The Indian government is actively considering a sweeping reform and bailout package exceeding ₹1 trillion (approximately $12 billion), aimed at stabilizing the nation’s heavily indebted State-run power distribution companies (Discoms). This initiative represents one of the most substantial attempts by the current administration to fix the chronically underperforming distribution sector, widely regarded as the weakest component of India’s energy infrastructure.

The core of the plan involves mandatory reforms tied to the financial assistance, focusing on privatization or stock exchange listing to improve efficiency.

Key Requirements and Options for States

To qualify for the bailout funds, State governments must implement significant structural changes to their electricity utilities, according to a Power Ministry document:

• Mandatory Private Supply: At least 20% of a State’s total power consumption must be sourced from private companies.
• Debt Assumption: States will be required to take over a portion of their utility’s existing debt load.

The plan offers two primary pathways for States to privatize their distribution operations and access financial relief:

1. Majority Divestment (51%): States can establish a new distribution company and divest at least 51% equity. This option grants access to a 50-year interest-free loan to clear the privatized company’s debt, along with Central government loans at low interest for five years.
2. Minority Divestment (26%): States can privatize up to 26% equity of an existing Discom, which provides access to low-interest Central government loans for five years.

Alternative to Privatization

For States that choose not to transfer managerial control through privatization, a different reform path is mandated:

• Stock Exchange Listing: State-owned utilities must be listed on a recognized stock exchange within three years.
• Benefits: This option would still allow States to receive low-interest Central government loans, earmarked for infrastructure management and improvement.

The Scale of the Crisis

The need for this massive intervention is clear:

• As of March 2024, State power retailers had accumulated losses totaling ₹7.08 trillion ($80.6 billion) and outstanding debt of ₹7.42 trillion ($84.4 billion).
• The financial strain persists despite three previous Central government bailouts over the past two decades. Discoms struggle to recover costs largely due to heavily subsidized tariffs, resulting in operational inefficiencies.

The reform drive is expected to benefit private sector players—including Adani Power, Reliance Power, Tata Power, CESC, and Torrent Power—who are likely to acquire stakes in the State-run companies. However, past privatization attempts have often faced strong resistance from utility employees and opposition parties, indicating that the new proposal will require significant political resolve to implement successfully.