Power sector proposals brighten India’s energy outlook but lasting gains need a stronger jolt of reforms

The power sector has emerged as a key lynchpin of the economic engine that the government is revving up to help drive India’s growth in times of geopolitical tumult. The distribution business continues to be a bugbear of the power sector, with snags that curtail the ability of consumers to benefit from modern technology, be it the low cost of solar electricity or smart meters that enable consumers to schedule some part of their consumption (like the use of washing machines) to reduce bills.

Successive governments have tried to address this problem with repeated rounds of financial restructuring and bailouts, beginning with the one-time settlement of dues owed to Central-sector power generators in 2002. A decade later, distribution companies (discoms) again amassed large payables and unserviceable debt, contributing to economy-wide concerns of a ‘triple balance sheet’ crisis, with debt contagion at risk of spreading to lenders, other financial institutions and power-generation firms.

To mitigate this, in 2015, the Ujwal Discom Assurance Yojana scheme was implemented, wherein states took over liabilities of about ₹2.3 trillion by issuing bonds to financial institutions. The financial overhaul proved inadequate to stem the haemorrhage as distribution losses kept mounting.

In 2021, the Revamped Distribution Sector Scheme addressed this issue by making central financial assistance contingent on achieving minimum operational improvements. This outcome-focused approach has begun to show positive results.

Average technical and commercial losses have declined from 22% in 2020-21 to around 16% 2023-24. Moreover, there are early signs of improved cashflows in 2024-25 due to more timely subsidy disbursals by state governments.