[Answered] Examine the recent financial turnaround of Indian DISCOMs through reduced AT&C losses and narrowed ACS-ARR gaps. Evaluate if this progress reflects structural resilience or if continued reliance on state subsidies and debt takeovers masks persistent systemic vulnerabilities.

Introduction February

India’s 72 DISCOMs reported a collective PAT of ₹2,701 crore in FY2024-25 for the first time in a decade, driven by RDSS reforms, smart metering, and payment discipline, signalling a potential inflection point in power sector governance.

Visible Financial Turnaround: Quantifiable Gains in Efficiency

1. AT&C Loss Compression: Aggregate Technical and Commercial losses declined sharply from 22.6% in 2014 to about 15.04% in FY25, reflecting improvements in energy accounting, feeder segregation, and theft reduction. States like Gujarat and Odisha illustrate how privatization and franchisee models improve collection efficiency.
2. ACS-ARR Convergence: The gap between Average Cost of Supply and Average Revenue Realised narrowed to ₹0.06/kWh in FY25 from ₹0.78/kWh in 2013-14, indicating near cost-recovery pricing. This aligns with recommendations of the Kelkar Committee on Fiscal Consolidation advocating user-charge rationalization.
3. Payment Discipline and Liquidity Management: Late Payment Surcharge Rules, 2022 forced DISCOMs to clear over ₹1.31 lakh crore of legacy dues via EMIs, restoring generator confidence and reducing systemic liquidity stress. This also strengthened India’s renewable energy payment ecosystem.

Structural Fragilities Beneath the Surface Recovery

1. The Subsidy-Dependent Profitability Trap: Power subsidies crossed ₹2.62 lakh crore in 2025, with several DISCOMs reporting profits only after state-led tariff subsidies and loss takeovers.
   For instance, Tamil Nadu’s TNPDCL posted profits solely due to ₹31,000+ crore fiscal support, as flagged by PFC’s Integrated Rating Exercise (2026).
2. Debt Overhang and Fiscal Spillovers: Despite improved cash flows, cumulative DISCOM debt remains near ₹7 trillion, often transferred to state balance sheets.
   The 16th Finance Commission cautioned that such ‘debt parking’ weakens sub-national fiscal sustainability.
3. Uneven Reform Geography: While Punjab and select Rajasthan utilities turned profitable, Telangana and Tamil Nadu together account for nearly one-third of national accumulated losses. This reveals a persistent political economy of free power and tariff populism.

Liquidity Turnaround vs Structural Resilience: An Evaluation

1. Policy-Induced Recovery, Not Market Discipline: The turnaround remains largely state-engineered rather than efficiency-driven, with limited tariff autonomy for State Electricity Regulatory Commissions (SERCs).
2. Labour and Cost Pressures Ahead: Upcoming pay revisions and rising renewable integration costs may reverse gains unless backed by productivity improvements. World Bank (2023) notes India’s distribution reforms lag behind generation reforms in depth.

The Road Ahead: From Bailouts to Business Models

1. Tariff Rationalisation with Targeted Subsidies: Direct Benefit Transfer of electricity subsidies, as piloted in Punjab agriculture, can delink welfare from utility balance sheets.
2. Technology-Led Demand Management: Time-of-Day tariffs, AI-enabled loss detection, and universal smart metering can flatten peak demand and reduce procurement costs.
3. Structural Reforms in Governance: Privatisation experiments in Odisha and franchisee models in Maharashtra demonstrate the gains from professional management and accountability.

Conclusion

As President A.P.J. Abdul Kalam observed, ‘Economic growth without institutional reform is illusionary.’ DISCOM viability demands cost-reflective tariffs, political restraint, and consumer trust to convert policy-led recovery into enduring structural resilience.