Policy Update
Purbaa Jagannath
Background
For decades, the power distribution segment has been a weak financial link in the growing electricity system in India, leading to frequent losses that state governments are forced to dig into their accounts to meet through bailouts, debt takeovers, and subsidy support. The new scheme was launched by the Union Cabinet and Ministry of Power in July 2021 as the latest in a series of such schemes including Ujwal DISCOM Assurance Yojana (UDAY), Integrated Power Development Scheme (IPDS), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), and the Saubhagya household electrification scheme.
The total project cost of RDSS is ₹3,03,758 crore over five years, from FY 2021-22 to FY 2025-26, of which an estimated ₹97,631 crore was allocated as Gross Budgetary Support (GBS) from the Centre. Compared to its earlier iterations, which mainly released capital grants against physical works, RDSS linked Central support with measurable outcomes such as bringing down Aggregate Technical and Commercial (AT&C) losses to a pan-India band of 12-15 per cent, as well as closing of the gap between Average Cost of Supply (ACS) and Average Revenue Realised (ARR) initially targeted for FY 2024-25.
The scheme is at a turning point in FY 26-27. On the ground, it was originally scheduled to be down by 31 March 2026, but that has already passed, leading to the Ministry of Power asking for and getting a two-year extension until 31st March 2028. Meanwhile, the Union Budget for FY 2026-27 has substantially increased the annual allocation for the RDSS, while Parliament’s Standing Committee on Energy has pointed out that funds disbursed are much less than what has been sanctioned. This policy update takes a look at that funding impulse: What is it, what does it react to, and what does it not address?
Functioning
RDSS’s activities are carried out in two ways. Part A covers prepaid smart meters for consumers, system metering for distribution transformers (DTs) and feeders that will help to improve billing accuracy, reduce meter tampering, and provide accurate consumption data to the utility head end in real time. Distribution infrastructure works for loss reduction and modernisation are funded under Part B, such as feeder segregation, High Voltage Distribution System (HVDS) conversion in high-loss areas, and augmentation of substations. A less generous allocation is for training, capacity building, and other enabling activities.
Financial aid is tiered according to state classification. Central aid for infrastructure projects (apart from smart metering) could be up to 60 per cent of the project cost for “Other than Special Category” states, and up to 90 per cent for “Special Category” states, which include all eight north-eastern states, Himachal Pradesh, Uttarakhand and Jammu & Kashmir. The base amount for prepaid smart meters is ₹900 or 15 per cent of the per-meter cost (whichever is lower) for general category states and ₹1,350 or 22.5 per cent for special category states, besides time-bound incentives.
No funding is guaranteed. DISCOMs will first be considered against a set of pre-qualifying criteria, such as publishing audited accounts on time, paying subsidy dues to the state on time, prepaid metering of government offices, and promptly paying dues to power generating companies; then assessed on a Results Evaluation Matrix, which includes AT&C losses, the ACS-ARR gap, infrastructure upgrades, consumer service standards, and corporate governance. This matrix has an 80 per cent minimum threshold that must be met for a DISCOM to access funds for a particular year, and is designed to shift RDSS from being a capital-grant scheme to a reform-linked scheme.
Implementation is carried out by the nodal agencies such as the Power Finance Corporation (PFC) and REC Limited who are responsible for sanctioning projects, disbursing funds, and monitoring physical and financial progress. The scheme is monitored at the Central level by an Inter-Ministerial Monitoring Committee headed by the Secretary, Ministry of Power, and at the State level, a Distribution Reforms Committee headed by the Chief Secretary is supposed to monitor the implementation of the scheme, thus preventing the conditions of the scheme from becoming watered down at the implementation stage.
Performance
The Ministry of Power’s overall allocation in the FY 2026-27 Union Budget has been raised by 39 per cent from the revised estimate (RE) for FY 2025-26, with about 60 per cent of the allocation (or nearly ₹18,000 crore) dedicated to RDSS and its allied schemes. This is higher compared to the budgeted expenditure of around ₹16,021 crore for RDSS during FY 2025-26 and comes after a pre-Budget statement, which noted the DISCOMs’ financial trouble, an electricity sector debt of over ₹7 lakh crore, and the Electricity (Amendment) Bill, 2025 and draft National Electricity Policy 2026.
Figure 1: National AT&C losses have fallen sharply since RDSS began but have plateaued short of the scheme’s 12-15% target band. Source: Ministry of Power / Indian Smart Grid Forum, cited in Impressive Times (2025).
