India’s Power Distribution Sector Shows Recovery, But Privatization Seen As Key To Long-Term Stability—SBICAPS Report

India’s power sector is witnessing strong growth with rapid additions in renewable energy, thermal power, and nuclear capacity. However, while generation and transmission infrastructure continue to improve, the power distribution segment remains the biggest challenge in ensuring long-term stability of the national electricity network. According to a recent report by SBICAPS, distribution companies (DISCOMs) have shown significant operational and financial improvement over the last decade.

The report highlighted that Aggregate Technical and Commercial (AT&C) losses reduced sharply from more than 25 percent in FY15 to nearly 15 percent in FY25. This improvement was mainly driven by better collection efficiency and tighter operational controls. At the same time, the difference between the average cost of supply and average revenue realized, commonly known as the ACS-ARR gap, also improved considerably. The gap narrowed to only 6 paise per unit in FY25 compared to 89 paise per unit in FY21. Due to these improvements, DISCOMs together recorded a net profit of Rs. 27 billion in FY25 after suffering financial losses for several years.

Despite this progress, the report noted that the turnaround is still uneven across the country. Several eastern states continue to perform poorly in operational efficiency. The implementation of smart meters, considered an important reform for improving billing and reducing losses, has also been slow and fragmented among states. The report further observed that the financial recovery of DISCOMs was largely supported by the strong performance of private utilities and the timely release of pending government subsidies rather than a complete transformation of state-owned utilities.

Another concern raised in the report relates to outstanding dues owed by DISCOMs to power generation companies. While these dues have reduced in recent years, the report stated that much of the improvement has come from state financing agencies restructuring or shifting debt rather than permanently eliminating liabilities.

The report strongly recommended privatization as a long-term solution for improving the financial and operational health of power distribution utilities. According to the analysis, states with private participation recorded AT&C losses that were around 8 percentage points lower than states operated entirely by public utilities. The report cited the example of Odisha, where four privatized distribution companies reduced their AT&C losses by 11 to 16 percentage points within five years.

Based on an assessment of utilities across 22 major states, the report identified Uttar Pradesh, Punjab, Haryana, Bihar, and Chhattisgarh among the states that could immediately benefit from large-scale privatization. Gujarat and West Bengal were also considered suitable candidates despite already maintaining relatively stronger utilities.

The report added that privatizing 11 financially viable state utilities could significantly improve state finances and reduce the combined fiscal deficit of these states from 3.5 percent to 3 percent of nominal GSDP. For states carrying large legacy debts, the report suggested gradual reforms including restructuring utilities, refinancing expensive loans, and introducing selective private investment. According to the report, improving efficiency in the distribution sector will play a major role in strengthening India’s overall power grid and supporting future energy growth.