At the time of independence, electricity generation and supply was concentrated in the hands of private electricity suppliers, and largely in urban areas. Electricity supply was a must across the country to promote overall growth and development; hence, the Electricity (Supply) Act 1948, which was based on the UK Electricity Supply Act 1926, was introduced. Under this Act the Central Electricity Authority (CEA) was established at the central level and the State Electricity Boards (SEBs) at the state level. The objective of the CEA was to develop a sound, adequate, and uniform national power policy to coordinate development of the power sector in India.

SEBs became integrated utilities with presence in generation, transmission, and distribution in their respective states. During this period, the development and planning was done by the SEBs at the state level, while the CEA was responsible for planning at the national level and it provided the SEBs with broad guidance, planning, and development. The Act also elaborated the financing norms and institutional framework for the electricity industry in India.

The SEBs took over the private companies in their respective states and the newly-created state electricity boards were interconnected to enhance system reliability and to ensure wider geographical coverage. The electricity sector moved into the public sector domain from the private hands, and over the years, the public sector gained prominence in the power sector.

In the initial period, the SEBs’ performance was satisfactory and they played a vital role in the development of the sector. According to the Electricity (Supply) Act 1948, the SEBs were required to generate a minimum return of 3% on their net fixed assets in service after meeting the financial charges and depreciation. The SEBs were able to generate the minimum returns for many years, but, later on their performance faltered and they had to seek financial aid from the state in the form of grants, subsidies, soft loans, etc. The early seventies were marked by incidents of power blackouts and grid collapses. Hydropower generation suffered especially, as availability of water resources was heavily dependent on the monsoon season. Moreover, there were delays in civil works, delays in the supply of power plant equipment, and the infrastructure additions in terms of transmission and distribution were also not adequate. In its attempt to assist the states, the Central government established a few private companies that could cater to more than one state.

The Central government amended the Electricity (Supply) Act 1948 and established the National Hydropower Corporation (NHPC) in 1975 to build hydropower plants and the National Thermal Power Corporation (NTPC) to set up coal-based power plants to supplement the generation capacities of the SEBs and private companies.

NTPC built its own transmission network to transmit electricity to different SEBs. In 1981, the government decided to integrate operations of the central and state transmission systems to form a national power grid to facilitate transmission of power generated by non-SEB generators; these efforts led to the incorporation of the National Power Transmission Corporation in 1981. Initially the company was engaged in managing the transmission assets of the central generating companies, NTPC, NHPC and North-Eastern Electric Power Corporation; but in 1992, this entity was renamed as Power Grid Corporation of India Ltd and all the transmission assets of the three above mentioned generating companies were transferred to it under an ordinance. Furthermore the government set up the Power Finance Corporation (PFC) in 1986 as a financial institution dedicated to power sector financing to supplement planned expenditure on power plants, specifically new power plants.

During this phase, lot of emphasis was laid on setting up hydropower plants, as the government planned to develop the irrigation and power sectors simultaneously. The installed capacity in the hydropower sector did witness significant growth up to 1970; however, the lesser-than-expected growth rate and longer gestation period decreased its share in total power generation capacity. In the meanwhile coal-based power plants continued to grow and the share of