Reversing years of losses, power distribution utilities see ₹2,701 crore profit in FY25

India's power sector, often called the backbone of its economic growth, has long grappled with the chronic financial ill-health of its distribution utilities, or discoms. For years, these state-owned entities have been a major drain on state finances, accumulating colossal losses that hindered investment, infrastructure upgrades, and reliable power supply. The recent projection by the Ministry of Power, indicating that discoms are set to achieve a net profit of ₹2,701 crore in Financial Year 2025 (FY25), marks a monumental turning point and signals a potential reversal of decades of systemic issues.

To truly appreciate this development, we must first understand the deep-rooted problems that plagued discoms. Historically, discoms incurred losses primarily due to a combination of high Aggregate Technical & Commercial (AT&C) losses, a significant gap between the Average Cost of Supply (ACS) and Average Revenue Realised (ARR), and mounting outstanding dues. AT&C losses, often exceeding 15-20% in many states, comprise technical losses (power lost during transmission and distribution due to old infrastructure) and commercial losses (power theft, faulty metering, and inefficient billing/collection). The ACS-ARR gap arose from politically motivated tariff subsidies to certain consumer categories (like agriculture) that were often not fully or timely compensated by state governments, coupled with operational inefficiencies and high power purchase costs. This created a vicious cycle: losses meant no funds for investment, leading to dilapidated infrastructure, higher AT&C losses, and further financial distress.

Several reform initiatives were launched over the years to address these issues. Programs like the Accelerated Power Development and Reforms Programme (APDRP) in 2002, and later the Restructured APDRP (R-APDRP) in 2008, aimed at reducing AT&C losses and improving financial viability. A more comprehensive attempt was the Ujwal Discom Assurance Yojana (UDAY) launched in 2015, which involved state governments taking over a substantial portion of discom debt, coupled with operational improvement targets. While UDAY provided some temporary relief and improved operational metrics initially, its long-term impact was limited, and discom losses resurfaced due to continued structural issues and lack of sustained reforms.

The current turnaround is attributed to a renewed focus on performance-linked reforms, notably under the Revamped Distribution Sector Scheme (RDSS), launched in July 2021. This scheme, with an outlay of ₹3,03,758 crore, aims to improve the operational efficiencies and financial sustainability of discoms by providing financial assistance for infrastructure modernization, prepaid smart metering, and system upgrades. The profit projection for FY25 is a direct outcome of these efforts, leading to reduced AT&C losses, a narrower ACS-ARR gap (indicating better tariff collection and subsidy management), and a significant reduction in outstanding dues from consumers and government departments.

Key stakeholders in this scenario include the **Power Distribution Companies (Discoms)** themselves, which are mostly state-owned entities directly responsible for electricity supply to consumers. **State Governments** are crucial as the owners of discoms, providing financial support, setting policy, and often influencing tariffs. The **Central Government** plays a pivotal role in formulating national energy policy, providing financial incentives through schemes like RDSS, and facilitating inter-state power transmission. **Electricity Regulatory Commissions (ERCs)**, both at the central and state levels (CERC and SERCs), are constitutionally mandated independent bodies responsible for setting tariffs and ensuring fair competition, though their autonomy can sometimes be challenged. Finally, **Consumers**, from households to industries and agriculture, are directly impacted by the quality and cost of power, and their payment behavior significantly affects discom finances.

This financial turnaround holds immense significance for India. Economically, healthy discoms are vital for attracting private investment in the power sector, ensuring reliable and quality electricity supply for industries, agriculture, and households, thereby boosting overall economic growth. It reduces the fiscal burden on state governments, freeing up resources for other critical development expenditures. Socially, improved power supply contributes to better living standards, education outcomes, and public safety. From a governance perspective, it signifies the success of targeted reforms and improved accountability within public sector undertakings. The ability of discoms to become financially viable is also critical for India's ambitious renewable energy targets, as they are the primary off-takers of renewable power and need to invest in grid modernization to integrate intermittent sources effectively.

Constitutionally, electricity falls under the **Concurrent List (List III, Entry 38)** of the Seventh Schedule, meaning both the Parliament and State Legislatures can make laws on the subject. This shared responsibility often leads to policy coordination challenges but also allows for state-specific interventions. The **Electricity Act, 2003**, is the cornerstone legislation governing the sector, aiming at liberalization, unbundling of generation, transmission, and distribution, and the establishment of independent regulatory commissions. Its provisions for open access and competition are crucial for the long-term health of the sector.

The future implications are profound. This profit provides a much-needed breathing space for discoms to invest further in smart grids, advanced metering infrastructure, and renewable energy integration. It could pave the way for more rational tariff reforms, reducing the ACS-ARR gap sustainably. However, sustaining this positive trend requires unwavering political will, continued enforcement of performance targets, timely payment of government subsidies, and curbing power theft. The success of this turnaround will be a testament to India's commitment to energy sector reforms and could set a precedent for other ailing public sector entities, contributing significantly to India's journey towards becoming a developed economy.