The headline physical target, however, tells a more uneven story. AT&C losses fell from 21.91 per cent in FY 2020-21 to 16.12 per cent in FY 2023-24, but progress has since stalled, with FY 2024-25 losses recorded at 16.16 per cent, still outside the scheme’s 12-15 per cent target band. The ACS-ARR gap has narrowed more sharply, from 48 paise per unit in FY 2023-24 to around 6 paise per unit by the end of FY 2025-26, though the original goal of eliminating the gap entirely by FY 2024-25 has not been met.
Smart meter deployment, the scheme’s most visible component, remains its weakest link on delivery. Against a sanctioned target of 20.33 crore meters (comprising 19.79 crore consumer meters, 52.53 lakh distribution transformer meters, and 2.05 lakh feeder meters) across 45 utilities in 28 states and Union Territories, only 3.90 crore meters had been installed under RDSS as of 31 December 2025. That figure rose to 5.73 crore by 30 June 2026 and approximately 6.00 crore, or about 29.5 per cent of the sanctioned target, by early August 2026.
Figure 2: Cumulative smart meter installations under RDSS remain well short of the sanctioned target even as deployment accelerates. Source: RDSS MIS Dashboard, Ministry of Power; Parliament replies, June-August 2026.
It is this mismatch between sanction and delivery which led the Ministry of Power to request for a two-year period of extension to RDSS in the coming years (FY 2027-28). The Standing Committee on Energy of the Parliament has been informed that “a lot of work remains to be done, particularly in the context of smart meters” and in another meeting, it has been informed that only approximately 25.3 per cent of the loss reduction infrastructure targets are met as of early 2025.
Similarly, fund utilisation reflects this – out of the total Central grant of around ₹1,20,750 crore allocated to the states together under RDSS and its subsumed schemes, only about ₹30,700 crore, or about 25 per cent, has been released as of August 2025.
Impact
The biggest improvement, rather than physical, is financial, and can be clearly attributed to RDSS. In FY 2024-25, the DISCOMs’ PAT stood at ₹2,701 crore, marking the first time in a decade that the entire sector has posted a Profit After Tax (PAT) figure. This positive performance was credited to factors such as lowering AT&C losses, implementing smart-metering billing systems, and enforcing stricter payment discipline under the Late Payment Surcharge Rules, 2022. Even if profits are relatively small, for a sector which had recorded losses of ₹5.45 lakh crore in FY 2020-21 and ₹6.92 lakh crore in FY 2023-24, it is a positive development.
But it’s not a structural improvement. The FY 2024-25 profit comes when accumulated losses of the DISCOMs, including Tamil Nadu’s TANGEDCO, amount to approximately ₹6.47 lakh crore, not just a result of operational turnarounds. National power subsidies stood at ₹2.62 Lakh Crore in 2025, reflecting that the government’s apparent stability in the sector continues to rely on ongoing fiscal transfers, and not on the AT&C-loss and ACS-ARR gains RDSS was supposed to achieve on its own.
The effects are most apparent for consumers, who are starting to see prepaid smart metering offerings come to the marketplace, where the billing cycle has been changed from periodic manual reading to real-time measurement, recharge, and low-balance notification via an application. On paper, RDSS’s larger contribution of 90 per cent for special category states, including all the north-eastern states, is a significant bargaining chip for state finances; whether it has correspondingly absorbed these is explored in the following section.
Emerging Issues
- With approximately 29.5 per cent of the sanctioned smart meters installed and approximately a quarter of the assigned Central grant distributed, the budget uplift in FY 2026-27 could be used to provide funding for a pipeline that has historically faced challenges to deliver sanctioned works within the evaluation cycle.
- Slow progress on smart-metering and loss-reduction implementation has already pushed RDSS’s originally planned closing date for the FY 2025-26 to the FY 2027-28. A bigger FY 2026-27 allocation after – not before – that extension also poses a sequencing challenge: Is performance-based funding getting on a realistic schedule or just simply keeping up with the ‘deadline drag’?
- Consumer resistance to smart meters: Reporting from across several states says it is difficult to explain the slow rollout of smart meters without considering consumer resistance as a factor, which isn’t directly a measure of the technology or it’s financing.
- The higher entitlements of the north-eastern and Himalayan states under RDSS, as compared to those of the other states, do not necessarily imply faster utilisation or completed infrastructure on the ground, as long observed elsewhere in the region, with state DISCOMs facing capacity constraints.
- The sector’s first profitable year in 10 years also comes amid a total DISCOM debt of over ₹7 lakh crore and the fact that state subsidies continue to play a vital role in the profitability of individual utilities, suggesting that the turnaround in FY25 may not necessarily signal its structural resilience, as originally planned.
