The revamped power distribution scheme to provide financial assistance to discoms should improve their viability. The finances of discoms deteriorated due to the delay and non-payment of subsidies by states. These subsidies are to compensate for free/cheap power, particularly to the farm sector. Free power artificially depresses electricity cost. Periodic bailouts – where states take over the losses or debt burden of discoms – dent state finances. State debt has been going up, the Ujwal Discom Assurance Yojana (UDAY) proving to be a particular burden. UDAY has failed, and the overdues of discoms to power generators are steadily mounting.
The losses of discoms surpassed the pre-UDAY level of 0.4% of GDP in 2018-19. Their long-term debt began rising in 2017-18, surpassed the pre-UDAY level by 2018-19, and rose further in 2019-20. The combined losses of discoms in the five most indebted states – Bihar, Kerala, Punjab, Rajasthan and West Bengal – constituted 24.7% of the total losses in 2019-20. The technical and commercial losses in distribution, around 22%, are way too high. Reforms, over the last three decades, have followed the letter of the law while haphazardly ignoring its spirit. That must change.