Rural electrification is an integral component of poverty alleviation and rural growth of a nation. In India, GDP is increasing with 8 percent where as contribution of agriculture sector is 1.9 percent. Government of India has ambitious target of providing electricity to all villages by 2008 and all rural households by 2012. Steps are already initiated by Government of India with Electricity Act 2003, Deregulation, Unbundling of State Electricity Boards (SEB), Independent Power Producers (IPP),Electricity Regulatory Commissions, Rural Electric Corporation (REC),Rajiv Gandhi Grameen Vidyutikaran Yojana(RGGVY),Accelerated Power Development and Reform Program (APDRP), etc. Electricity has not played effective role in the socio-economic growth of village. An attempt has been made in this paper to assess the progress of power sector reforms and its impact on rural electrification in India. Challenges faced by SEBin this process are also identified.