- Compliance with the Digital Personal Data Protection Act and cyber-incident preparedness, with the help of CSIRT-Power and that of the sector, becomes a more integral part of operations than a side-gig as the millions of prepaid smart meters and Advanced Metering Infrastructure (AMI) systems come online.
Way Forward
- Make the funding increase for FY 2026-27 contingent on tangible progress on utilising the utilisation backlog, and not just on fresh sanctions – with the remaining ~75 per cent of already-assigned Central funding to be utilized before, or alongside, new allocations to the utilisation backlog.
- Give special category and north eastern states project-management and technical support to help bring their increased funding to the physical level, ensuring that the promise of a higher entitlement doesn’t become a paper target.
- Coordinate smart-meter deployments with continued, locally tailored consumer communications efforts to directly tackle issues related to billing transparency and privacy, not simply as a contractor or supply-chain issue.
- Monitor and report DISCOM financial results on basis of operations excluding inflow of subsidy; decisions on the disbursements should be based on the real performance in terms of increased efficiency resulting from the reform, and not merely on accounting profits.
- Include Data-security audit milestones in the scheme’s Results Evaluation Matrix to ensure that rather than being an add-on to the AMI expansion, there are verifiable Data-security safeguards.
Extend the timeline to FY 2027-28 intentionally with intermediate, public milestones to make it clear that the extension is to correct an overly aggressive original timeline and not to become an open-ended excuse to avoid accountability.
References
1. Business Standard. (2026, January 18). Aggregate Technical and Commercial losses of DISCOMs decline significantly says Power Ministry. https://www.business-standard.com
2. Dataful Insights. (2026, March 5). DISCOM finances improve with lower AT&C losses and stronger collections. https://insights.dataful.in/articles/discom-finances-improve-with-lower-atc-losses-and-stronger-collections
3. Genus Power. (2026, May 19). RDSS scheme: Key components, challenges & implementation guide. https://genuspower.com/understanding-the-rdss-scheme-key-components-and-implementation-challenges/
4. Impressive Times. (2025, December 8). Centre lists major initiatives to cut AT&C losses; national loss levels drop to 16.16% in FY25. https://impressivetimes.com
5. Mercom India. (2025, March 19). Two-year extension of Distribution Sector Reforms Program on the cards. https://www.mercomindia.com/two-year-extension-of-distribution-sector-reforms-program-on-the-cards
6. Norton Rose Fulbright. (2026, February 1). India’s Union Budget 2026: Key highlights in relation to India’s energy transition. https://www.nortonrosefulbright.com
7. Outlook Business. (2026, January 24). Budget 2026 expectations: Centre may raise RDSS allocation to ₹18,000 Cr as discom stress persists. https://www.outlookbusiness.com
8. Power Finance Corporation / REC Limited. (2026). Revamped Distribution Sector Scheme: Scheme guidelines and financial assistance norms. https://recindia.nic.in/revamped-distribution-sector-scheme
9. PRS Legislative Research. (2026). Demand for Grants 2026-27 analysis: Power and New & Renewable Energy. https://prsindia.org/budgets/parliament/demand-for-grants-2026-27-analysis-power-and-new-renewable-energy
10. Press Information Bureau. (2025). Progress on smart meter installation under RDSS. Ministry of Power, Government of India. https://www.pib.gov.in
11. Samco. (2026, February 2). Power and renewables budget allocations in line: Union Budget 2026-27 insights. https://www.samco.in
12. The Secretariat. (2026, March 18). At just 25.4% completion, India’s ambitious smart meter installation drive moves at a snail’s pace. https://thesecretariat.in
13. The Secretariat. (2026, August). Smart meter mission loses momentum as installation targets slip. https://thesecretariat.in/article/smart-meter-mission-loses-momentum-as-installation-targets-slip
14. TND India. (2025, August 14). Over Rs.30,000 crore grant released under RDSS so far. https://www.tndindia.com
15. TND India. (2026, August 6). India’s smart meter population at 7.24 crore: Parliament. https://www.tndindia.com/indias-smart-meter-population-at-7-24-crore-parliament/
16. Uttam Gupta. (2025, March 26). The ailing discoms need structural changes. https://www.uttamgupta.com
About the Contributor
Purbaa Jagannath is an intern with IMPRI, currently pursuing her master’s in Social Work at Tata Institute of Social Sciences, Mumbai. Her research interests lie in social science, governance, and social issues.
Acknowledgements
The author extends sincere gratitude to the IMPRI team for their guidance and support along with the reviewers Shivali Yadav and Ayan Bordoloi for their valuable feedback and insights.
Disclaimer:
All views expressed in the article belong solely to the author and not necessarily to the organization
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