How are India’s DISCOMs in profit now?

Story so far:

‘The country’s power distribution utilities (DISCOMs and Power Departments) have recorded a positive Profit After Tax (PAT) of ₹2,701 crore in FY25’, announced the Economic Survey 2025-26 on Thursday (January 29, 2026). The stated reasons for this turnaround are — DISCOMs’ losses have reduced by 80% in past three years, automatic fuel and power purchase cost adjustment on a monthly basis, late payment surcharges, timely recovery of costs for generators as per adjusted tariffs and the revamped distribution sector scheme. 

The Survey also highlighted the reduction in Aggregate Technical and Commercial (AT&C) losses, from 22.62% in 2014-2015 to 15.04% and improved cost recovery. With India’s Transformation capacity touching 60,260 MVA in 2025-26 and installed capacity at 509.74 GW, the gap between energy demand and supply has declined from 4.2% in 2014-15 to nil by November 2025. In the ongoing Budget Session, Centre is slated to table the Electricity (Amendment) Bill, 2026 to promote efficiency, competition, and financial discipline in the power sector.

How much losses have DISCOMs accrued?

As per the Power Finance Corporation’s (PFC) report of Distribution utilities, State DISCOMs have accrued losses ranging from ₹25,000 crore to ₹63,000 crore between 2014-15 and 2024-2025. The losses follow a peak and dip pattern through these years before dropping to its lowest ₹9,437 crore in 2024-25. The profit of ₹2,701 crore, registered by Distribution sector as a whole is accounting private distribution companies’ profit of ₹12,138 crore.

Over the years, the losses accrued have been attributed to depreciation of e-valued assets of DISCOMs and increased subsidies to consumers. Improvement of accrued losses in some years have been because improved revenue realization, tariff subsidy support from State Governments, reduced interest on Ujwal DISCOM Assurance Yojana (UDAY) scheme and narrowed gap on tariff subsidy billed.

Through the years, States which have been top loss-makers are Madhya Pradesh, Telangana, Tamil Nadu, Uttar Pradesh, Rajasthan, Andhra Pradesh. Between 2014-2015 and 2024-2025, Uttar Pradesh has accrued losses ranging from ₹3,866 crores to ₹21,291 crores, consistently appearing as a loss-maker in the past ten years. Similar performances have been displayed by Tamil Nadu – whose losses range from ₹4,349 crore to ₹13,407 crores, Telangana (losses ranging between ₹2,462 crore and 11,103) and Madhya Pradesh with accrued losses ranging from ₹2,561 crore and ₹6,065.

Maharashtra, which accrued heavy losses of ₹14,979 crores in 2015-16 has bettered its finances, registering a profit of ₹1,292 crore in 2024-25. Rajasthan bettered its finances by 2015-16, reducing its losses from ₹10,631 crore to register a profit of ₹1,262 crore by 2024-25. Bihar has consistently registered losses ranging between ₹1,000 - ₹2,500 crores before turning profitable in the past two years.

Centre’s changed approach; RDSS and its effect

In a bid to arrest the losses of DISCOMs, the Centre launched the Revamped Distribution Sector Scheme (RDSS) in 2021, with an overall outlay of ₹3.03 lakh crore over the period of five years till FY25-26. It aimed at reducing Aggregate Technical & Commercial (AT&C) losses – energy lost during Transmission and Distribution and due to theft, faulty metering and non-payment of dues, from 21-22% in 2021 to 12-15% by FY25-26. It also set a target of reducing the Average Cost of Supply–Average Revenue Realized ACS-ARR gap – the loss incurred by DISCOMs per unit of electricity, to zero. 

Under the scheme, State DISCOMs which achieve a minimum 60% on evaluation of parameters such as AT&C losses, ACS-ARR gaps, infrastructure upgrade performance, consumer services, hours of supply, corporate governance etc., will be eligible for funding. RDSS also laid foundation for installing prepaid Smart metering units in Public-Private-Partnership (PPP) mode and separating Agriculture feeders and convert them to solar supply. 

With the advent of RDSS, AT&C losses steadily dropped from 22.25% in 2020-2021 to 15.04% ACS-ARR gap reduced from 0.55 ₹/kWh in 2020-2021 to 0.06 ₹/kWh in 2024-25. Meanwhile, 22,42,79,749 power connections have been sanctioned to switch over to smart meters (as of February 20, 2026) of which 5,66,77,412 connections have completed the process, with 20,07,535 connections switching to smart meters in this month, according to National Smart Grid Mission.

Additional borrowing

In 2021, the Fifteenth Finance Commission granted States to additionally borrow 0.5% of the Gross State Domestic Product (GSDP) to undertake sectorial reforms in power. States’ performance was evaluated on their ability to undertake reforms such as – assuming responsibility of losses incurred by DISCOMs, transparency and timely audit of financial records of DISCOMs and compliance with legal requirements.

Based on outcomes such as subsidy payments via direct benefit transfer (DBT), reduced AT&C losses and ARR gap, payment of electricity bills by government departments, installation of prepaid meters, thirteen states were allowed to raise financial resources of ₹1,48,361 crore through additional borrowing from 2021-22 to 2024-25. Similarly, for 2025-26, states are eligible for additional borrowing of 0.5% of GSDP (Approx ₹1,71,612 crore) linked to their performance in power sector.

Late Payment Surcharge

In 2022, the Centre also amended the Electricity (Late Payment Surcharge) Rules, 2021 setting a deadline for DISCOMs to clear their dues payable to Generating and Transmission Companies. As per the rules, DISCOMs with outstanding dues upto ₹500 crores were given a year to clear them along with a Late Surcharge Payment of 0.5% for every month they defaulted on the payment. DISCOMs which had amassed dues exceeding ₹10,000 crores were given four years for the same. The change in these rules led to reduction of dues from ₹1.4 lakh crore (June 2022) to ₹4,927 crore (January 2026).

What is the road ahead?

Tabled in Parliament on February 2, 2026, the sixteenth Financial commission (16^th FC) report, recommended the privatisation of State-owned DISCOMs. It advised states to create a special purpose vehicle (SPV) to takeover the debt of these DISCOMs while allowing a private investor to takeover the utility. Debt of these SPVs can either be negotiated for closure/prepayment or taken over by the State government. To incentivise States to privatise, the 16^th FC recommends that the repayment of this debt can be made eligible for financial assistance under the special incentive scheme for capital investment (SASCI) of the Centre. However, the aid could be made available only after the DISCOM has been privatised. 

The recommendation has policy heft as the Ministry of Power has formulated a framework for privatisation of State DISCOMs. With an outlay of ₹1 trillion, the Ministry has provided States with two options under which it can avail loans to pay off its debts.

As recommended by the 16^th FC, the State can create a new distribution company and divest 51% of the equity. With access to a 50-year interest-free loan for the debt i.e. SASCI and low-interest loans from the Centre for five years, the State can pay for the debt and retain minority stake. Otherwise, States can privatise up to 26% of equity of a DISCOM and avail low-interest loans from the Centre for five years. Those States which do not want to privatise must list their utilities on a recognised stock exchange within three years and upon listing will receive the above-mentioned Central loan.