India’s power distribution sector has sharply narrowed aggregate technical and commercial (AT&C) losses to nearly 15% in FY25 from over 25% in FY15 and reduced the average cost of supply-average revenue realised (ACS-ARR) gap to just 6 paise per unit from 89 paise per unit in FY21, but the financial recovery remains uneven and heavily dependent on subsidies, restructuring support and private sector-led gains, according to an SBICAPS report.
The report said states such as Uttar Pradesh, Punjab, Haryana, Bihar, Assam, Chhattisgarh, Gujarat, West Bengal and Uttarakhand have emerged as key candidates for large-scale discom privatisation and restructuring as state-run utilities continue to face operational inefficiencies, mounting subsidy pressures and legacy debt burdens.
Power demand pressure rises
The analysis comes at a time when India’s electricity demand is touching record highs amid heatwave conditions and rising industrial consumption, increasing pressure on financially stressed distribution companies to improve efficiency, billing and power procurement practices.
“AT&C losses have reduced from over 25% in FY15 to 15% in FY25,” the report noted, adding that much of the improvement was driven by gains in collection efficiency.
The ACS-ARR gap, a key indicator of distribution sector viability, has also narrowed sharply over the past four years, while discoms collectively posted a profit of ₹27 billion in FY25 after years of losses.
However, SBICAPS cautioned that the recovery “has its own share of caveats,” stating that the FY25 profitability was “largely owing to the outperformance by private discoms and clearance of subsidies rather than vast change in functioning of public discoms.”
The report said eastern India continues to remain “the last frontier for loss reduction,” with states such as Jharkhand and several northeastern regions lagging on operational parameters and billing efficiency.
Private utilities continue to outperform state-run discoms across operational metrics. According to the report, in states having both public and private discoms, private companies recorded AT&C losses around 8 percentage points lower on average than public utilities.
The report cited Odisha as a major example of operational gains following privatisation. AT&C losses across Odisha’s four privatised discoms declined by 11-16 percentage points between FY20 and FY25, alongside improvements in billing and collection efficiency.
At the same time, liabilities in the sector continue to shift towards state-backed financial institutions such as Power Finance Corporation (PFC) and REC through repeated restructuring and liquidity support schemes.
Power costs remain high
“Rather than a true extinguishment of liabilities, the outstanding amounts have simply been transferred to the books as assets of PFC/REC,” the report said.
Power purchase costs remain another major pressure point, accounting for nearly three-fourths of the average cost of supply in most states. States with older thermal plants, costly renewable PPAs and high interest burdens continue to face elevated supply costs.
SBICAPS said privatisation across 11 states could potentially reduce the collective fiscal deficit of states to around 3% of nominal GSDP from nearly 3.5% currently, aligning with the target recommended by the 16th Finance Commission.
“Distribution remains the last frontier,” the report said, adding that strengthening the weakest segment of the power sector would create “positive ripples all the way from the consumer to the generator.”