Government Considers Significant Boost to Power Distribution Scheme in Upcoming Budget
New Delhi: The central government is reportedly planning a substantial increase in funding for the Revamped Distribution Sector Scheme (RDSS) in the forthcoming fiscal year 2026-27 budget. According to informed sources, the allocation may be raised to approximately ₹18,000 crore, marking a significant step in the ongoing efforts to revitalize India's power distribution infrastructure.
Budgetary Enhancement for Accelerated Implementation
The proposed increase represents a notable jump from the current financial year's allocation of around ₹16,000 crore for FY26. This budgetary enhancement comes at a crucial time as the installation of smart meters gains momentum across the country. Currently, about 1.5 lakh smart meters are being installed monthly, creating a pressing need for additional financial resources to maintain this pace.
"The power ministry has proposed an allocation of about ₹18,000 crore for RDSS which is under consideration," revealed one of the sources familiar with the matter. "With smart meter installation gaining pace, funds need to increase to sustain this momentum." Both individuals spoke on condition of anonymity, highlighting the sensitive nature of budget discussions.
Addressing Discom Financial Challenges
The increased allocation comes against the backdrop of persistent financial strain on power distribution companies (discoms), which continue to grapple with cumulative debt exceeding ₹7 trillion. Despite multiple government initiatives over the years, including the Ujjwal Discom Assurance Yojana (UDAY) launched in 2015 and the proposed Electricity Amendment Bill, 2025, discoms have struggled to achieve sustainable financial health.
Industry experts emphasize that higher funding is essential for accelerating smart meter deployment and ensuring adequate capital availability. Smart meters represent a technological leap in electricity management, offering numerous benefits:
- Improved billing accuracy and reduced errors
- Enhanced capability to curb power theft
- Reduction in aggregate technical and commercial losses
- Strengthened financial position for discoms through real-time monitoring
- Implementation of prepaid billing systems
Expert Perspectives on Funding Requirements
"Higher allocation directly addresses key constraints in smart meter implementation, particularly capital availability," explained Vinit Mishra, Partner for Technology Consulting at EY India. "Adequate funding improves the confidence of advanced metering infrastructure service providers as it enables timely release of payments by discoms, thereby reducing execution and financial risk."
Mishra further elaborated that sufficient funding allows discoms to support crucial aspects of implementation including change management, capacity building, training programs, and investment in associated IT applications such as data analytics platforms. These capabilities enable discoms to effectively leverage smart metering data and generate actionable insights for operational and financial improvement.
Scheme Extension and Implementation Progress
The RDSS, originally launched in 2021 with a cumulative outlay of ₹3 trillion, has been extended until FY28 due to slower-than-expected progress in smart meter installation. The scheme aims to install 250 million smart meters nationwide, but as of current data from the National Smart Grid Mission, only 52.8 million have been installed so far. However, contracts have been awarded for approximately 150 million additional smart meters.
Jitendra Kumar Agarwal, Joint Managing Director of Genus Power Infrastructure, highlighted the transformative potential of this initiative: "The smart metering journey has reached a decisive inflection point and is beginning to fundamentally reform India's power distribution sector. We are already seeing an uptick in billing efficiency and distribution efficiency across utilities."
Policy Context and Parliamentary Considerations
The budget proposal coincides with several major policy developments in the power sector. The government has prepared a draft National Electricity Policy 2026 that proposes comprehensive reform measures including mandatory tariff revision and introduction of an index-based automatic annual tariff adjustment mechanism. Additionally, a group of ministers has suggested incentivizing privatization of discoms to improve their financial viability.
These developments are expected to feature prominently during the upcoming Parliament budget session scheduled from 28 January to 2 April. The Electricity Amendment Bill, 2025 is likely to be tabled during this session, proposing reforms such as greater competition in power distribution, stricter performance norms for discoms, and enhanced consumer choice.
Performance Metrics and Financial Turnaround
Recent data reveals encouraging signs of improvement in the power distribution sector. For the first time in over a decade, discoms have returned to cumulative profitability, reporting a net profit of approximately ₹2,701 crore in FY25 compared to a loss of ₹25,553 crore in FY24. The power ministry attributes this recovery to reform measures including the RDSS program.
The scheme also aims to reduce aggregate technical and commercial losses to pan-India levels of 12-15% by 2024-25. While this specific deadline hasn't been met, losses have decreased significantly from 17.6% in FY24 to 15.04% in FY25. Similarly, the gap between average cost of supply and average revenue realized has narrowed substantially from 48 paise per unit in FY24 to just 6 paise in FY25.
Historical Context and Future Outlook
The RDSS represents the latest in a series of government initiatives aimed at reviving discoms, following earlier programs such as the Accelerated Power Development and Reform Programme and UDAY. The scheme was introduced as the government pushed for universal household electrification, succeeding programs like Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) and Deen Dayal Upadhyaya Gram Jyoti Yojana which concluded in 2022.
As budget discussions continue, the final allocation for RDSS will be determined closer to the presentation date of 1 February. Queries sent to the Union ministries of power and finance regarding the proposed increase remained unanswered at the time of reporting. The government's decision will significantly influence the pace of power sector reforms and the financial recovery of distribution companies across India.
