Power sector in India

Source- The Indian Express

Syllabus- GS 3- Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

Context– The financial hole into which the DISCOMS have fallen will deepen in light of COVID.

What is UDAY scheme?

  • Launched in November 2015, the Ujjwal DISCOM Assurance Yojana (UDAY) was designed to turn around the precarious financial position of state distribution companies (DISCOMS).
  • The state governments took over 75 % of the debt of their DISCOMS, issuing lower-interest bonds to service the rest of the debt.
  • In return, DISCOMS were given target dates (2017-19) to meet efficiency parameters like reduction in power lost through transmission, theft and faulty metering.

What is the current situation of State Electricity Distribution Companies DISCOMS in India?

DISCOMS today are facing unprecedented cash flow problems-

  1. Loss
  • The losses of DISCOMS, which had reduced in 2016-18, have nearly doubled in 2019 to INR 28,036 crore.
  • DISCOMS have also missed the FY 2019 UDAY target to bring down their aggregate technical and commercial (AT&C) losses to 15 %.
  1. The finance minister allocated Rs 1.25 lakh crore to DISCOMS in her Rs 20-lakh crore stimulus package. This is roughly the amount the government portal, PRAAPTI, indicates are the dues owed by DISCOMS to the power generators.

What were the reasons for failure of UDAY scheme?

  1. While the ACS-ARR gap was supposed to be eliminated by FY19, it remains as high as Rs 0.25 per unit.
    1. Part of the problem can be traced to inadequate tariff hikes. Currently, only four states — Himachal Pradesh, Gujarat, Maharashtra and Karnataka — had recorded an ACS-ARR below 0.
  1. The issue of whether the power subsidy released by state governments is adequate.
  2. Dues by state DISCOMS to power generators have risen.

What are the fundamental problems in DISCOM sector in India and it’s possible Solutions?

  1. Cross- subsidy– Electricity price for certain segments such as agriculture and the domestic category is cross-subsidized by the industries and the commercial sector. This affects the competiveness of industry.
  2. Led behind in eliminating the electricity cost gap– There is the problem of AT&C, which is a technical term that stands for the gap between the cost of the electricity that DISCOMS gets from the generating company, the bills that it raises and the final realization from the collection process from end-consumers.


  1. Clearing dues– The stakeholders involved in the electricity value chain (generators, transmission companies, DISCOMS, consumers, regulators and state governments) to clear their dues to each other, the DISCOMS would look much stronger.
  2. Efficiency– The AT&C (aggregate transmission and distribution losses) losses need to go down, and billing and collection efficiencies should go up.

Way forward

Need of an hour is a multi-pronged and networked overhaul of the DISCOM sector and, in particular, the regulatory structure and deliverables. All stakeholders will have to take a haircut. COVID will introduce a new pressure point (i.e. Generation Z and the millennial) on governments that would compel them to look at the inherited structural problems through a different angle.

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