The Cabinet Committee on Economic Affairs (CCEA) approved the proposal to boost power generation by using imported coal as domestic output falls short of demand, triggering power cuts in several places.
The move could help bring as much as 78,000 MW of generation capacity on stream.
"There will be small increase in power tariff. It will be very marginal increase on unit cost of power depending upon the cost of import of coal," Finance Minister P Chidambaram said briefing reporters on the decision taken by CCEA headed by Prime Minister Manmohan Singh.
The decision will be implemented by July-end and changes in power rates will be reflected in tariff revisions that states may announce in due course of time. States may decide not to pass on the increase by subsidising power generation.
"There is a famous saying that no power is costlier than no power. The choice is pay more for electricity or you don't get electricity at all... It is better to have power plant working and producing power than have no power at all," he said.
Chidambaram said important reform measures in the coal sector will be announced next month to help boost domestic production.
Stating that the CCEA decision will pave way for greater availabilty of fuel, Power Minister Jyotiraditya Scindia said, "as far as increase in tariff is concerned it would only be from the component which will be imported. But the availability of fuel would increase."