Syllabus: Infrastructure: Energy.
Context: Improving Health of DISCOMs
- India’s power distribution utilities, called DISCOMs, show signs of financial improvement.
- There are 72 DISCOMs — 44 State-owned, 16 private, 12 departmental entities.
- Historically, they suffered persistent losses and rising debt burdens.
Legacy Issues and Structural Weaknesses
- Rising Losses and Debt
- Accumulated losses rose from ₹5.5 lakh crore to ₹6.47 lakh crore (2020-21 to 2024-25).
- Outstanding debt increased further to ₹7.26 lakh crore.
- Operational Inefficiencies
- High AT&C losses widened financial stress for utilities.
- Gap between ACS (cost) and ARR (revenue) remained substantial.
Key Structural Causes
- Tariffs often remained non-cost reflective.
- State subsidy payments were frequently delayed.
- Historical Institutional Context
- Earlier State Electricity Boards operated under Electricity Supply Act, 1948.
- Section 59 required utilities to earn minimum 3% profit.
- Despite this mandate, most utilities remained loss-making.
Signs of Financial Turnaround
- Profitability Improvement
- DISCOMs posted ₹2,701 crore Profit After Tax in FY2024-25.
- Earlier losses stood at ₹67,962 crore in 2013-14.
- Operational Gains
- AT&C losses reduced from 22.62% to 15.04%.
- ACS-ARR gap narrowed sharply to 0.06 paise/unit.
Role of Government Reforms
- Revamped Distribution Sector Scheme (RDSS)
- Focuses on quality power supply and financial sustainability.
- Funds linked to execution of sector reforms.
- Late Payment Surcharge Rules
- Enabled dues repayment in 48 EMIs.
- Helped reduce mounting legacy liabilities.
- Debt Reduction Outcomes
- Legacy dues of ₹1.39 lakh crore fell sharply by 2026.
- DISCOMs improved payment discipline significantly.
Persistent Concerns
- Many utilities rely heavily on tariff subsidies.
- State governments continue loss takeovers.
- Examples:
- Tamil Nadu utility profit emerged only after State support.
- Rajasthan DISCOM profitability also subsidy-driven.
- Future pay revisions may again worsen finances.
Way Forward Reforms
- Operational Measures
- Expand feeder segregation for agricultural power supply.
- Improve accurate metering and consumption data.
- Cost Rationalisation
- Promote solar pumps to cut procurement costs.
- Policy Discipline
- Avoid universal free electricity schemes.
- Target subsidies to vulnerable consumers only.
Conclusion
- DISCOM reforms show encouraging progress but remain fragile.
- Sustained political will and administrative discipline are crucial.
- Long-term viability depends on structural, not subsidy-driven, reforms.