LUCKNOW: Faculty of Indian Institute of Management Lucknow have conducted a research study exploring the effectiveness of Ujwal DISCOM Assurance Yojana (UDAY), one of India’s major policy interventions in the power sector. The study specifically assesses whether the debt restructuring through the UDAY Programme, which included transferring a major portion of power distributing companies’ (DISCOMs) debt to state governments and issuing state-backed bonds, helped in reducing financial stress, enhancing operational efficiency, and overall profitability of power distributing companies in India. The study also provides insights on the implications of such a debt transfer mechanism on long-term financial discipline.
The findings of this research have been published in the prestigious Energy Policy journal, in a paper co-authored by Prof. D. Tripati Rao, Senior Professor, along with Prof. Himadri Shekhar Chakrabarty, Assistant ̌̌Professor, and Mr. Pratik Biswas, Research scholar, from IIM Lucknow.
To check how UDAY implementation impacted DISCOMs, the research team used Difference-in-Difference (DiD) model to evaluate the before and after effects. The model provided compelling insights on significant improvement recorded in key financial indicators.
Key findings include:
- Decline in total debt and secured debt among state-owned DISCOMs recorded following UDAY. This finding shows that the transfer of liabilities to state governments achieved the intended reduction in debt burden carried on DISCOMs.
- Rise in profitability and stabilisation of cash flows observed after the policy’s debt-transfer provisions. This indicates that DISCOMs were better positioned to manage recurring expenditures and reduce dependence on high-cost borrowings.
- Older and larger DISCOMs have benefited more substantially from UDAY than their younger and smaller counterparts, suggesting organisational size, infrastructure and resources might have influenced the improvements witnessed under the scheme.
Highlighting the key findings of the study, Prof. D. Tripati Rao, said, “The Ujwal DISCOM Assurance (UDAY) Yojana stands out as a case-in-point of a successful policy intervention in an important sector of power distribution to households insofar as breaking the cycle of unsustainable borrowing through debt restructuring; subject to state government’s fiscal leeway and operational capacity. However, UDAY should not be viewed as a magical wand. In fact, the key is to comprehensively address the structural inefficiencies that perpetuate financial distress of DISCOMs such as, a revamp and upgradation of distribution infrastructure through grid digitalization, tapping into renewable sources of energy and improved energy storage systems with greater private sector participation. Further, the future reforms should focus on cost-reflective tariffs, regulatory oversight, and operational accountability. Policymakers must prioritize incentivizing DISCOMs to improve operational efficiency and align with renewable energy goals, reducing their dependence on central government interventions.”
The research study conducted by IIM Lucknow Faculty significantly contributes to the ongoing national debate around the nature of power-sector reforms in India. The detailed assessment of post-UDAY financial metrics conducted by the research team highlights the success of debt restructuring in revitalising the power sector. Additionally, it underscores the need to build on current gains to ensure continued financial sustainability and operational effectiveness across the sector. While UDAY addressed immediate financial pressures, the study emphasises that deeper structural reforms continue to be essential for ensuring the DISCOMS do not face operational inefficiencies again.
By demonstrating that UDAY has played a significant role in stabilising DISCOM finances and reducing interest burdens, the study acts as a roadmap to address persistent financial stress in India’s power distribution ecosystem.
