Why in the News?

India’s power distribution companies (DISCOMs) have recorded a decisive turnaround after years of mounting losses. India has 72 DISCOMs (44 State-owned, 16 private, 12 power departments). The sector earlier was subjected to AT&C losses and a persistent ACS-ARR gap. Now it has reported a positive Profit After Tax (PAT) of ₹2,701 crore in FY 2024-25, compared to a loss of ₹67,962 crore in 2013-14. AT&C losses declined from 22.62% to 15.04%, and the Average Cost of Supply-Average Revenue Realised Gap (ACS-ARR) gap narrowed from 78 paise to 6 paise per unit,  marking a sharp contrast to earlier years of financial distress. However, the improvement is uneven, with several utilities still reliant on tariff subsidies and State government support, underscoring the scale and complexity of the reform challenge.

What Was the Historical Problem with DISCOMs?

1. Rising Aggregate Technical & Commercial Losses (AT&C) Losses: Aggregated Technical and Commercial losses widened significantly over the years.
2. Widening ACS-ARR Gap: Gap increased from ₹0.78 per unit (2020-21) before reducing to ₹0.06 per unit.
3. Escalating Debt: Outstanding debt rose from ₹5.5 lakh crore to ₹6.47 lakh crore; subsequently increased to ₹7.26 lakh crore.
4. Non-Cost Reflective Tariffs: Tariffs did not cover actual supply cost.
5. Delayed State Subsidies: Payment delays worsened liquidity stress.
6. Section 59 Violation: Law required 3% profit or zero loss; utilities continued losses.
7. Legacy Dues: Outstanding legacy dues reached ₹1,39,947 crore by March 2023.

What Explains the Recent Turnaround?

1. Positive PAT: ₹2,701 crore profit in FY 2024-25.
2. AT&C Reduction: Declined from 22.62% to 15.04%.
3. ACS-ARR Improvement: Reduced from 78 paise to 6 paise per unit.
4. Revamped Distribution Sector Scheme (RDSS) Implementation: Ensures operational efficiency and financial sustainability.
5. Electricity Rules Amendments: Strengthened accountability.
6. Late Payment Surcharge (LPS) Rules: Enables structured EMI-based clearance (39 EMIs).
7. Debt Clearance: Legacy dues reduced to ₹4,927 crore; DISCOMs now paying current dues on time.

Is the Improvement Uniform Across States?

1. State Sector Variation: Tamil Nadu received ₹15,772 crore tariff subsidy and ₹16,107 crore loss takeover; recorded ₹2,073 crore profit.
2. Persistent Loss Example: TANGEDCO reported ₹14,034 crore loss in PFC’s 14th Integrated Rating Exercise.
3. Gujarat Example: Improved performance with ₹92 crore profit; ₹11,625 crore subsidy and ₹2,540 crore loss takeover.
4. Risk of Reversal: Revenue surplus may be transient due to future employee pay revisions.

What Structural Concerns Persist?

1. Dependence on Subsidies: Turnaround largely driven by tariff subsidies and State loss takeover.
2. Cross-Subsidisation: Agricultural and domestic segments distort cost structure.
3. Unmetered Power Supply: Especially in Tamil Nadu; impedes accurate consumption data.
4. Feeder Segregation Gaps: Ongoing in Rajasthan, Andhra Pradesh, Gujarat, Karnataka, Maharashtra; incomplete elsewhere.
5. Agricultural Power Burden: Political reluctance to rationalize free power.

What Is the Way Forward?

1. Feeder Segregation: Ensures accurate agricultural consumption measurement.
2. Metering Reform: Enables real cost accounting.
3. Solar Pump Promotion: Reduces power procurement costs.
4. Financial Discipline: Sustains gains under RDSS framework.
5. Political Will: Resists universal free electricity policies.
6. Public-Spirited Bureaucracy: Ensures transformation into viable entities.

Conclusion

The power distribution sector demonstrates measurable operational improvement. However, sustainability depends on structural tariff reforms, subsidy rationalisation, metering expansion, and political commitment to financial discipline. Without these, the risk of reverting to revenue deficit remains significant.

PYQ Relevance

[UPSC 2022] Do you think India will meet 50 percent of its energy needs from renewable energy by 2030? Justify. How will the shift of subsidies from fossil fuels to renewables help achieve the objective?

Linkage: It falls under GS-III (Infrastructure: Energy, Subsidies, Sustainable Development) and tests understanding of renewable transition, fiscal prioritisation, and energy economics. The DISCOM article highlights issues directly impacted by shifting subsidies from fossil fuels to renewables to improve distribution sector sustainability.

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