Why the lights dimmed on UDAY

When it was launched in 2016, the Ujjwal DISCOM Assurance Yojana (or UDAY) was hailed as a game-changer for India’s power sector. Yet despite the hype, India’s power sector remains a mess. Less than 50% of rural households receive more than 12 hours of electricity supply, according to a 2018 study.

And state distribution companies or discoms — responsible for delivering electricity to households — are plagued with leakages, burdened with debt, and reeling under losses.

While financial losses of discoms have declined, they continue to incur huge losses. Indicative data from a Rajya Sabha reply shows that state electricity boards faced losses of around ₹27,250 crore as of 2018-19.

UDAY sought to instil financial discipline and restructure debt but the scheme has failed to tackle the underlying issues in the sector. Hindered by underpriced electricity, inadequate subsidy payments and long-term purchase agreements with generation companies, discoms continue to struggle in raising revenues.

At a time when Covid-19 threatens a global recession and bankruptcies are likely to mount, the failure of UDAY will only add to the stress on India’s public finances and financial system.

At the heart of India’s power sector malaise is the inability of discoms to deliver electricity efficiently. Leakages in transmission and non-recovery of billed amounts

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