By Arun Kanchan, Former Director/CEO, Torrent Power, BSES Rajdhani Power Limited, BSES Yamuna Power Limited and Bajaj Energy Limited; and Sarang Kanchan, Associate Partner, Takshashila Consultants
Indian discoms in 2025 and beyond
India’s discoms continue to struggle under the weight of structural inefficiencies, financial stress and political constraints. While the country has achieved near-universal electrification and significantly expanded its generation capacity, the discoms remain the weakest link in the energy chain.
Financial stress and performance indicators: Discoms are facing massive revenue losses, primarily due to power theft, technical losses and delayed subsidies. Despite efforts under the Ujwal Discom Assurance Yojana (UDAY) and Revamped Distribution Sector Scheme (RDSS), several states have failed to achieve financial turnaround. Even with support from schemes such as UDAY and the late payment surcharge (LPS) mechanism, dues continue to rise, straining the cash flows of generators.
Operational challenges: High aggregate technical and commercial (AT&C) losses reflect a combination of inefficient infrastructure, theft and poor billing practices. Smart metering is considered a crucial reform tool, but adoption has been sluggish. Against a target of 25 billion smart meter installations by 2025, only about 8.9 billion have been installed so far. The reasons for tardy progress include the lack of indigenous manufacturing capacity, consumer resistance and huge geographical spread. There have been some improvements, but many states remain far from the UDAY and RDSS target of 15 per cent or lower AT&C losses.
A balancing act for India’s energy future
Discoms lie at the core of India’s energy system and its clean energy ambitions. While the government has laid out clear reform blueprints through schemes such as the RDSS and regulatory pushes for smart metering and subsidy reform, execution remains inconsistent. To make discoms viable, urgent action is needed in four areas: rationalising tariffs and implementing direct benefit transfer for subsidies; enforcing accountability for loss reduction and bill collection; encouraging private participation and open access competition; and modernising grid infrastructure to enable renewable integration. Without these changes, India risks stalling its energy transition and burdening its economy with recurring bailouts. The time to turn policy into practice is now.
Recent initiatives by the MoP to improve discom health
The RDSS: Launched for the period FY 2021-26 and likely to be extended to FY 2028, the RDSS was funded with over Rs 3.03 trillion, including more than Rs 97.6 billion in central budgetary support. Its primary goal is to reduce AT&C losses to between 12 and 15 per cent and to eliminate the average cost of supply (ACS)-average revenue realised (ARR) gap by FY 2024-25. The scheme also mandates the deployment of 250 million smart or prepaid consumer meters, along with distribution transformer and feeder metering systems. However, as of early 2025, progress has been slow, with only about 19-21 million consumer smart meters installed – roughly 8 per cent of the target. In addition, the scheme provides for capacity-building and infrastructure modernisation support under its Part A and Part B components.
Regulatory reforms: The Electricity Amendment and Consumers Rules, 2024, and the Electricity (Late Payment Surcharge) Rules, 2022 were introduced to incentivise timely payments by governments, and as a result, overdue amounts were reduced substantially – from Rs 1.29 trillion in September 2022 to Rs 372 billion by February 2024. Building on this, the Electricity (Second Amendment) Rules, 2023 mandated quarterly disclosure of subsidies, allowed pass-through of fuel and power purchase costs, and linked tariff hikes to delays in subsidy reimbursements. Complementing these reforms, the Rights of Consumers Amendment Rules, 2023, mandated remote smart meter reading at least once a day and initiated the roll-out of time-of-day (ToD) tariffs, beginning in April 2024 for commercial and industrial consumers and scheduled from April 2025 for others, with the exception of agricultural users.
Group of Ministers (GoM) meetings on distribution utilities: The Ministry of Power (MoP) convened multiple GoM meetings during February and March 2025, bringing together state power ministers to deliberate on reforms. The discussions focused on artificial intelligence (AI)-based demand forecasting and power purchase optimisation, the promotion of energy storage and greater renewable energy integration, and the introduction of UDAY-type fiscal discipline programmes aimed at rescuing debt-stressed utilities. Best practices from profitable discoms, such as Tata Power Delhi and Gujarat, were also shared. States, including Telangana, Uttar Pradesh, Maharashtra, Tamil Nadu and Andhra Pradesh, were actively engaged in these deliberations.
Loss reduction and smart metering projects: In Maharashtra, Maharashtra State Electricity Distribution Company Limited has planned an investment of Rs 6,235 billion under the RDSS to install 519,500 ToD smart meters in the Vidarbha region, with the phased roll-out already under way. In Delhi, pilot projects for undergrounding low tension wires, internet of things-enabled feeder pillars and automated fault-resolution units have been launched in Janakpuri, alongside a historic Rs 1,937 billion distribution network upgrade aimed at improving peak supply reliability. The city also commissioned South Asia’s first 20 MW battery energy storage system (40 MWh) at Kilokri to support peak load management and renewable energy integration. Uttar Pradesh has installed over 31 million smart meters, and the state government has directed audits, transformer upgrades, grievance redressal measures and the solarisation of tubewells under the Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan scheme and PM Surya Ghar: Muft Bijli Yojana.
Recommendations and the way forward
Fast-track the RDSS and smart meter roll-out: Prioritise high-loss regions for the immediate deployment of prepaid smart meters and ToD digital infrastructure, and use third-party, independent audits of installations to build consumer trust and ensure integrity.
Enforce financial discipline: Mandate the timely release of gross budgetary support from state governments under the RDSS, and ensure the strict implementation of LPS penalties and cost pass-through mechanisms to deter delays.
Adopt technology-driven operations: Scale AI/machine learning-based tools for demand forecasting and load scheduling, and implement digital twins, real-time data systems and blockchain-powered energy transactions, particularly in pilot cities such as Varanasi, Uttar Pradesh.
Strengthen regulatory framework: Empower state electricity regulatory commissions to enforce cost-reflective tariffs and inflation-linked fuel adjustment, and implement direct benefit transfer for subsidies to cut cash flow delays and leakage.
Promote competition and private engagement: Gradually introduce retail competition and carriage-content separation in urban and peri-urban areas, and encourage public-private partnership models, leveraging proven private discom successes in Delhi and Mumbai to usher in performance-based contracts. The complete privatisation of some Uttar Pradesh discoms is currently under implementation and is meeting massive employee resistance. Instead, the government can consider the privatisation of one of the weakest zones of each discom. This would cause minimum employee dislocation/distress, as those employees not willing to work with privatised entities can easily be accommodated in the already vacant positions of the other nearby zones of the same discom after the handholding period. In financial terms, this may be more beneficial to the state government compared to the complete privatisation of one of their weakest discoms.
Invest in grid resilience and storage: Scale up BESS pilots, such as Delhi’s 20 MW Kilokri installation, and replicate this across cities facing peak congestion, and prioritise underground cabling in urban zones to reduce outages and maintenance costs.
Build stakeholder consensus: Stakeholder engagement, including discom staff unions and farmers’ bodies, is essential before tariff rationalisation or privatisation, and transparent dialogues and clear pension/liability sharing mechanisms can reduce resistance to change.
Conclusion
These initiatives and reform measures are now laying the groundwork for transforming India’s discoms from debt-ridden legacy utilities to digitally enabled, financially sustainable service providers. With reform-linked funding, technology-led interventions and gradual consumer choice, there is a realistic path to closing financial gaps and ensuring reliable, affordable power. The right push to private sector engagement will certainly expedite the entire process.
