UDAY Scheme: Achievements and Shortcomings for DISCOMs

In Short: India’s power distribution companies (DISCOMs) have long been the weakest link in the energy value chain. Saddled with financial losses, high aggregate technical and commercial (AT&C) losses, and inefficient operations, DISCOMs have been a major roadblock to the growth of the power sector. In 2015, the Government of India launched the Ujwal DISCOM Assurance Yojana (UDAY) as a reform initiative to restore the financial health of DISCOMs and enable them to supply affordable, reliable power. Nearly a decade later, the scheme’s outcomes reflect a mix of significant achievements and persistent shortcomings.

Objectives of UDAY

The UDAY scheme was designed with four key goals:

1. Financial turnaround: Reduce DISCOM debt burden by transferring 75% of outstanding loans to state governments.
2. Operational efficiency: Curb AT&C losses and reduce the gap between Average Cost of Supply (ACS) and Average Revenue Realised (ARR).
3. Power sector sustainability: Enable better demand forecasting, power procurement planning, and coal linkage rationalization.
4. Consumer benefit: Ensure affordable tariffs and reliable supply.

Achievements of UDAY

1. Debt Restructuring Relief
   By 2019, states had taken over around ₹2.32 lakh crore of DISCOM debt. This eased the immediate financial stress and reduced interest costs, freeing up liquidity for operations and investment.
2. Improved AT&C Losses in Select States
   Several states—including Gujarat, Maharashtra, and Himachal Pradesh—reported improvements in AT&C losses, moving closer to the 15% target. Better feeder metering, energy audits, and digital initiatives contributed to efficiency gains.
3. Reduction in ACS-ARR Gap (Partially)
   The ACS-ARR gap, which measures how much revenue DISCOMs recover compared to their supply costs, narrowed in the early years of UDAY. This was mainly due to cost rationalization and improved billing efficiencies.
4. Coal and Fuel Efficiency Gains
   UDAY facilitated coal linkage optimization, allowing DISCOMs to access cheaper domestic coal. This lowered power purchase costs in certain regions, indirectly benefiting end-users.
5. Digitalization of DISCOM Operations
   The scheme encouraged IT-based interventions such as feeder monitoring, consumer indexing, and the adoption of energy accounting systems—laying the groundwork for future smart grid reforms.

Shortcomings of UDAY

1. Recurring Financial Stress
   Despite initial relief, DISCOM losses resurged. By 2020–21, total losses crossed ₹90,000 crore. Structural issues such as inadequate tariff hikes, cross-subsidization, and political pressure to provide free power continued to undermine financial recovery.
2. AT&C Loss Targets Missed
   While a few states achieved improvements, many lagged far behind. States like Uttar Pradesh, Bihar, and Jharkhand continued to report AT&C losses above 25–30%, far higher than the 15% target.
3. ACS-ARR Gap Widening Again
   In several states, the ACS-ARR gap began widening after 2019, largely due to rising power purchase costs, delays in tariff revisions, and COVID-19-induced revenue shocks.
4. Limited Accountability
   Though UDAY required states to commit to reforms, compliance was uneven. Lack of enforcement mechanisms meant that states could backslide on loss-reduction commitments without significant consequences.
5. Incomplete Structural Reforms
   UDAY addressed financial restructuring but did not tackle deeper issues like governance reforms, privatization of loss-making utilities, or political interference in tariff setting. Without such systemic changes, the gains could not be sustained.

The Road Ahead

The UDAY scheme was a step in the right direction, providing immediate breathing space to DISCOMs. However, its shortcomings highlight the need for a second wave of reforms. Future strategies must emphasize:

• Enforcing strict loss-reduction targets.
• Rationalizing tariffs and subsidies transparently.
• Encouraging private participation and competitive distribution models.
• Scaling up smart metering and digital billing systems.
• Integrating renewable energy efficiently into the distribution network.

Conclusion

The UDAY scheme helped stabilize the crisis-prone power distribution sector temporarily, but it fell short of delivering long-term transformation. DISCOMs remain financially vulnerable, and without bold structural reforms, India’s power sector will continue to face recurring stress. The experience of UDAY serves as a lesson: financial restructuring alone is not enough; governance, efficiency, and accountability must form the backbone of future reforms.