Being the last leg in the electricity supply chain, the power distribution sector plays a critical role in determining the overall health of the power sector. Since the performance of distribution utilities ultimately affects the sustainability of the entire value chain, the segment has remained at the centre of power sector reforms. For decades, however, the sector has struggled with challenges such as high aggregate technical and commercial (AT&C) losses, tariff distortions and delays in subsidy disbursements. Meanwhile, the evolving energy landscape, marked by rising electricity demand, greater renewable energy integration and the electrification of end-use sectors, is reshaping the role of distribution utilities.
In response, policy efforts have increasingly focused on improving cost recovery, enhancing operational efficiency and strengthening accountability. At the same time, distribution utilities are adopting advanced technologies to build smarter, more efficient and resilient networks.
State of the sector
The distribution sector reached an important milestone in FY 2024-25. For the first time since the unbundling and corporatisation of state electricity boards, utilities collectively reported a positive profit after tax (PAT) of Rs 27.01 billion on an accrual basis at the all-India level, compared to a loss of Rs 270.22 billion in FY 2023-24.
This turnaround has been driven by a series of government interventions, particularly the Revamped Distribution Sector Scheme (RDSS). Notably, the budget estimate for the RDSS has been increased to Rs 180 billion for FY 2027 from the revised estimate of Rs 156.71 billion for FY 2026. Continued support remains critical as discoms still face significant financial stress. At the end of FY 2025, their accumulated losses stood at Rs 6.47 trillion, while total borrowings were Rs 7.26 trillion.
Operational performance also improved during the year. AT&C losses declined from 15.97 per cent in FY 2023-24 to 15.04 per cent in FY 2024-25. The average cost of supply-average revenue realised (ACS-ARR) gap also narrowed from Re 0.32 per kWh to Re 0.07 per kWh, indicating better cost recovery. Revenue realisation strengthened as billing efficiency increased from 86.99 per cent to 87.59 per cent, and collection efficiency improved from 96.6 per cent to 97 per cent.
Further, the Electricity (Late Payment Surcharge) Rules, 2022 have improved payment discipline across the sector. Outstanding dues to gencos have declined from Rs 1,399.47 billion in 2022 to Rs 33.3 billion as of March 2026. Consequently, the average payment cycle of utilities has reduced from 132 days in FY 2023-24 to 113 days in FY 2024-25.
Meanwhile, average daily power supply increased to 22.6 hours in rural areas and 23.32 hours in urban areas in FY 2025.
Policy measures
The government has introduced several measures to improve the financial and operational performance of utilities. The flagship initiative remains the RDSS, which focuses on smart metering and loss reduction. During FY 2022-26 (up to February 9, 2026), Rs 457.36 billion was allocated under the scheme, of which Rs 396.51 billion (87 per cent) was utilised. Notably, fund utilisation reached 100 per cent in FY 2024-25. The scheme is also expected to be extended up to FY 2028 to facilitate completion of the approved works.
In January 2026, the Draft National Electricity Plan 2026 was notified, which outlines a road map for improving the sustainability of the distribution sector. The plan emphasises tariff rationalisation, power procurement optimisation and AT&C loss reduction. It also proposes the wider deployment of prepaid smart meters, time-bound energy audits, robust accounting systems, and network modernisation through geographic information system (GIS)-based asset mapping and automation.
Further, the Draft Electricity (Amendment) Bill, released in October 2025, proposes the sharing of distribution networks to promote efficiency and competition. It seeks to enable the timely implementation of cost-reflective tariffs through greater regulatory oversight. To improve financial sustainability, automatic monthly fuel and power purchase cost adjustment mechanisms have also been introduced. As per the Ministry of Power’s (MoP) Key Regulatory Parameters of Power Utilities Report, as of March 2026, regulators in 32 states and union territories allowed automatic adjustment of these costs.
Meanwhile, the Electricity Distribution (Accounts and Additional Disclosure) Rules, 2025 have introduced uniform accounting practices and enhanced transparency across utilities. In addition, the Electricity (Rights of Consumers) Rules, 2020 mandate 24×7 power supply for all consumers across urban and rural areas.
