Discom Debt Surge Poses Fiscal Risk, Maharashtra in High Stress Group
The Sixteenth Finance Commission has issued a stark warning about the mounting financial liabilities of state-run power distribution companies (Discoms), identifying Maharashtra as one of eight states where the situation has become structurally unsustainable. In its report for the 2026–31 award period, the commission highlights that fiscal stress in the power sector is now heavily concentrated in a small number of states, posing significant risks to their financial health.
Sharp Deterioration in Maharashtra's Discom Finances
According to the commission's analysis, Maharashtra has experienced one of the sharpest deteriorations in Discom finances nationwide. The state's Discom debt has more than doubled over the past five years, increasing from Rs 35,197 crore in 2018–19 to Rs 84,171 crore in 2023–24. This represents a rise of nearly Rs 49,000 crore, or approximately 139 percent, placing Maharashtra firmly within the high-stress category identified by the commission.
The commission cautions that in this small group of eight states, including Maharashtra, borrowings by Discoms have grown faster than revenues and assets, making repayment from operations unlikely. The data reveals that borrowings in Maharashtra rose by 32 percent in 2022–23 and by a further 44 percent in 2023–24, indicating a sharp acceleration rather than a gradual build-up of liabilities.
National Debt Concentration in Eight States
At the all-India level, outstanding Discom debt has increased from about Rs 4.7 lakh crore in 2018–19 to Rs 7.42 lakh crore in 2023–24, marking a rise of over 57 percent. Alarmingly, more than three-fourths of this debt is concentrated in just eight states. The commission notes that mounting debt, short-term borrowing, and accumulated losses have been a perpetual burden on Discom finances.
These eight states account for 78 percent of the total outstanding Discom debt and 83 percent of the accumulated losses of state sector Discoms, which amounted to Rs 5.86 lakh crore in 2023–24. While Maharashtra is not the single largest loss-making state, it accounted for nearly 5 percent of India's total accumulated Discom losses in 2023–24.
Operational Weaknesses and Limited Reform Impact
The commission flags persistent operational weaknesses that have prevented a sustained turnaround in the power distribution sector. These include:
- Gaps between the average cost of supply and the average revenue realised
- High transmission and billing losses
- Delays in tariff revisions
- Weak billing and collection efficiency
As the report notes, persistent inefficiencies in operations continue to add to the financial stress of Discoms, despite repeated restructuring efforts and bailout packages by states and the Centre. The limited impact of past reform measures is evident in the continued accumulation of debt.
Fiscal Implications for State Governments
The commission cautions that continued accumulation of power sector liabilities could significantly constrain states' fiscal space over the medium term. This is particularly concerning as spending pressures rise in critical areas such as infrastructure, health, education, and social welfare. The analysis underscores that for the eight high-stress states, the growth in debt between 2018–19 and 2023–24 has outpaced their growth in revenues and assets, making self-liquidation of debt improbable.
The Finance Commission's warning serves as a critical alert for policymakers, emphasizing the urgent need for comprehensive reforms in the power distribution sector to address both financial and operational challenges before they escalate into broader fiscal crises.
