Maharashtra said on Monday it will cut electricity tariffs by a fifth with immediate effect, as the Congress party-headed state government woos voters ahead of national elections later this year.
The tariff cut follows a similar move by the newly elected Delhi state government in January, and sparked demands by lawmakers in other states for similar reductions.
Many Indians see cheap or free power as a right, not a privilege. But by keeping tariffs low, politicians have strained the finances of local distribution companies, who often resort to crippling power cuts. In turn, such blackouts hobble the competitiveness of Asia's third-largest economy.
The tariff cut in Maharashtra, applicable to customers of the state electricity distribution company Mahavitaran, which supplies power to the entire state except Mumbai, will cost a total of Rs 706 crore (Rs 7.06 billion) every month.
Of this, Mahavitaran will bear a loss of Rs 100 crore (Rs 1 billion), while the balance will be paid by the government as subsidy, an official in the chief minister's office told Reuters.
The government will also decide in eight to ten days on how to extend the benefit to customers in Mumbai, India's financial capital. Electricity in Mumbai is distributed by private sector companies Reliance Infrastructure, Tata Power and state-controlled BEST.
The Delhi state government, run by the newly-founded Aam Aadmi (Common Man) Party, in January began to subsidise power tariffs for lower usage residential customers.
Prime Minister Singh's government has attempted to fix the financial health of distribution companies with a $32 billion bailout package that it rolled out last year, that came with strict riders.