The report notes that power procurement accounts for more than 70 per cent of DISCOM’s expenditure. It identifies poor planning, fuel price volatility and cost-plus generation as key contributors to rising costs. While these observations are valid, they do not fully explain why such inefficiencies persist.
What the evidence establishes
The continued dominance of long-term cost-plus contracts, frequent project delays and tolerance for capital cost escalation suggest institutional arrangements that protect inefficiency rather than correct it. Cost-plus regulation guarantees return to generators regardless of planning quality or execution discipline. Delays in project completion inflate capital costs, which then justify higher tariffs under regulatory frameworks. The resulting burden is ultimately passed on to DISCOMs and eventually to consumers or state budgets. What is described as high procurement cost is, therefore, often the systemic transfer of inefficiency embedded in regulatory design and sustained by political convenience.
Tariffs and the problem of cost pass-through
To reduce revenue gaps and interest burdens, the report advocates predictable, inflation-linked tariff revisions. From a financial standpoint, this recommendation is persuasive. However, tariff increases without parallel improvements in procurement efficiency and governance puts the pressure on consumers to absorb the cost of institutional failure. Electricity tariffs are not merely economic prices; they are instruments of public policy. When upstream inefficiencies remain unaddressed, then routine tariff escalation legitimises poor governance rather than correcting it.
Limits of accounting solutions
Another key recommendation is the restructuring of accumulated DISCOM liabilities through state-issued long-term bonds. As a balance-sheet intervention, such a move may offer temporary financial relief. Yet, India’s experience with previous restructuring programmes, most notably UDAY, demonstrates the limits of accounting solutions. Transferring liabilities from DISCOMs to state balance sheets reduces immediate interest burdens but does little to change the incentives that generate losses. Without reforms in procurement governance, managerial accountability and regulatory discipline, financial restructuring merely postpones the problem.
Central support and fiscal opacity
The report also highlights outstanding dues from central government departments and urban local bodies as a major contributor to liquidity stress. This is less a problem of collection than of structural design. Public agencies that depend heavily on government grants cannot realistically function as disciplined commercial consumers. Billing one financially constrained public entity while waiting for payment from another simply creates a circular accumulation of arrears. A more durable solution lies in encouraging energy self-sufficiency in public infrastructure through decentralised renewable sources.
Reframing the crisis
Ultimately, the report provides a credible technical diagnosis of DISCOM distress. But its own evidence suggests that the crisis persists not because markets have failed, but because governance systems have failed to align incentives, accountability and decision-making. Where markets have been allowed to function, most notably in renewable energy, prices have fallen, investment has flowed and consumers have adapted. India’s repeated cycles of debt restructuring and tariff adjustments reflect a reluctance to confront deeper institutional issues. Without addressing procurement inefficiency, regulatory tolerance of cost escalation and political interference in utility operations, a lasting reform cannot be delivered.
The author is Dr Chandrakant Kamble Retired IAS Officer.
