GST Reforms May Ease Financial Pressure on Power Discoms

India's state-run power distribution companies, known as discoms, could see some financial relief from recent GST reforms, according to a report by ratings agency ICRA.

In the report released Tuesday, ICRA said that while discoms have planned a 1.9% tariff increase for the financial year 2025-26 (FY26), it’s not enough to cover their debt and costs. However, upcoming changes in GST rates on coal may help reduce their burden.

At present, there’s a gap of 46 paise per unit between the average cost of supplying power and the revenue discoms earn. To close this gap, discoms need to raise tariffs by 4.5% and cut down on technical and commercial losses, the report said.

India’s regulatory assets — unpaid dues or losses from low tariffs — now stand at a massive ?3 lakh crore.

One major reform expected to help is the increase in GST on coal from 5% to 18%, along with the removal of the ?400 per tonne compensation cess. While this seems like a price hike, it will actually reduce the final power generation cost, since power producers can now claim full tax credits.

According to ICRA, this move could lower discoms’ cost by about 12 paise per unit, especially because over 70% of India’s electricity comes from coal-based plants.

The Supreme Court has also ordered all State Electricity Regulatory Commissions (SERCs) to clear old unpaid dues within four years, and to limit future unpaid tariff gaps to 3% of yearly revenue.

To follow this order, discoms will need to raise tariffs significantly and reduce losses to under 15%. ICRA noted that states like Tamil Nadu, Uttar Pradesh, and Rajasthan are responsible for most of these unpaid dues.

However, a key challenge remains: the Fuel and Power Purchase Adjustment Surcharge (FPPAS), which allows discoms to pass on cost increases, is not applied consistently across states.

The Appellate Tribunal for Electricity (APTEL) has been tasked with monitoring how well the states follow the court’s directive.