UDAY Scheme for Discoms

[op-ed snap] Power replay


From UPSC perspective, the following things are important :

Prelims level: Not much.

Mains level: Paper 3-Indian power sector-Problems faced by the Discoms and their solutions.


Five years after the launch of UDAY, power-sector once again seems to be going deep into the troubles.

Where the Discoms stand now?

  • Losses increased: The losses of state-owned distribution companies (discoms) risen.
  • Dues increased: Discom’s dues for power purchases have also surged.
    • Dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
    • Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
    • Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.

Components of UDAY and progress made

  • The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components
  • First-Reduction in AT&C losses: While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY.
    • AT&C (Aggregate Technical and Commercial) losses have declined in some states, but not to the extent envisaged.
    • Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.
  • Second- Timely revision of tariffs: While some states have raised power tariffs, the hikes have not been sufficient.
    • In tariff revision decisions political considerations prevailed over commercial decisions.
  • Third- elimination of the gap between per unit of cost and revenue realised: The gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged.
    • Because of this discoms were forced to reduce their power purchases and delay payments to power producers.

Way forward:

  • The new plan, being formulated by the government reportedly, aims to address these issues by-
    • Reducing electricity losses.
    • Eliminating the tariff gap.
    • Smart metering.
    • Privatising discoms.
    • Having distribution franchisees.
  • Altering incentive structure: Along with the above, the Centre should also look at altering the incentive structures of states in order to ensure compliance.
  • Provision of penalties: Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.




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