribution companies are expected to generate Rs 11.07 billion through miscellaneous revenue sources. The remaining deficit of about Rs 12.54 billion will be recovered through higher tariffs on commercial and industrial consumers.

Concerns Over Industrial Competitiveness

Industry groups argue that the move intensifies the longstanding issue of cross-subsidization in India’s electricity sector, where higher tariffs on businesses offset lower tariffs for other consumer categories.

According to Kalyana Karnataka Chamber of Commerce and Industry (KKCCI), businesses had already submitted objections to the proposed revisions. Shivraj V. Inginshetty said that while industries understand the need to support farmers, increasing power tariffs could harm sectors involved in agricultural processing and value chains.

He also highlighted regional disparities within Karnataka, noting that higher electricity costs could slow industrial development in economically less-developed areas such as the Kalyana Karnataka region.

Industry stakeholders also raised concerns about regulatory predictability. They pointed out that the multi-year tariff (MYT) order for FY 2025–26 to FY 2027–28 had already been issued previously, and many companies had factored those tariffs into their operational planning. Revising the tariff structure within a year, they argued, could affect business confidence and long-term investment decisions.

Impact on MSMEs and Manufacturing

The Federation of Karnataka Chambers of Commerce and Industry (FKCCI) also warned that higher power tariffs could affect the competitiveness of the state’s manufacturing sector.

Uma Reddy said that electricity is a critical input cost for industries, especially micro, small and medium enterprises (MSMEs). Repeated tariff increases could make Karnataka’s industrial output less competitive compared with other states and potentially discourage new investments.

Karnataka currently has nearly 600,000 MSMEs, which consume around 3.5 percent of the state’s electricity and provide direct employment to approximately four million people. The state also has around 15,000 high-tension industrial consumers, accounting for about 13.63 percent of total electricity consumption.

Industry bodies also pointed out that the Rs 190 billion subsidy allocation for irrigation pump sets in FY 2026–27 may still fall short of the estimated requirement of Rs 220 billion to Rs 230 billion, raising concerns that future deficits could again be passed on to industrial consumers.

Rising Interest in Renewable Energy Procurement

The tariff increase is also expected to accelerate a shift by businesses toward alternative power procurement options. Companies are increasingly exploring captive solar projects, group captive renewable energy models, and open-access power purchases to reduce dependence on high-cost grid electricity.

Industry representatives noted that regulatory provisions allowing consumers with a connected load of 100 kW or more to procure renewable energy through open access could make it easier for many businesses to transition away from grid supply if tariffs continue to rise.

As electricity costs become a key factor in industrial competitiveness, stakeholders warn that continued reliance on cross-subsidies may push more industries toward renewable energy procurement and self-generation solutions in the coming years.