By Rishi Ranjan Kala

Copyright thehindubusinessline

Flagging the high debt burden of Discoms, the Group of Ministers (GoM) on Tuesday suggested restructuring the outstanding debt of State-controlled utilities by floating a new scheme.

Besides, the GoM, created to address issues of viability of Discoms and chaired by Power Minister Manohar Lal, also recommended that the debt needs to be recognised as liability of the State government.

For perspective, the RBI’s State Finance–A Study of Budgets of 2024-25—puts the total accumulated losses of Discoms at ₹6.5 lakh crore in FY23, which was 2.4 per cent of India’s GDP. Their total outstanding debt has swelled to more than ₹7.5 lakh crore by FY24.

During the meeting, it was deliberated that the State electricity regulatory commissions (SERCs) must issue full cost tariffs, and State governments may provide subsidy if required, the Power Ministry said.

“In view of the gravity of the debt situation, there was a need to recognise debt of distribution utilities as the liability of State governments,” the Ministry added.

The GoM also deliberated on drafting the broad contours of the new scheme to be proposed by the panel for debt restructuring of Discoms. Power Ministry Joint Secretary (Distribution) informed that the high cross subsidy being levied has resulted in expensive cost of manufacturing, affecting Discom’s competitiveness. “He presented the proposed key reform measures which have emerged as a result of the outcome of the deliberations held so far and based on consideration of the member States,” the Ministry added.

It is important to check the Aggregate Technical and Commercial (AT&C) losses, considering a 1 per cent increase in AT&C loss results in a monetary loss of over ₹10,000 crore for the utilities.

Discom losses

According to data shared by the Minister of State for Power Shripad Naik in March 2025, in a written reply in Lok Sabha, the Discoms accumulated deficit pan-India rose to ₹6.92 lakh crore in FY24 from around ₹6.46 lakh crore in FY23, with Tamil Nadu, Uttar Pradesh, Rajasthan, Madhya Pradesh and Telangana having higher deficits. This assumes importance as the Supreme Court recently directed the liquidation of regulatory assets (RAs) of State Discoms within four years.

Ratings agency ICRA in a report on Tuesday said as per its estimate and based on tariff orders issued by the SERCs, the RA position at all India level remains elevated at around ₹3 lakh crore, mainly driven by Tamil Nadu, Uttar Pradesh, Rajasthan, Maharashtra, Delhi, West Bengal and Karnataka.

Tamil Nadu, UP and Rajasthan account for a majority share, said Girishkumar Kadam, Group Head of Corporate Ratings at ICRA, said.

The all-India ACS-ARR gap stood at 46 paise per unit in FY24, being particularly high in Andhra Pradesh, Madhya Pradesh, Maharashtra and Telangana. ICRA estimates an all-India average hike of 4.5 per cent along with a reduction in AT&C losses to below 15 per cent is needed to eliminate the gap between ACS and ARR, with the tariff hike required varying widely across the States, he added

However, Centre’s past efforts have led to positive outcomes. For instance, between FY15 and FY23, the AT&C losses have come down from 25.7 per cent to 15.4 per cent, and the ACS-ARR gap narrowed from ₹0.78 per kWh to ₹0.45 per kWh.

The AT&C loss of Discoms at the national level also has declined from around 22 per cent in FY21 to about 16.28 per cent in FY24. Besides, the gap between the Average Cost of Supply and Average Revenue Realized (ACS-ARR Gap) reduced from ₹0.71 per kWh to ₹0.19 per kWh during the same period.

Published on September 16, 2025