A series of interconnected power grids in northern India collapsed in July, causing the largest electricity blackout in world history. More than 500 million people were left without power.
The International Energy Agency said the blackout should serve as "a stark reminder" of the challenges present in the country's energy sector.
The IEA said liberalization reforms embraced more than 20 years ago are yet to be realized. The country embraced liberalization as a way to break the government monopoly on the energy sector. Growing energy demand and government intervention are inhibiting reforms, the IEA report said.
"Achieving a well-functioning energy sector based on market principles would allow India to operate successfully within the global market and meet its citizens' growing demand for energy," it stated.
More than 30 gigawatts of electricity were taken offline during a blackout that lasted about two days in late July.