Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
The Ujwal Discom Assurance Yojana (UDAY) scheme, announced in
November 2015, targeting financial turnaround of the debt-ridden
state-owned distribution companies (DISCOMs), completed its term in
March 2019. The intent of the reform was to reduce the existing
debt burden of the DISCOMs and bring operational and financial
discipline, which would have helped DISCOMs to achieve breakeven
within a three-year period. Although DISCOMs enjoyed the benefit of
debt reduction during the period, the sector continues to face
structural issues impacting the wellbeing of DISCOMs.
At the end of the scheme, state-level achievements remained
fragmented with respect to operational parameters and no
substantial financial turnaround was observed. The fiscal condition
of the states and their growing outstanding liabilities raise
concern about the future availability of such bailout packages to
DISCOMs, and these concerns will remain unless stricter actions are
taken to improve their operations and address the fundamental
issues.
The precarious financial health of DISCOMs poses a significant
risk to demand growth and new investments. IHS Markit assessed the
state-level success of the reform with respect to monitored
financial and operational parameters; further ranking the
performance of states based on their target achievements.
Figure 1: UDAY fails to deliver promised relief: Power sector
structural issues remain
The current financial stress in the distribution and thereby
generation segment is not likely to fade away early, and it is
expected to constrain market growth until meaningful reforms are
initiated. The key for early recovery remains the timely
implementation of these reforms and strong adherence by market
participants. Until that happens, India's power sector will
continue to face the structural challenges and players along the
value chain are unlikely to be given relief.
