On September 16, a government statement said that Union Power Minister Manohar Lal chaired the fifth meeting with Group of Ministers (GoM), constituted for addressing issues related to viability of distribution utilities in the country. The GoM is to suggest a new reform-based scheme of debt restructuring of distribution utilities.
This is not the first time such a deliberation is taking place. Prior to this, four or five such high-level bodies have tried to look into the most troubling aspects of India’s power sector — the financial health of distribution utilities and last-mile connect.
At the meeting, the minister urged States to reaffirm the commitment of “Power for All, at All Times”, in a manner that is efficient, environmentally sustainable, and cost-effective. He urged that collaborative efforts by the Central Government, State Governments and Regulatory Commissions are required to implement necessary reforms that ensure the viability of the power sector.
Cynics term this attempt as a band-aid. As M Venugopala Rao, Convener, Centre for Power Studies, puts it, “The latest proposal of the Union Government for a new scheme for restructuring of debt of power distribution companies is an admission that schemes such as financial restructuring scheme and UDAY implemented earlier, could not bail out Discoms from their financial distress. Experience has confirmed that such schemes have been ephemeral palliatives, not a heal-all.”
This brings us to a moot question: What is the solution? Is it in the hands of the States or the Centre?
The need for taking reform measures to restore the financial viability of distribution utilities and also simultaneously ensuring that the reforms are so structured that the improvements are irreversible and the situation of debt trap doesn’t arise again were highlighted by the Power Ministry.
However, till the issue of tariff is not addressed, any reform measure will not work. “The private sector will not jump in till there is return on investments,” an expert said.
The continued unviability of distribution utilities, which in turn gets manifested in sub-optimal service delivery to the consumers, is mostly due to high cross-subsidy which raises the cost of manufacturing and affecting, thereby, their competitiveness. The prevailing losses of the distribution companies have led to the sector becoming less attractive for private investment.
“The proposition of recovery of full-cost tariffs implies that all the burdens have to be imposed on the consumers at large and collected, without questioning the policies and decisions of the powers-that-be who are responsible for such avoidable burdens,” Rao said. “On the part of the Union Government, dissipating as it has been the spirit of federalism and imposing ever-changing and never-ceasing reforms in the power sector, with a number of dichotomies and imbalances, it is nothing but exercising authority, without any responsibility and accountability for the adverse consequences that have been arising as a result of implementing its diktats by willing States,” he said.
The burgeoning burdens of tariff hikes and fuel surcharge adjustments on consumers at large, despite hefty subsidies being provided by the State governments, on the one hand, and accumulated liabilities, debts to be cleared and dues to be collected by the Discoms, on the other, have their root causes in the policies, directives and decisions of the governments and “regulatory failure” and “regulatory capture” of the electricity regulatory commissions, he argued.
Course correction needed
“Such a traumatic experience, after implementation of reforms for nearly three decades, underlines the need for an objective and honest reappraisal of the reforms to chalk out a fundamental course correction. Palliative schemes to impose more and more burdens on the States are no solution,” Rao added.
For example, the schemes being imposed by the Union Government on the States and implemented by the latter have already pushed States such as Telangana and its Discoms into financial difficulties which are so enormous that they are not in a position to wriggle out of the predicament, those tracking the sectors said.
This also means that advocacy for privatisation of the Discom becomes debatable. “When it comes to industrial sickness and closures in the private sector, the advocacy of privatisation becomes meaningless. Lakhs of crores of rupees of loans taken from banks and financial institutions by private corporate houses have been written off, but there are no instances of writing off of the dues of loans of Discoms,” he said.
There is another debate, on whether States that are offering subsidy can carve out separate Discoms to handle subsidised consumers.
During the meeting it was deliberated that the regulatory commissions must issue full-cost tariff, and State Governments may provide subsidy if required. It was deliberated that in order to ensure timely resolution of issues and discourage motivated litigation, measures to encourage mediation mechanisms should be brought into the regulations.
“The details of forming a separate Discom for subsidy and creditworthiness are not made public by the government of Telangana. It will create more problems than solving the existing ones. The government of Andhra Pradesh had formed a separate Discom exclusively for supply of power to agriculture in the State nearly two years back, but it could not be operationalised so far,” Rao said.
The arguments point to the fact that until cost reflective tariff is adopted, the sector will continue to suffer power ‘trippages’.
Published on September 23, 2025