DISCOM Losses Drop to ₹25,553 Cr in FY24, But Debt Still at ₹5.8 Tr: IEEFA

Energy—the sixth largest component of state budgets—accounts for around 5% of spending, most of which goes to subsidies and grants for power distribution companies (DISCOMs). A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) warns that without stronger accountability and financial discipline, states risk ballooning liabilities and mounting debt.

As of June 2025, DISCOMs owed generators a staggering ₹5.81 trillion ($6.8 billion), creating a severe liquidity crunch for independent power producers. While losses narrowed from ₹61,059 crore ($7.8 billion) in FY2023 to ₹25,553 crore ($3 billion) in FY2024, the improvement stems mainly from a smaller revenue-cost gap—high Aggregate Technical and Commercial (AT&C) losses of 16% continue to plague the sector.

The report also highlights that, although states are supposed to cap fiscal deficits at 3% of Gross State Domestic Product (GSDP), with an extra 0.5% allowed for power sector reforms, actual exposure is often far higher when subsidies, grants, and guarantees are included. IEEFA’s analysis underscores that structural reforms and transparent funding are critical to prevent the sector from draining state finances.

Despite central government bailout packages—including UDAY in 2015 and the revamped distribution scheme in 2022—financial stress continues. IEEFA said costly imported coal, non-cost-reflective tariffs, and heavy cross-subsidies, particularly to agriculture, have created an unsustainable business model.

The report calls for state governments to consolidate all DISCOM-related debt on their balance sheets and fund subsidies transparently. It also recommends limiting subsidies unless tied to structural reforms.

State-Level Spending

This note highlights the need for state governments to take full responsibility and accountability for funding the state power sector. During FY2023-24, the 5% state will spend 5% on the energy sector. For states like Arunachal Pradesh, Goa, Jammu and Kashmir, Puducherry, Madhya Pradesh, and Rajasthan, the average expenditure was in the range of 7.7%-23.8%.

The report emphasised that the state governments take full responsibility and accountability for funding the state power sector. Subsidies should be limited to the sector unless coupled with reforms that address structural issues that lead to technical, commercial, and financial losses in DISCOMs. All state debt needs to be consolidated on the state’s balance sheet, and subsidies funded on time by the state.

The report also suggested some key reforms for prioritising in such areas are:

• Privatisation or adoption of a hybrid franchisee model.
• Ensuring all consumers have operational prepaid or smart meters.
• Enforcing regulatory discipline through timely tariff revisions, management of regulatory assets and subsidy delivery, and stronger corporate governance.
•  Undertaking power sector reforms by creating a national pool market.
• Pursuing market reforms like time-of-day pricing, private sector participation in transmission, and the rollout of market coupling and forward markets in their entirety.
• Adopting advanced digital tools to enhance demand forecasting, grid planning, and
  operational efficiency

IEEFA View

“Timely data transparency, in line with Indian Accounting Standards, will allow state governments to take prompt action to limit their exposure to loss-making sectors and utilise funds in other sectors that help the government advance social, economic, and equity goals,” notes Garg. Measures such as Direct Benefit Transfer for electricity subsidies could further reduce revenue gaps, prevent subsidy arrears and improve transparency. says Vibhuti Garg, Director – IEEFA South Asia and a co-author of this briefing note. 

“A borrowing limit for the power sector should be determined based on the overall share of GSDP after accounting for all forms of state support. Power sector financing burden on the state due to unviable tariffs and operational inefficiencies are crowding out funds for infrastructure and socio-economic development,” says Gaurav Upadhyay, energy finance analyst and a co-author of this note. 

“The government can consider linking states’ fiscal borrowing and access to central funds to the performance ratings of their DISCOMs. An index of loans, guarantees, and subsidies can track each state’s exposure, and better-performing utilities would get more fiscal space,” says Jena.