Decades-long reforms: How India's discoms returned to profits but have ₹7 trn of cumulative debt to deal with
India's power distribution sector returned to profit in FY25, reporting ₹2,701 crore net profit after years of losses. The overhang of a cumulative debt over ₹7 trillion still remains, but reforms and improved operational indicators contributed to this revival.
New Delhi: India's power distribution sector which has been reeling under high debt and operational losses for several years returned to profits in fiscal 2025. In FY25, distribution utility companies, collectively called discoms, reported a net profit of ₹2,701 crore compared to a loss of ₹25,553 crore in the year before, according to data recently released by the power ministry.
Mint explains the current financial health of the discoms and the factors behind their revival.
Q. What is the current financial condition of the power distribution sector in the country?
A. After over 10 years of losses, discoms reported a cumulative net profit of ₹2,701 crore for FY25. The distribution sector, however, continues to be been under severe financial stress with a cumulative debt of over ₹7 trillion—of which, according a group of ministers' (GOM) review, about ₹2.74 trillion is 'unsustainable, as reported by Mint earlier.
India has about 67 discoms, including 16 run by the private sector in Delhi, Mumbai, Odisha, West Bengal, Gujarat, and Dadra and Nagar Haveli. The Union power minister on Monday said that some of the discoms are still in losses, although he did not specify their number. Outstanding dues to generation companies now stand at nearly ₹4,927 crore, down from nearly ₹1.40 trillion in 2022. Further the distribution utility payment cycles to so-called gencos has come down from 178 days in FY21 to 113 days in FY25.
Q. What is the latest trend of other key operational indicators of discoms?
A. According to data from the power ministry, the aggregate technical & commercial (AT&C) losses have reduced over the years and in FY25 it stood at 15.04%, compared to 17.6% in FY24. AT&C losses refer to the total gap between electricity supplied by a utility and the revenue collected, combining physical power loss (technical) and commercial losses which include non-payment and billing issues.
Further, the average cost of supply-average revenue realized (ACS-ARR) gap has narrowed to about ₹0.06/kWh (kilowatt hour or unit) in FY25, compared to ₹0.48 in FY24. The ministry on Sunday said that in the year FY14, AT&C losses were at 22.62%, while the ACS-ARR gap was at ₹0.78.
Q. What has helped the power distribution companies return to profits?
A. The distribution sector has witnessed a number of reform measures in the past few years which have supported the financial revival of the sector. Under the ₹3 trillion Revamped Distribution Sector Scheme (RDSS), Centre has made efforts to enhance the financial viability of discoms through infrastructure modernization and accelerated installation of smart meters to avoid non-payment of bills. Further, the government has linked access to finance for power sector utilities to performance benchmarks to promote fiscal and operational discipline.
Other norms that have resulted in improvement of financial health include amendments to Electricity Rules which enforce timely cost adjustments, prudent tariff structures, and transparent subsidy accounting—all with a view to ensure full cost recovery. The Late Payment Surcharge rules introduced in 2022 mandate that delays in payment of dues to generation companies result in penalties and eventually may also result in cut-off of power supply. Also, the Electricity Distribution (Accounts and Additional Disclosure) Rules, 2025 introduced uniform accounting and enhanced transparency across discoms for improved financial governance.
Q. What is the way for the reform trajectory of power distribution in the country?
A. A number of reform measures await this space. Under the Electricity (Amendment) Bill 2025, the government revived its plans to open up India's power distribution sector and it is looking at allowing multiple discoms to cater to a single area through the existing distribution infrastructure. This will allow private firms to enter electricity distribution, a domain dominated by state-run companies.
Currently, in specific regions, only one discom operates. The Act permits parallel licensees in the same supply area but with their own network, which can potentially lead to duplication of distribution networks.
It also proposes to give more teeth to state electricity regulatory commissions to fix tariffs on their own and ending cross-subsidies. Also, as reported by Mint, the group of ministers on the financial viability of discoms plans to propose a new scheme to recast the massive debt of state-owned discoms and open them up to private participation.
Q. What is the current status in terms of privatization of discoms in the country?
A. Sixteen of 67 discoms in India are private.
The government of Uttar Pradesh is in the process of privatizing two of its discoms. At least eight firms, including Adani Group, Tata Power Ltd, and Greenko Group, among others, are eyeing a majority stake in Purvanchal Vidyut Vitran Nigam Ltd (PUVVNL) and Dakshinanchal Vidyut Vitran Nigam Ltd (DVVNL).
In 2020, the Centre had decided to privatize all electricity distribution companies in the Union Territories. CESC won control of the Chandigarh discom, while Torrent Power took control of the Dadra and Nagar Haveli one. The sales were linked to incentives from the Centre, encouraging discoms to seek new investors. Odisha was the first state to privatize its power distribution sector into four discoms in 1999. This was followed by Delhi, which privatized three in July 2002: BSES Rajdhani Power Ltd, BSES Yamuna Power Ltd and Tata Power Delhi Distribution Ltd.
topics
