India's Power Distribution Sector Sees Profits After Long Struggle
India's power distribution utilities, known as discoms, have achieved a significant milestone. After suffering losses for over a decade, they collectively reported a net profit of ₹2,701 crore in the fiscal year 2025. This marks a dramatic shift from the previous year's loss of ₹25,553 crore, according to recent data from the power ministry.
However, this positive development comes with a heavy burden. The sector still carries a massive cumulative debt exceeding ₹7 trillion. A review by a group of ministers identified about ₹2.74 trillion of this debt as unsustainable. India has approximately 67 discoms, including 16 privately run companies in regions like Delhi, Mumbai, Odisha, West Bengal, Gujarat, and Dadra and Nagar Haveli.
Improved Financial and Operational Metrics
The financial health of discoms shows clear signs of improvement. Outstanding dues to power generation companies have dropped sharply to nearly ₹4,927 crore from about ₹1.40 trillion in 2022. Payment cycles to these generation companies have also shortened significantly, from 178 days in FY21 to 113 days in FY25.
Operational indicators tell a similar story of progress. Aggregate technical and commercial losses, which measure the gap between electricity supplied and revenue collected, have decreased to 15.04% in FY25 from 17.6% in FY24. This figure stood at 22.62% back in FY14. The gap between average cost of supply and average revenue realized has narrowed to approximately ₹0.06 per kilowatt-hour in FY25, compared to ₹0.48 in FY24 and ₹0.78 in FY14.
Key Reforms Driving the Turnaround
Several reform measures implemented in recent years have played a crucial role in this financial revival. The Revamped Distribution Sector Scheme, with a budget of ₹3 trillion, focuses on modernizing infrastructure and accelerating smart meter installation to reduce billing issues. The government has also linked financial access for power utilities to performance benchmarks, promoting greater fiscal discipline.
Amendments to Electricity Rules have enforced timely cost adjustments, prudent tariff structures, and transparent subsidy accounting. These changes aim to ensure full cost recovery for discoms. The Late Payment Surcharge rules introduced in 2022 impose penalties for delays in paying generation companies, with potential power supply cut-offs for persistent defaulters. Additionally, the Electricity Distribution Rules of 2025 have introduced uniform accounting practices and enhanced transparency across all discoms.
Future Reform Trajectory and Privatization
The reform journey for India's power distribution sector continues. The Electricity Amendment Bill 2025 seeks to open up the sector by allowing multiple discoms to operate in the same area using existing infrastructure. This move could encourage private firms to enter a market currently dominated by state-run companies. The bill also proposes strengthening state electricity regulatory commissions to set tariffs independently and phase out cross-subsidies.
Privatization efforts are gaining momentum. Sixteen of India's 67 discoms are already privately owned. The Uttar Pradesh government is currently privatizing two of its discoms, with companies like Adani Group, Tata Power, and Greenko Group showing interest. Following the Centre's 2020 decision to privatize discoms in Union Territories, CESC took control in Chandigarh and Torrent Power in Dadra and Nagar Haveli. Odisha pioneered privatization in 1999, followed by Delhi in 2002 with three private discoms.
The Union power minister recently acknowledged that some discoms remain in losses, though specific numbers were not provided. A group of ministers is reportedly planning a new scheme to restructure the substantial debt of state-owned discoms and further open them to private participation. This ongoing reform process aims to build a more sustainable and efficient power distribution network for India's growing energy needs.
