GoM suggests new debt restructuring scheme for State Discoms
Author: PPD Team Date: September 17, 2025
A Group of Ministers (GoM) chaired by Power Minister Manohar Lal has proposed a new scheme to restructure the rising debt of State-owned power distribution companies (discoms). The panel said the liabilities should be formally recognised as obligations of the respective State governments.
The Reserve Bank of India’s State Finance – A Study of Budgets of 2024-25 estimated the accumulated losses of discoms at Rs 6.5 lakh crore in FY23, equal to 2.4 per cent of India’s GDP. Their outstanding debt rose further to over Rs 7.5 lakh crore in FY24.
During deliberations, the GoM stressed that State electricity regulatory commissions must allow full cost-reflective tariffs, while State governments may extend subsidies where necessary, according to a Power Ministry statement. The Ministry said the panel also reviewed the broad contours of a proposed debt restructuring mechanism.
The discussions highlighted the impact of high cross-subsidies, which increase manufacturing costs and weaken discom competitiveness. Reform measures under consideration include tighter control of Aggregate Technical and Commercial (AT&C) losses, as a 1 per cent increase in AT&C losses results in over Rs 10,000 crore of additional burden on utilities.
Latest data presented in Parliament in March 2025 showed discoms’ accumulated deficit rising to Rs 6.92 lakh crore in FY24 from Rs 6.46 lakh crore in FY23. Tamil Nadu, Uttar Pradesh, Rajasthan, Madhya Pradesh, and Telangana reported the largest deficits. The issue has gained urgency following a Supreme Court order directing liquidation of regulatory assets within four years.
ICRA, in a report released on Tuesday, estimated regulatory assets at around Rs 3 lakh crore nationwide, with Tamil Nadu, Uttar Pradesh, Rajasthan, Maharashtra, Delhi, West Bengal, and Karnataka contributing most of the total. Tamil Nadu, Uttar Pradesh, and Rajasthan accounted for a majority, said Girishkumar Kadam, Group Head of Corporate Ratings at ICRA.
The ratings agency noted that the all-India average cost of supply-average revenue realised (ACS-ARR) gap stood at 46 paise per unit in FY24, with Andhra Pradesh, Madhya Pradesh, Maharashtra, and Telangana among the States reporting the highest gaps. ICRA projected that closing the gap will require an all-India tariff hike of 4.5 per cent on average, along with a reduction in AT&C losses to below 15 per cent, though the extent of tariff adjustments would vary across States.
Despite ongoing challenges, government initiatives have delivered improvements over time. Between FY15 and FY23, AT&C losses fell from 25.7 per cent to 15.4 per cent, and the ACS-ARR gap narrowed from Rs 0.78 per unit to Rs 0.45 per unit. Nationally, AT&C losses dropped from about 22 per cent in FY21 to 16.28 per cent in FY24, while the ACS-ARR gap reduced from Rs 0.71 per unit to Rs 0.19 per unit during the same period.