Key reforms mandated by the Electricity Act have not been implemented, corporatisation has been unable to shield utilities from state interference, regulators have not pushed utilities to improve performance and mounting regulatory assets have increased the discoms’ cash-flow problems, said the report More power to India: The challenge of distribution.

The report said, “Indian sector losses were Rs 1.46 lakh crore in 2011, more than twice in 2003. Losses grew at a compound annual growth of nine per cent from 2003.” Total sector debt grew to Rs 3.5 lakh crore in 2011, equal to five per cent of India’s gross domestic product (GDP).

According to the World Bank, the problem of utility finance arose because discoms face pressure to provide below-cost power to agriculture and rural residential consumers for which they are reimbursed through subsidies. The report said, “Currently, 37 per cent of subsidies booked by the state utilities are not paid to these. The gap between subsidy booked and received has increased to Rs 46,600 crore for 2003-11.”

The study said the opportunity cost of Budget support to the sector is high as 15,000 hospitals and 123,000 schools could have been developed in 2011 if the sector had got funds. It added losses related to implementation of the Rajiv Gandhi Grameen Vidyutikaran Yojana strained the finances of discoms.