The poor financial health of India’s power distribution companies (DISCOMs) is deemed to be the weakest link in the Indian power sector and a huge headache for project developers. It is not just critical for the revival of the power sector but also for the health of public sector banks. Recent estimates by CRISIL suggest that poor progress on tariff reforms and high AT&C losses have cost led to accumulated DISCOM losses of INR 3.75 trillion (USD 56 billion). To put this in perspective: this is equivalent to around 2.7% of India’s GDP.
- Central government wants states to issue bonds for raising funds at 8.5-9% to refinance power firms’ current high-cost loans (13-14%)
- In return for reforms, central government will offer funds from schemes such as the Integrated Power Development System and Deen Dayal Upadhyaya Gram Jyoti Yojana
- The long term growth prospects of the solar sector are contingent upon the financial health of the DISCOMs