Loss reduction and smart metering
Utilities are undertaking a range of loss reduction measures, including the replacement of old conductors, augmentation of substations and distribution transformers (DTs), feeder segregation, and deployment of supervisory control and data acquisition and distribution management systems for real-time monitoring. As of June 8, 2026, the overall physical progress for loss reduction works under the RDSS is at 41.36 per cent.
Alongside network strengthening, a key area of intervention under the RDSS is the deployment of smart meters, feeder meters and DT meters. Smart meters support automatic energy accounting, improved load forecasting, demand-side management and data-driven utility operations.
According to the RDSS portal, as of June 12, 2026, 53.28 million smart consumer meters had been installed and communicating against a sanctioned target of 195.83 million. Maharashtra, Uttar Pradesh, Assam, Gujarat and Rajasthan have recorded the highest installations so far. Progress in DT metering has been slower. A total of 1.78 million DT meters have been installed and communicating against a sanctioned target of 5.25 million. In contrast, 180,441 feeder meters have been installed and communicating against a sanctioned target of 195,952.
Technology adoption
The distribution sector is undergoing rapid digitalisation to improve network visibility, asset management and operational efficiency. A key focus area is network operations and maintenance. Artificial intelligence (AI)-enabled predictive maintenance, internet of things (IoT) sensors, cloud-based dashboards and advanced analytics are improving asset health monitoring and risk management. At the same time, utilities are using AI for fault detection, load forecasting, transformer condition monitoring and theft analytics. IoT-enabled sensors and digital monitoring systems are increasingly being deployed to track asset condition and electrical parameters in real time. This enables faster restoration, better scheduling and lower technical losses.
For cables and conductors, digital asset registers and GIS-based network models are being integrated with outage and inspection data to identify ageing assets, bottlenecks and recurring fault locations. In addition, thermography and drone-based inspections are helping utilities detect hotspots, loose joints and sagging conductors at an early stage. Meanwhile, substations are evolving into intelligent and remotely operated facilities through fibre-based communication networks, digital protection systems and process bus technologies.
Further, the MoP has initiated the development of the India Energy Stack (IES), a digital public infrastructure aimed at enabling interoperable data exchange and addressing fragmented utility systems. Pilot projects are planned across utilities in Delhi, Gujarat, Andhra Pradesh, Uttar Pradesh and Mumbai during 2026-27. For this initiative, Rs 513 million has been allocated, of which Rs 38.8 million has been released so far.
Challenges and outlook
The distribution segment continues to face several financial and operational challenges. High AT&C losses, delayed subsidy payments and regulatory disallowances continue to put pressure on utility finances. As of March 31, 2026, Meghalaya recorded the highest disallowances at about 59 per cent of net annual revenue requirement, followed by Jammu & Kashmir (52 per cent), the Andaman & Nicobar Islands (39 per cent) and Ladakh (27 per cent).
Tariff rationalisation also remains a work in progress. Based on FY 2026-27 tariff orders, only 15 states and union territories complied with the ±20 per cent cross-subsidy limit for low tension industrial consumers, while only 13 complied in the high tension industrial category, indicating continued deviation from cost-reflective tariffs.
At the operational level, ageing infrastructure, inadequate network investments, and the growing share of renewable energy continue to strain distribution networks. Utilities also face issues related to power theft, billing inefficiencies, limited metering coverage and delays in adopting digital technologies. In addition, resistance to prepaid smart meters and delays in grant disbursement continue to affect sector performance.
Addressing these issues will require substantial investment and targeted policy support. According to the Central Electricity Authority’s Draft Distribution Perspective Plan 2030, about Rs 4.28 trillion will be required for distribution infrastructure upgrades during 2022-27. Of this, about Rs 1.89 trillion (44 per cent) will be available to discoms, including funds sanctioned under the RDSS.
Overall, the sector has made measurable progress in improving financial and operational performance. Going forward, sustained gains will depend on timely tariff reforms, continued loss reduction and faster infrastructure modernisation
