Distribution Companies in India – Performance Turnaround and Road Ahead

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• India’s electricity distribution companies (DISCOMs) have recorded a notable financial and operational turnaround, though concerns remain over their long-term sustainability. 

Understanding DISCOMs in India

• Power Distribution Companies, commonly known as DISCOMs, are responsible for the final stage of electricity delivery, distributing power to households, industries, and agricultural consumers. 
• India currently has 72 DISCOMs, comprising State-owned utilities, private-sector entities, and power departments. 
• Historically, DISCOMs have been the weakest link in India’s power sector, plagued by inefficiencies, mounting losses, and rising debt.
• Two indicators define their financial health:
  • Aggregate Technical and Commercial (AT&C) losses, which capture losses from theft, technical inefficiencies, and billing gaps.
  • ACS-ARR gap, the difference between the Average Cost of Supply (ACS) and Average Revenue Realised (ARR).
• For decades, high AT&C losses and non-cost-reflective tariffs resulted in persistent deficits, forcing State governments to periodically bail out DISCOMs.

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Legacy of Financial Stress

• The roots of DISCOM losses lie in the functioning of earlier State Electricity Boards under the Electricity (Supply) Act, 1948. 
• Although the law required utilities to earn modest profits, political interference, subsidised tariffs, and delayed subsidy payments weakened financial discipline.
• Between 2020-21 and 2024-25, accumulated losses rose from Rs. 5.5 lakh crore to Rs. 6.47 lakh crore, while outstanding debt touched Rs. 7.26 lakh crore. 
• Non-payment of dues by consumers, delayed State subsidies, and rising power procurement costs worsened the situation.

Signs of a Turnaround

• Recent years have shown measurable improvement. According to official data, DISCOMs collectively recorded a Profit After Tax of Rs. 2,701 crore in 2024-25, a sharp contrast to losses exceeding Rs. 67,000 crore in 2013-14. 
• AT&C losses declined from 22.62% to 15.04%, while the ACS-ARR gap narrowed drastically to 0.06 paise per unit, indicating near cost recovery.
• This turnaround reflects better billing efficiency, improved collections, and stronger enforcement of financial discipline.

Role of Policy Reforms

• The improvement has been driven by a series of reforms:
  • Revamped Distribution Sector Scheme (RDSS): Links financial assistance to measurable performance outcomes such as feeder metering, loss reduction, and system modernisation.
  • Electricity Rules and Late Payment Surcharge Rules: Enabled DISCOMs to clear legacy dues in instalments, preventing snowballing of unpaid liabilities.
  • Debt Discipline Measures: Since 2022, legacy dues of nearly Rs. 1.4 lakh crore have been substantially reduced through structured repayments.
• These reforms restored confidence among power generators and fuel suppliers, stabilising the electricity supply chain.

Dependence on State Support

• Despite improvements, financial sustainability remains fragile. Many DISCOMs have posted profits only after receiving tariff subsidies and loss takeovers from State governments. 
• For instance, utilities in States like Tamil Nadu and Rajasthan reported profits largely due to direct fiscal support rather than operational surplus.
• This dependence raises concerns about the durability of the turnaround, especially when future liabilities such as employee pay revisions arise.

Structural Challenges Ahead

• Unmetered Agricultural Supply: Lack of accurate data on farm power consumption distorts cost recovery.
• Free or Highly Subsidised Power: Universal free electricity benefits wealthier consumers disproportionately and weakens utility finances.
• Operational Inefficiencies: Not all States have adopted feeder segregation or smart metering at scale.
• Without addressing these structural issues, improvements may prove temporary.

Way Forward

• Long-term sustainability requires deeper reforms. 
• Expanding feeder segregation, promoting solar pumps in agriculture, improving metering, and ensuring cost-reflective tariffs are essential. 
• Political commitment and professional management must align to transform DISCOMs into consumer-friendly and financially viable utilities.

Source: TH