Power distribution reform scheme may get ₹18,000 crore in FY27 budget

New Delhi: The government may increase the annual allocation for the Revamped Distribution Sector Scheme (RDSS) to ₹18,000 crore in the FY27 budget, scheduled to be presented on 1 February, according to two people aware of the matter.

The scheme, launched in 2021, aims to transform the power distribution sector in the country by making it more efficient and financially sustainable.

"This year, the power ministry has proposed an allocation of about ₹18,000 crore for RDSS which is under consideration. The smart meter installation is gaining pace and about 1.5 lakh meters are installed monthly. With this momentum in place, funds need to increase," said the first of the two persons cited earlier, both of whom spoke on the condition of anonymity.

For the current financial year ending 31 March (FY26), the scheme was allocated around ₹16,000 crore. The proposed increase comes as power distribution companies (discoms) remain under strain, saddled with cumulative debt of over ₹7 trillion, despite multiple government efforts to bolster their financial health. These initiatives include Ujjwal Discom Assurance Yojana (UDAY) that was launched in 2015, and the proposed Electricity Amendment Bill, 2025, which aims to introduce reforms such as greater competition in power distribution, stricter performance norms for discoms, and greater consumer choice.

The bill is likely to be tabled during Parliament’s budget session that begins on 28 January and runs until 2 April.

Also, a group of ministers on financial viability of discoms has proposed to incentivize privatization of discoms. The power ministry on Wednesday came up with a draft National Electricity Policy 2026, which proposes a slew of reform measures including mandatory tariff revision and introduction of an index-based automatic annual tariff revision.

To be sure, the government takes a final call on several budget proposals closer to the budget presentation date. Queries emailed to the Union ministries of power and finance remained unanswered till press time.

Experts suggest that higher allocation is required to ensure accelerated installation of smart meters, and availability of capital. Smart meters are digital electricity meters that automatically measure, record and transmit power consumption data between consumers and discoms. They improve billing accuracy, curb power theft, reduce aggregate technical & commercial (AT&C) losses and shore up finances of discoms by enabling real-time monitoring and prepaid billing.

"Higher allocation directly addresses key constraints in smart meter implementation, particularly capital availability. Adequate funding improves the confidence of AMISPs (advanced metering infrastructure service provider), as it enables a timely release of payments (grant portion) by discoms, thereby reducing execution and financial risk," said Vinit Mishra, partner, technology consulting at EY India. "Sufficient funding also allows discoms to support change management, capacity building, and training, as well as to invest in associated IT applications related to smart metering, such as data analytics platforms," Mishra said, adding that these capabilities enable discoms to effectively leverage smart metering data and generate actionable insights for operational and financial improvement.

The government had introduced the scheme as it pushed for universal household electrification. Two earlier programmes for electrification -- Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) and Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) -- had ended in 2022. Over the years, Centre has come up with a number of initiatives for revival of discoms including the Accelerated Power Development and Reform Programme (APDRP) and Ujjwal Discom Assurance Yojana (UDAY) which were in effect before the ongoing RDSS.

In March last year, Parliament’s standing committee on energy raised concerns over underachievement in the rollout of smart meters under the flagship scheme to revive the power distribution sector and expand electrification, warning that the shortfall had contributed to rising losses at discoms.

In its report on demands for grants for the power ministry, the panel had noted that out of the total of ₹30,065 crore allocated for RDSS during the first four years of the scheme—FY22 to FY25—about ₹25,664 crore had been utilized as of 10 February, 2025. India's installation of 250 million smart meters is expected to require a cumulative investment of $30 billion.

The scheme’s ₹3 trillion outlay includes expenditure by the Centre and states, besides financing from state-owned power sector lenders like Power Finance Corp and REC Ltd. The Centre alone plans to spend a total of over ₹97,000 crore on the scheme.

The power ministry recently said that after over a decade, the discoms in the country have returned to profits on a cumulative basis. For FY25, the discoms reported a net profit of about ₹2,701 crore, compared to a loss of ₹25,553 crore in FY24.

The ministry, in its statement, attributed this recovery to the reform measures including the RDSS programme.

Jitendra Kumar Agarwal, joint managing director of Genus Power Infrastructure, a smart meter manufacturer and service provider, said: “The smart metering journey has reached a decisive inflection point and is beginning to fundamentally reform India’s power distribution sector. The return of discoms to profitability is a strong signal, and initiatives such as the RDSS, along with the adoption of smart meters, have played a crucial role in driving this turnaround."

"We are already seeing an uptick in billing efficiency, and distribution efficiency across utilities, and this is just the tip of the iceberg. We have only touched upon, I would say, a small portion of the India’s total consumer base, and as deployment scales further, the impact on operational efficiency, financial stability, and consumer trust will only deepen significantly,” he added.

The RDSS scheme also aims to reduce AT&C losses to pan-India levels of 12-15% by 2024-25. Although the deadline for bringing the AT&C losses to targeted levels could not be met, the losses in FY25 stood at 15.04%, compared to 17.6% in FY24, according to recent power ministry data.

Similarly, the target of eliminating the gap between the average cost of supply and average revenue realized (ACS–ARR) by FY25 has not been met. As of the end of the last fiscal, the gap had narrowed to 6 paise per unit, from 48 paise in FY24.