Average tariff hike of 4.5% along with reduction in AT&C losses needed to revive discoms: ICRA
(source : ANI) ( Photo Credit : ani)
India’s power distribution companies, or discoms, are facing tough financial times, and experts say they need bigger tariff hikes to turn things around. Rating agency ICRA recently pointed out that a 4.5% average tariff increase, along with cutting aggregate technical and commercial (AT&C) losses below 15%, could finally close the gap between the average cost of supply (ACS) and average revenue realisation (ARR).
In FY2024, this ACS-ARR gap hit 46 paise per unit across India, putting real pressure on discoms. While 23 out of 28 states have rolled out tariff orders for FY2026, the typical hike stayed low at just 1.9%. ICRA warns that without bolder moves, the problems will only grow.
One big issue is the pile-up of regulatory assets (RA), where discoms defer unrecovered costs for later collection through higher rates. Seven major state discoms in places like Tamil Nadu, Uttar Pradesh, Rajasthan, Maharashtra, Delhi, West Bengal, and Karnataka are sitting on about Rs 3 lakh crore in these assets, with the top three states holding the lion’s share.
The Supreme Court stepped in recently, ordering discoms to clear all existing RAs within four years and limit new ones to 3% of ARR. The court also tasked the Appellate Tribunal for Electricity (APTEL) with keeping tabs on progress to ensure everyone follows through.
Girishkumar Kadam, Senior Vice President and Group Head of Corporate Ratings at ICRA, explains that meeting this court order means states like these will need sharp tariff hikes. “State governments must back these changes for smooth rollout,” he adds. Kadam stresses that boosting operational efficiency and pushing for timely, cost-based tariff orders are key to fixing discom finances for good.
Discoms keep struggling with small tariff adjustments, growing RA piles, high AT&C losses, and skyrocketing debt. State-owned discoms’ gross debt jumped to Rs 7.4 trillion by March 2024, up from Rs 6.6 trillion the year before. At this rate, it’s hard to sustain, and subsidies could climb to Rs 2.2 trillion in FY2026.
There’s some good news on the horizon, though. Changes in GST rates on coal—from 5% to 18%, plus scrapping the Rs 400 per tonne compensation cess—should ease generation costs for coal-fired plants, which power over 70% of India’s electricity. ICRA estimates this could shave off 12 paise per unit from discoms’ supply costs.
To really recover, ICRA says discoms must keep reducing AT&C losses, quickly adjust tariffs for cost changes, and clear old RAs on time. These steps could pave the way for a healthier power sector in India.
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